Prepared with the Assistance of Jacob Harper, Law Clerk, Morgan Lewis. HHS OIG Exclusion Overview 1

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1 AHLA Institute on Medicare and Medicaid Payment Issues Exclusions and Administrative Sanctions March 20 & 21, 2013 Howard J. Young Partner, Morgan, Lewis & Bockius, LLP Prepared with the Assistance of Jacob Harper, Law Clerk, Morgan Lewis HHS OIG Exclusion Overview 1 An exclusion by the United States Department of Health and Human Services ( HHS ) Office of Inspector General ( OIG ) serves to prohibit any payment from a Federal health care program for any items or services furnished, ordered or prescribed by the excluded individual or entity. It also serves to prohibit the employment or contracting with the excluded person to furnish services in connection with a Federal health care program or beneficiary. The payment prohibition, based in the Social Security Act for Medicare and Medicaid services, applies not just to the excluded person or entity, but to anyone who employs or contracts with them, effectively preventing the excluded individual or entity from operating in the health care industry if any federal funds are involved. Exclusions are broad in scope, covering not only those activities immediately involved in the provision of health services, but any other activities which may be reimbursed by the federal government under a cost report or if the federal program payment indirectly covers such services (e.g., administrative services). Exclusions are intended to be remedial in nature, ensuring that the federal government does not continue to do business with those persons who have been found to be untrustworthy or present a risk to the Medicare Trust Fund or other Federal health care programs. However, make no mistake, exclusions are punitive in effect with significant limitations on job prospects, and potential criminal, civil and administrative sanctions flowing from any items or services furnished by an excluded person. There are two types of exclusions: Exclusion Types and Details Exclusions under Social Security Act ( Act ) 1128(a) ( Mandatory Exclusions ): (1): Conviction of criminal offense related to the delivery of an item or service under Medicare or state health care programs (2): Conviction related to patient abuse or neglect (3): Felony conviction related to health care fraud 1 This summary is provided as a general informational service to clients and friends of Morgan, Lewis & Bockius LLP. It should not be construed as, and does not constitute, legal advice on any specific matter, nor does this create an attorney client relationship. These materials may be considered Attorney Advertising in some states. Please note that the prior results discussed in the material do not guarantee similar outcomes Morgan, Lewis & Bockius LLP. All Rights Reserved.

2 (4): Felony conviction related to controlled substance As the name suggests, the OIG is mandated to exclude individuals and entities that fall into one of the four categories above. Mandatory exclusions are typically imposed for a minimum of five years, but this length of time may be increased by certain aggravating factors, including the egregiousness of the conduct, the financial damages to the United States, the length of time of the misconduct, and the extent of significant adverse physical or mental effects on program beneficiaries. Mitigating factors that by regulation can be considered are very sparse. Exclusions under the Act 1128(b) ( Permissive Exclusions ): (1)(A): Misdemeanor conviction related to health care fraud (1)(B): Conviction related to fraud in non-health care programs (2): Conviction related to obstruction of an investigation (3): Misdemeanor conviction related to controlled substance (4): License revocation or suspension (5): Exclusion or suspension under federal or state health care program (6): Claims for excessive charges, unnecessary services or services which fail to meet professionally recognized standards of health care, or failure of an HMO to furnish medically necessary services (7): Fraud, kickbacks, and other prohibited activities (8): Entities controlled by a sanctioned individual (8)(A): Entities controlled by a family or household member of an excluded individual and where there has been a transfer of ownership/control (9), (10), and (11): Failure to disclose required information, supply requested information on subcontractors and suppliers; or supply payment information (12): Failure to grant immediate access (13): Failure to take corrective action (14): Default on HEAL loans (15): Individuals controlling a sanctioned entity (16): Making false statement or misrepresentations of material fact (added by ACA) In addition, the Social Security Act 1156 could serve as a basis of exclusion for failure to meet statutory obligations of practitioners and providers to provide medically necessary services meeting professionally recognized standards of health care (based on Peer Review Organization findings). Permissive exclusions are those which the OIG has the discretion to pursue based on the risks presented in allowing the individual or entity to continue to participate in Federal health care programs. The various bases for permissive exclusion range in minimum time from no minimum period to three years, but, like mandatory exclusions, may be increased depending on the presence of aggravating factors. Mitigating factors that may be considered are, by regulation, 2

3 very sparse. Additionally, the exclusion period of some bases, such as license suspension/revocation or exclusion from a state health care program, are directly tied to the time period determination made by the underlying state authority. Most of the OIG s permissive exclusions authorities are derivative in the sense that they derive from other adjudications or determinations from other regulatory authorities. Process of Notice The administrative process of exclusions is governed by 42 C.F.R For both permissive and mandatory exclusions, the OIG sends a written Notice of Intent to Exclude to the individual being considered for exclusion. This notice states the basis (outlined above) for the proposed exclusion and details the potential effects of exclusion. The individual then has 30 days after receipt (presumed to be 5 days) to respond with any information and evidence they would like the OIG to consider in determining whether the exclusion is warranted or whether any mitigating factors exist. However, for certain exclusion bases, including (b)(6) (claims for excessive charges, unnecessary services or services which fail to meet professionally recognized standards) and (b)(7) (fraud, kickbacks, and other prohibited activities), there are additional opportunities for individuals and entities to present oral argument before the OIG or an Administrative Law Judge ( ALJ ). These are permissive exclusion actions that are not derivative and the OIG bears an evidentiary burden to prove it has factual and legal grounds to exclude. After this period, if the OIG decides to proceed with the exclusion, it mails a Notice of Exclusion to the individual, and the exclusion becomes effective 20 days after the Notice of Exclusion is mailed. Appeal Rights Like most administrative actions, once an individual or entity has been excluded (or before the individual or entity is excluded under (b)(7)), certain appeal rights exist under 42 C.F.R for those sanctioned. Initially, an excluded individual or entity may appeal an exclusion within 60 days of receipt of the Notice of Exclusion to an ALJ, who will conduct a hearing and consider oral and written argument from both the OIG and the excluded. However, by regulation, the ALJ is foreclosed from considering anything beyond whether there was a basis for the imposition of the exclusion and whether the length of the exclusion was unreasonable. As a result, there is a large body of case law favorable to the OIG s position, making appeals to an ALJ typically unsuccessful from the perspective of an excluded individual or entity. After an unfavorable ALJ determination, the excluded individual or entity may seek administrative review by the Departmental Appeals Board, and subsequently judicial review in federal district court. Excluded persons often do not have the financial means to appeal to 3

4 federal court the unfavorable administrative determinations, and thus there is a paucity of federal court case law on exclusion issues. Notable Recent Federal Cases Salko v. Sebelius, 2013 WL (M.D. Penn 2013) A physician excluded under 1128(a)(1) of the Act argued that he was not convicted of a crime related to the delivery of an item or service under Medicare or Medicaid, that the Secretary s position was inconsistent in that CMS had approved him as an eligible provider, that he was not provided fair notice of the Secretary s position, and that the Secretary s determination was arbitrary and capricious. The federal district court examined each issue in turn and determined that none of these arguments were persuasive the physician had created false progress notes and thus a logical nexus between his guilty plea and Federal health care programs existed. Moreover, the OIG s decision to exclude him was not circumscribed by CMS s approval of him as an eligible provider after his conviction. Kostenko v. U.S. Dep t of Health and Human Services, 2013 WL (S.D.W.V. 2013) A physician excluded under 1128(b)(14) of the Act for failure to repay federal education loans was not able to pursue his exclusion appeal in federal district court because he did not timely exhaust his administrative remedies. He had failed to submit his exclusion appeal to the ALJ within 60 days of the date of receipt and therefore was not entitled to judicial review. Kabins v. Sebelius, 2012 WL (D. Nev. 2012) (unpublished order) A physician excluded under 1128(a)(3) of the Act for misprision of a felony had his mandatory exclusion vacated by a federal district court because, among other reasons, the crime for which he had pled guilty was not in connection with the delivery of a health care item or service. Facts of case related to a single patient s potential medical malpractice claim and physician s steps to avoid a potential malpractice lawsuit some 18 months after the delivery of care at issue. This may be the only federal court decision that has vacated an OIG mandatory exclusion. Friedman v. Sebelius, 686 F.3d 813 (D.C. Cir. 2012) Corporate officers of Purdue Frederick Company excluded under 1128(b)(1) and (b)(3) of the Act as responsible corporate officers (Park Doctrine) related to alleged misbranding of the drug OxyContin. Defendants argued that misbranding did not relate to fraud and that the Secretary s decision on an exclusion period was arbitrary and capricious. The D.C. Court of Appeals upheld the exclusion of the officers, noting that (b)(1) is broad in scope, and touches upon all manner of financial misconduct, not just fraud. Nevertheless, the Court remanded the case because it found that the Secretary s determination of a 12 year exclusion period was arbitrary and capricious, as the Secretary failed to provide a reasoned explanation for departing from agency precedent. 4

5 Bowers v. Inspector General of Dep t of Health and Human Services, 2008 WL (S.D. Ohio 2008) A pharmacist excluded under 1128(a)(1) of the Act for theft of hydrocodone argued that the OIG misinterpreted the elements of 1128(a)(1) and that its exclusion action was barred by the doctrine of laches. The federal district court, relying on Chevron deference, found that the OIG s stream-of-commerce construction of the statute was permissible and noted that the doctrine of laches cannot be applied to government inaction. Ellicott v. Leavitt, 2008 WL (S.D. Ga. 2008) A podiatrist excluded under 1128(a)(1) of the Act for upcoding claims for toenail debridement services argued that the OIG misinterpreted the elements of 1128(a)(1) in that his conviction was not related to the delivery of an item or service payable by a Federal health care program. He also collaterally attacked his underlying conviction. The federal district court noted that the argument or evidence intended to undermine or mitigate an underlying criminal conviction is not properly presented in an exclusion appeal and ruled that the OIG s interpretation was permissible. Exclusion of Corporate Officers under 1128(b)(15) In recent years, the OIG has sought to broaden its authority with respect to excluding corporate officers of companies convicted of certain program-related crimes. This has been especially true in the context of drug manufacturers convicted of misbranding and kickback schemes. See Friedman v. Sebelius, 686 F.3d 813 (above). In so doing, the OIG has relied in part on 1128(b)(15), which authorizes exclusion for an officer or managing employee of an entity that has been excluded or has been convicted of certain offenses. This basis for exclusion is consonant with the Responsible Corporate Officer Doctrine, which imputes liability on a corporate officer who has, by reason of his or her position in a corporation, the responsibility and authority either to prevent or to promptly correct a violation of the law and then fails to do so. United States v. Park, 421 U.S. 658 (1975). To clarify its position on how it decides to pursue a 1128(b)(15) exclusion, the OIG released non-binding guidance that serves to illuminate the agency s weighing of factors. There are two sub-bases under 1128(b)(15): exclusion where an individual with an ownership or control interest in a sanctioned entity knew or should have known of the conduct that led to the sanction, and exclusion of officers and managing employees, based solely on their position within the entity. Because of this scienter requirement for those with a controlling or ownership interest, the burden on the OIG to exclude officers and managing employees is far less, as the OIG need only prove that an employee of a sanctioned entity is an officer or managing employee. The OIG by regulation and the Secretary by statute define managing employee to mean any individual who exercises operational or managerial control over the entity or who directly or indirectly conducts the day-to-day operations of the entity. Ultimately, the OIG notes it does not intend to exclude every officer or managing employee or any sanctioned entity, but does note that it will pursue exclusion when there is evidence that the officer or managing employee knew or should have known of the conduct giving rise to the sanctions. 5

6 The four factors the OIG has developed to assess exclusion of a corporate officer include: (1) the circumstances of the misconduct and the seriousness of the offense; (2) the individual s role in the sanctioned entity; (3) the individual s actions in response to the misconduct; and (4) information about the entity. Ultimately, these factors are broad and non-binding, but they do provide insight to health care industry stakeholders as to OIG s view of the pivotal role that the corporate officer plays in instituting a culture of compliance within the healthcare organizations they manage. Under the non-binding guidance, how a corporate officer responds to identified compliance failures and misconduct is a key factor in OIG s assessment along with whether that individual took steps to stop the underlying misconduct or to mitigate the ill effects of that misconduct, and whether that individual sought to disclose the misconduct to the appropriate federal or state authorities. DB1/