On Jan. 12, 2017, the Office of Inspector General of the U.S. Department of Health and Human Services issued the third and final installment of its recent three-part rulemaking effort — a final rule updating its exclusion regulations, 82 Fed. Reg. 4100 (Jan. 12, 2017). This final rule follows two others that were published in December updating the OIG’s civil monetary penalty (CMP) regulations, 81 Fed. Reg. 88,334 (Dec. 7, 2016), and safe harbors under the anti-kickback statute and beneficiary inducement prohibitions, 81 Fed. Reg. 88,368 (Dec. 7, 2016).
The final rule codifies the OIG’s expanded authority to impose exclusions under the Affordable Care Act and the Medicare Prescription Drug, Improvement and Modernization Act of 2003, including discretionary exclusions for obstructing an audit and for making false statements, omissions, or misrepresentations in an enrollment or similar application to participate in a Federal health care program.
The final rule notices an effective date of Feb. 13, 2017. However, on Jan. 20, 2017, the new administration postponed for 60 days the effective date of all federal regulations that have not yet taken effect. Although agencies may propose additional rulemaking, for regulations that “raise no substantial questions of law or policy,” agencies are not required to take any additional action. Thus, this rule will likely take effect following the 60-day freeze, which ends on March 21, 2017.
The effect of exclusion is far-reaching. Until an individual or entity that has been excluded is reinstated into the federal health care programs, no payment will be made by Medicare, including Medicare Advantage and Prescription Drug Plans, Medicaid or any other federal health care program for any item or service furnished, on or after the effective date. Additionally, private payers frequently refuse to contract with excluded persons.
Although the majority of exclusion are derivative of other actions (such as convictions or licensure actions), exclusions can be pursued affirmatively and initiated by the OIG, often by the OIG’s recently established (2015) administrative litigation team.
Like the two rules before it, this final rule provides important guidance on the OIG’s administrative enforcement authorities and expands and clarifies existing provisions, including aggravating and mitigating factors used to determine the length of exclusions.
Before discussing the new provisions, the following is a brief overview of the OIG’s exclusion authorities. The majority of the OIG’s exclusion authorities are set forth in Section 1128 of the Social Security Act, 42 U.S.C. 1320a–7, and are implemented by regulations at 42 C.F.R. part 1001.
Mandatory Exclusions: There are four mandatory authorities and nearly 20 permissive exclusion authorities. As the name suggests, mandatory exclusions must be imposed by the OIG when individuals or entities (persons) are convicted of crimes related to certain conduct, namely: (1) misdemeanor or felony convictions related to the federal health care programs; (2) misdemeanor or felony convictions relating to patient abuse in connection with the delivery of a health care item or service; (3) felony convictions relating to health care fraud (i.e., relating to fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct); and (4) felony conviction relating to the unlawful manufacture, distribution, prescription or dispensing of a controlled substance.
Permissive Exclusions: Sixteen permissive exclusions are listed in Section 1128 and a handful of others can be found in other sections of the Social Security Act. The OIG has discretion as to whether to pursue an exclusion under its permissive authorities.
Convictions and Enforcement Actions Lead to Derivative Exclusions: Even when it is not required to do so, the OIG is likely to exclude a person who has been convicted of a crime or when another government agency, such as a state medical board, has taken action. These derivative exclusion actions are easy for the OIG to impose and defend, making them an efficient way to protect the programs.
Definition of a Conviction: Because a large number of derivative exclusions, whether mandatory or permissive, are based on convictions, it is worth noting that the term “conviction” is broadly defined in the statute at 1128(i), 42 U.S.C. 1320a–7(i). The term includes convictions where conviction or other records have been expunged, pleas of nolo contendere, findings of guilt by a court, and participation in deferred adjudication and similar arrangements where judgment of conviction has been withheld.
Length of Exclusion: Base exclusion periods for the most frequently used exclusion authorities, including those based on convictions or licensure actions, are set forth in the exclusion statute at 1128(c)(3), 42 U.S.C. 1320a–7(c)(3). Mandatory exclusions must be, at a minimum, five years. Permissive exclusions based on convictions have a base period of three years. Permissive exclusions based on licensure or state actions are coterminous with the underlying state sanction. The OIG uses aggravating and mitigating factors to adjust the period of exclusion, but not below five years for mandatory exclusions.
In the final rule, the OIG adopted the majority of the provisions included in its proposed rule, 79 Fed. Reg. 26,810 (May 9, 2014), but revised some of its proposals, generally in response to public comment. Like the OIG’s other recent rulemakings, this final rule offers insight into how the OIG may use its exclusion authorities as key components of its administrative enforcement efforts.
The final rule:
Enrollment Exclusions Merit Oral Argument: For the newly added exclusion authority for false statements in an enrollment application, the OIG finalized its proposal to allow the presentation of oral argument to an OIG official before the exclusion is imposed, which is consistent with its practice in exclusion actions brought under Section 1001.701 or Section 1001.801, two other exclusions that also are not based on a conviction or other official action and go into effect within 20 days if not contested and prior to an administrative law judge hearing.
Early Reinstatement for License Revocations: The OIG also finalized its proposed process for early reinstatement, which, when certain conditions are met, is available to those that have been excluded based on the loss of a health care license that has not been reinstated. Normally, a person who is excluded due to a loss of license may not be considered for reinstatement until the person has regained the license in the state where it was originally revoked. Historically, that requirement has led to much longer periods of exclusion for persons subject to licensure actions than those who have been convicted of a crime, including convictions mandating exclusion. However, the OIG decided to prohibit persons who lost their licenses for reasons related to abuse or neglect from applying for early reinstatement.
Aggravating Factors: In keeping with changes made in its two final rules issued in December, the OIG raised the dollar amount for the aggravating factors related to financial loss from $5,000 and $1,500 to $50,000. The OIG initially proposed to raise the threshold only to $15,000. This change to $50,000 keeps the financial loss aggravating factors consistent among the OIG’s various authorities with one important exception. For exclusions under Section 1128(b)(6) of the act, 42 U.S.C. 1320a–7(b)(6), the OIG retained its proposed $15,000 threshold because those exclusions are based on unnecessary or substandard care, not convictions.
Statute of Limitations: The OIG scrapped its proposal to implement its position that there is no time limitation to exclusions imposed under Section 1128(b)(7) of the act. Many commenters objected to the OIG’s interpretation that no statute of limitations exists for such exclusions. Some argued that even when a statute is silent on periods of limitations, courts often apply some period of limitation. Other commenters noted the administrative burden this would place on providers because they would be required to retain documentation relevant to OIG authorities indefinitely. In the final rule, the OIG adopted a 10-year period, which it notes is grounded in the False Claims Act’s period of limitations, and which it believes will provide certainty to the industry while preserving the OIG’s ability to protect federal health care programs and beneficiaries from untrustworthy persons identified in FCA cases or otherwise.
Convictions Related to Controlled Substances: The OIG also decided against a proposed limit on its exclusion authority for convictions related to controlled substances. The OIG had proposed to limit the exclusion to those who were convicted for conduct that occurred during a time when they were employed in the health care industry. The OIG was persuaded to make the change based on comments noting that the proposal would not protect beneficiaries from those who leave the health care industry before committing a crime but then re-enter the industry shortly thereafter. The OIG also decided not to remove aggravating and mitigating factors associated with the exclusion authority or the exclusion authority related to exclusion from a state health care program.
Ownership and Control Interest in Sanctioned Entities: Several commenters complained that the proposed rule’s language for the exclusion of individuals with ownership or control interest in sanctioned entities exceeded the OIG’s statutory authority. The OIG modified the regulatory text to clarify that in cases where the sanctioned entity has been excluded, the individual’s exclusion will remain in effect for as long as the term of the entity’s exclusion. 82 Fed. Reg. at 4106.
This final rule shows that the OIG continues to evaluate and update its enforcement authorities with an eye toward increased affirmative enforcement actions but that it is also willing to make practical changes to its enforcement policies.
The final rule, and the underlying exclusion regulations, should be reviewed closely by any individuals or entities that are facing enforcement actions that, depending upon characterization of the underlying conduct, may give rise to mandatory or permissive exclusions. The "Health Care Fraud and Abuse Control Program Annual Report" for fiscal year 2016 (released in January 2017) reports 3,635 exclusions, indicating that OIG is actively applying its exclusion authorities.
Judith A. Waltz is a partner and health lawyer with Foley & Lardner LLP in San Francisco in the firm's health care practice. Jill S. Wright is a special counsel and health care lawyer with Foley & Lardner in Washington, D.C., in the firm's health care practice.
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