You’re Out! The OIG Finalizes Revisions to its Medicare and Medicaid Exclusion Authority

On Thursday, January 12, 2017, the Office of Inspector General at the U.S. Department of Health and Human Services (OIG) finalized its revisions to its rules for excluding individuals and businesses from participation in Federal Health Care Program, i.e. Medicare and Medicaid.

The revisions came about as a result of new and revised authorities found in the Affordable Care Act of 2010 (ACA) and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). The revisions initially were proposed in an OIG proposed rule published on May 9, 2014.
There are some important new revisions in the final rule, they include:

– A ten year look-back period for possible exclusion.

–  New definitions for some key terms in the regulations, such as what it means to “furnish” goods or services either “directly” or “indirectly”. The new definitions, according to the OIG, align to a broader definition of the term “claim” found in the False Claims Act.

– A new process for early reinstatement in certain cases for providers who have been excluded after losing a license, including lapses in professional competence, professional performance or financial integrity.

– A higher threshold, $50,000 of government losses, for applying aggravating factors in a determination of how long an exclusion should last.

– A more detailed discussion of the OIG’s new exclusion authority relating to individuals and entities who were convicted for the interference with or obstruction of both investigations and audits.

– Clarification that individuals who refer patients or certify the need for items or services they themselves do not provide, can be subject to exclusion.

So, what do the new revisions mean to stakeholders in health care M&A transactions? They serve as a significant reminder of the necessity to ensure that acquisition targets don’t have exclusion related risks associated with them.

Let’s take a step back and quickly discuss what an exclusion is. The Secretary of the U.S. Department of Health and Human Services (DHHS) is given the authority by Congress, pursuant to 42 U.S.C. §1320a–7, to exclude individuals and entities from participation in Federal Health Care Programs. The authority to exclude has been delegated to the OIG.
Individuals and businesses who are excluded from Federal Health Care Programs cannot effectively participate in the provision of services that may be paid for by a Federal Health Care Program. Federal Health Care Programs include Medicare, Medicaid and any other health care program funded directly or indirectly by the Federal Government.

Exclusion in its most basic sense means that no payment can be made by any Federal Health Care Program for any items or services furnished, ordered, or prescribed by an individual or entity that has been excluded. An excluded person or entity is essentially a “persona non grata” to a health care organization that does business with Federal Health Care Programs because such a business essentially cannot receive any Federal Health Care Funds relating to an excluded person or entity. To the extent that a health care organization does receive tainted funds, it will likely be subject to 100% repayment of those funds and significant penalties.

The broadening of the OIG’s authority to exclude in the new revisions and in what circumstances simply adds to the risk. More so, the OIG’s enforcement of exclusion related cases is a true “low-hanging fruit” issue. Enforcement cases are often simple and straightforward – was the individual or business excluded? If the answer is – yes, the only discussion left to have with the agency is in relation to how much money is at stake.

As a result, it is often not enough for a buyer in a health care M&A transaction to receive a general “compliance with all laws” or even specific “compliance with all health care laws” representation in a transaction document, particularly if there are caps and baskets associated with indemnification and/or limits on the indemnification period that are shorter than ten years. The risks related to excluded individuals can be significant. More so, the ability to mitigate those risks is pretty simple, a check of an OIG exclusion list website. Mitigating risks is also ingrained in health care compliance culture. In that respect, a seller should be able to affirmatively provide unqualified comfort to a buyer that there are no risks related to excluded individuals or entities. That unqualified comfort often comes in the form of documentation in the diligence process that the seller has adequately screened for excluded individuals and entities and specific unqualified representations in the transaction document that the seller has screened, is in compliance and its business is free from excluded individuals and entities.

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