HHS OIG Revises Factors Used to Evaluate Whether to Exclude Based on Health Care Fraud Activities

By Anne K. Walsh –

A drug or device company (or its officers, management, or employees) who are the target of a False Claims Act lawsuit or investigation face the potential threat of being excluded from Medicare, Medicaid, and other Federal health care programs.  For a drug or device company, exclusion means that none of the company’s products are eligible for payment under a Federal health care program.  For an individual, exclusion effectively bans the subject individual from working in the health care industry during the exclusion period.  Thus it is critical that any response to a False Claims Act investigation include not only arguments to avoid prosecution, but also to dissuade the government from seeking an exclusion remedy. 

Under section 1128(b)(7) of the Social Security Act (the “Act”), the Office of the Inspector General (OIG) of the Department of Health and Human Services may exclude any individual or entity (collectively “person”) that has engaged in conduct described in section 1128A or 1128B of the Act.  Specifically, (b)(7) exclusion may be imposed on any person that submits, or causes to be submitted, false or fraudulent claims to a Federal health care program, or that violates the Federal health care program anti-kickback statute.  The Act provides OIG with “permissive” exclusion authority in these situations, meaning that it has discretion whether to exclude the person, versus the mandatory exclusion that certain conduct requires under the Act. 

Over 19 years ago, HHS OIG issued non-binding guidance (62 Fed. Reg. 67392 (Dec. 24, 1997)) that set forth criteria OIG intended to use in determining whether to exercise its permissive exclusion authority.  In 2014, OIG solicited comments for revising these criteria, and based on the five comments it received and the office’s experience to date, issued revised guidance on April 18, 2016.  In short, the guidance explains how OIG will base its decision to exclude on its assessment of future risk to the Federal health care programs.  The “risk spectrum” depicts the lowest risk person as one that self-discloses its conduct, which could result in OIG giving the person a release from potential (b)(7) exclusion.  A person in the middle of the spectrum could avoid exclusion in exchange for agreeing to certain integrity obligations.  If OIG deems a person in the highest risk category, there would be no way to avoid exclusion.

In evaluating a person’s place on the risk spectrum, the new guidance describes the facts that HHS OIG considers relevant to the following four broad categories: 

(1) Nature and circumstances of conduct

• Higher risk exists if the conduct poses an actual or potential risk to patients or causes substantial financial loss to Federal health care programs, or indicates a pattern of misconduct
• Higher risk exists if individuals with managerial control led the unlawful activity, or if the person previously was under a corporate integrity agreement (“CIA”).

(2) Conduct during the government’s investigation

• Higher risk if the person obstructed the investigation or failed to comply with a subpoena
• Lower risk if the person initiated an internal investigation and self-disclosed the conduct, or cooperated with the investigation

(3) Significant ameliorative efforts

• Lower risk if the person has taken disciplinary action or devoted more resources to the compliance function

(4) History of compliance

• Higher risk if the entity fails to meet the elements of the compliance program outlined in the U.S. Sentencing Commission Guidelines Manual

While a person in the midst of a government investigation under the False Claims Act may be singularly focused on avoiding prosecution, it is important to keep an eye on factors during the investigation that may result in potential exclusion.  The goals are aligned for the most part, but the impact of certain conduct – even actions taken during the investigation – may affect the OIG’s consideration of whether to impose exclusion in the event of a determination of liability.