Recent Connecticut Settlements Highlight Common Misunderstandings of the Federal Exclusion List and What Activities Fall Under Its Broad Scope

Two practices in Connecticut recently settled large six-figure lawsuits with federal and state agencies resolving allegations of improperly employing an individual who was excluded from all federal healthcare programs. In both instances, the individual excluded from federal health care program was not providing directed services to patients but was employed in a clinical director role. A portion of the proceeds and reimbursements from the federal health care programs, Medicare, Medicaid, and Tricare, were used to pay the salary and benefits of the excluded individual at the practice.

The U.S. Department of Health and Human Services, Office of the Inspector General (“HHS OIG”) is required by law to exclude from participation in all federal health care programs individuals and entities convicted of certain types of criminal offenses such as Medicare or Medicaid fraud, patient abuse or neglect, felony convictions relating to unlawful manufacture, distribution, prescription, or dispensing of controlled substances, and other specified offenses.

Additionally, the HHS OIG may, in its discretion, exclude individuals and entities from participation in federal healthcare programs on various grounds, such as, but not limited to, misdemeanor convictions related to health care fraud, suspension, revocation, or surrender of a license to provide health care for reasons bearing on professional competence, professional performance, financial integrity, or defaulting on a health education loan or scholarship obligations.

Following exclusion of an individual or entity by the HHS OIG from federal health care programs, no program payments may be made for items or services furnished by that excluded individual or entity. The primary effect of an HHS OIG exclusion is that no federal health care program payment may be made for any items or services furnished (1) by an excluded person or (2) at the medical direction or on the prescription of an excluded person. A federal health care program is defined to include Medicare, Medicaid, and all other federal plans and programs that provide health benefits funded directly or indirectly by the United States (other than the Federal Employees Health Benefits Plan).

However, the prohibition on federal health care program payment for items or services furnished by an excluded individual includes items and services beyond direct patient care.  These prohibitions also prevent excluded individuals from reimbursement for administrative and management services, even if not separately billable, that are payable by any federal healthcare program. 

For example, an excluded individual who works for a hospital, nursing home, home health agency, or managed care entity, and who is responsible for the preparation of surgical trays or review of treatment plans, would not be eligible to be reimbursed regardless of whether such services are separately billable or included in a bundled payment. These additional effects of exclusion are outlined in the original and 2013 Updated Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Programs.

Furthermore, while there is a general prohibition on employing HHS OIG excluded providers when receiving reimbursement from federal healthcare programs, the Special Advisory Bulletin also includes guidance to health care providers who might employ or contract with an excluded individual or entity regarding their liability. Avoiding potential liability requires strict adherence to HHS OIG guidance regarding employment of an HHS OIG Excluded individual or entity.

The Balanced Budget Act (“BBA”) of 1997 authorizes the imposition of civil monetary penalties against providers that employ or enter into contracts with excluded persons to provide items or services payable by federal health care programs. This authority parallels the penalties for health maintenance organizations that employ or contract with excluded individuals.

The risk of potential penalties and liability is greatest for those persons that provide items or services integral to the provision of patient care because it is more likely that such items or services are payable by the federal health care programs. For example, if a supervising provider to an incidental billing is an HHS OIG-excluded provider, then all the services performed under their supervision would be ineligible for reimbursement through federal healthcare programs regardless of the good standing of the rendering provider.   

This prohibition extends beyond providers and applies to other staff and employees of the practice, as well, so administrative tasks integral to patient care performed by an excluded individual can also subject a practice to liability, regardless of whether the HHS OIG-excluded individual is involved in direct patient care. 

While the resolution of an HHS OIG-excluded providers’ or employees’ role at a specific practice may seem innocuous and a low-risk issue, the potential liability can result in the imposition of severe civil monetary penalties that can significantly impact the viability of a practice. Moreover, the practice’s participation in federal and state healthcare programs is at risk. 

For practices, it is imperative that proper vetting of new hires and routine checks of the HHS OIG’s Exclusion List is performed so as to prevent the accidental commingling of federal healthcare program patients and funds being used to compensate an excluded individual.

For healthcare professionals, before entering into any settlement agreement with a federal or state agency, or plea agreement with a federal or state prosecutor, every precaution must be taken to avoid being placed on the Exclusion List.  This also stands true for providers who are facing discipline and potential suspension of their license from state licensing boards.  Without proper guidance from an experienced healthcare attorney, a licensed professional could end up unemployable in their area of expertise for years.

Frier Levitt regularly advises healthcare professionals and practices concerning the impact of the myriad of regulations from State and Federal Healthcare Programs, including how to deal with HHS OIG’s Exclusion List. Contact us if you are a healthcare provider or practice that has concerns regarding the HHS OIG Exclusion List’s impact on your license or practice.