Health Law News From Arnold & Porter
Health Law News From Arnold & Porter
September 05, 2013
5 min read

What you don’t know can hurt you

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From international law firm Arnold & Porter LLP comes timely views on current regulatory and legislative topics that weigh on the minds of today’s physicians and health care executives.

In a recent decision (Township Pharmacy v. Division of Medical Assistance and Health Services), a New Jersey appellate court upheld the denial of a pharmacy owner’s application to participate in the New Jersey Medicaid program as a pharmaceutical service provider because he failed to disclose an employee’s criminal past on his application.

Despite the owner’s lack of knowledge of the pharmacy technician’s criminal background when he submitted his application to be a Medicaid provider and his subsequent firing of the employee once he discovered her criminal background, the court sustained the Medicaid fraud division’s finding that the pharmacy owner’s failure to provide accurate, truthful and complete information was good cause to deny his application to participate in the Medicaid program. Although the court recognized that the pharmacy owner had no intention to deceive the Medicaid program and expressed sympathy for his predicament, it agreed with the Medicaid director that the integrity of the Medicaid provider program demanded scrupulous compliance with the disclosure requirements because delivery of health care to the public is a “highly regulated business activity which directly impacts upon the safety and welfare of the public.”

marilyn may 

Marilyn May

The pharmacy owner (who had purchased the pharmacy from a previous owner and retained all of the employees) assumed that the employee in question did not have a criminal record because the employee was licensed as a pharmacy technician by the state board. Although the owner testified that he had checked whether any of the licensed employees had any past or pending disciplinary charges, he did not check whether employees had criminal records. In this case, the owner’s failure to make any inquiry of his employees about their potential criminal backgrounds or to ascertain how he might check such information cost him his ability to participate as a Medicaid provider.

Other consequences of failing to perform appropriate background checks on employees and contractors can be even more severe. In its first advisory bulletin on the effect of exclusion from participation from federal health care programs since 1999, the Department of Health and Human Services has set forth steps it recommends providers take to determine whether employees and contractors have been excluded from participation in federal health care programs as well as potential consequences for failing to do so. In this recent bulletin (which replaces and supersedes the 1999 Bulletin), HHS expands its views on the scope of exclusion and the consequences of employing or contracting with an excluded person or entity — both for the excluded person/entity and the entity that bills for services provided by the excluded person/entity.


Following are some highlights of the recent bulletin:

1. What is the effect of exclusion?

No federal health care program payment can be made to a provider for items or services furnished either by an excluded person/entity or at the medical direction of or by the prescription of an excluded person.

2. Who should inquire about excluded persons or entities?

HHS takes a broad view — the obligation extends to providers, suppliers, manufacturers, and any other individuals or entities, including drug plan sponsors or managed care entities that directly or indirectly furnish, arrange or pay for items or services.

3. What should a provider do to ensure it is not employing or contracting with an excluded person/entity?

HHS recommends checking the List of Excluded Individuals and Entities (“LEIE”) to determine whether the person or entity is excluded before permitting them to perform any services. This recommendation covers not only employees, but also contractors and volunteers. The LEIE, available on the HHS Office of Inspector General website, consists of a searchable online database and downloadable data files with the following information: name of the excluded person, provider type, statutory authority basis for exclusion, state where individual resided or entity did business at time of exclusion, and a mechanism to verify search results using a social security number or an employer identification number.


4. How often should a provider check the LEIE?

Because there are no statutory or regulatory requirements that providers check the LEIE, there is no provision that dictates how often such checks must be made. To avoid potential overpayment and civil monetary penalties, however, HHS recommends checking the LEIE before hiring employees or entering into contracts and rechecking the list on a periodic basis.

5. What if the provider will not be billing directly for the services of the excluded person because its payments are capitated?

As long as payment is made to the provider by a federal health care program, the payment prohibition for services of an excluded person or entity applies regardless of the manner of payment. As a result, payment for such services is prohibited not only when fee-for-service itemized claims are submitted, but also for payment included as part of cost reports, fee schedules, capitated payments, prospective payment systems and other bundled payments.

6. What if the excluded person/entity will serve only in a role that does not include direct patient care, such as in an administrative or leadership capacity?

Unless the position is wholly unrelated to federal health care programs, the prohibition against employing or contracting with the excluded person/entity applies. HHS suggests that the prohibition extends to such positions as CEO, CFO, physician practice office manager, or director of human resources. This restriction also extends to nonpatient care administrative and management services such as billing and accounting, staff training, health information and technology services. In sum, unless the excluded person will work exclusively on private pay matters, the prohibition against employing or contracting with an excluded person applies.

7. How can a provider protect itself if it contracts with other entities to provide services, such as a staffing agency to provide nurses?

The provider can choose to screen its contractors, subcontractors and their employees in the same fashion it screens its own employees. In the alternative, the provider can take steps to ensure that the contractor (or subcontractor) is itself completing the requisite screening by including a provision in the contract with the contractor (or subcontractor) requiring it to do such screening and obtaining copies of the screening documentation. Ultimately, the responsibility for potential overpayment assessment or civil monetary penalty remains with the provider. However, if the provider can demonstrate that it reasonably relied on the contractor to perform the screening, the potential penalty for employing an excluded person may be eliminated or reduced.

8. What are the potential consequences to the provider who employs or contracts with an excluded person/entity?

HHS may determine that the provider has received an overpayment for items or services provided, ordered or prescribed by a person or entity who has been excluded.

Alternatively, HHS has discretion to proceed with a Civil Monetary Penalty action (CMPL) against a provider that arranges or contracts (by employment or otherwise) with a person or entity the provider knows or should know is excluded by HHS if the excluded person or entity provides services payable directly or indirectly by a federal health care program. Under its CMPL authority, HHS may impose the following penalties:

  • A civil monetary penalty of up to $10,000 for each item or service furnished by the excluded person/entity for which federal payment is sought
  • An assessment of up to three times the amount claimed
  • Program exclusion of the provider

This broad view of providers’ screening obligations will place additional administrative burdens and expenses on providers who are trying to be compliant. Because the potential consequences of hiring or contracting with excluded persons/entities can be draconian, providers should consider the risks of failing to have appropriate procedures in place to screen their employees, contractors and volunteers.

Marilyn May, JD, can be reached at Arnold & Porter LLP, 555 12th St. NW, Washington, DC 20004-1206; 202-942-6830; email: