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The Department of Health and Human Services Office of Inspector General (OIG) has issued an internal guidance document that reinforces its stated commitment to increase substantially the exclusion of individual company officers and managers through its authority under §1128(b)(15) of the Social Security Act. These guidelines potentially impact thousands of individuals across all sectors of the health care industry.

Though OIG has not historically exercised its permissive authority to exclude individuals from participating in federal health care programs, the guidance, issued last week, is further evidence that OIG is serious about its recent focus on individual accountability and that it intends to exclude officers and managing employees, even without evidence that those individuals knew or should have known about the conduct giving rise to the entity’s criminal liability or exclusion.

OIG’s exercise of this discretion is not subject to administrative or judicial review. Most experts agree that exclusion effectively ends an individual’s health care industry career.

OIG’s authority under § 1128(b)(15) of the Social Security Act

Pursuant to §1128(b)(15), the Secretary of Health and Human Services has broad authority to exclude individual officers and managing employees of a sanctioned entity from participation in federal health care programs. A “sanctioned entity” is an entity that has been convicted under federal or state law of certain offenses (including program-related crimes, patient neglect or abuse and/or felony health care fraud) or that has been excluded from participation in federal or state health care programs.

OIG may exclude officers and managing employees based solely on their position within the sanctioned entity, and thus irrespective of their knowledge of the conduct at issue.

These guidelines have the potential to affect a large number of individuals in various health care industry sectors, including many in mid- to upper-management, and in particular to foreclose their ability to pursue careers in the health care industry after their employer has been sanctioned. A managing employee is defined as an individual who exercises operational or managerial control over the entity or who directly or indirectly conducts the day-to-day operations of the entity. The OIG lists general managers, business managers, administrators and directors as persons whom it considers “managing employees.”

Exclusion under § 1128(b)(15) effectively precludes an individual from employment in any capacity by any entity that receives reimbursements directly or indirectly from a federal health care program.

The guidelines for implementing permissive exclusion

Although these guidelines are non-binding, they suggest that OIG is serious about its recent proclamations that it intends to increase its investigations, prosecutions and exclusions of individuals within companies found to have violated the law, and that its exercise of its exclusion authority will in large part be guided by its view as to whom within the company was in a position to influence the company concerning the conduct at issue or to have prevented this conduct from occurring. This new guidance suggests that the agency favors exclusion when the managing employee knew or should have known of the conduct that gave rise to the sanctioned entity’s conviction or exclusion. That presumption, however, may be overcome if OIG “finds that significant factors weigh against exclusion.”

It will also consider individuals for exclusion by virtue of their position alone. Although OIG likely will not exclude every officer or manager who conceivably could have prevented the underlying misconduct or crimes by virtue of their position within the company, it has signaled its willingness to impose liability on some of them, including individuals who did not participate in the crime or have knowledge of it. In such cases, OIG has indicated that it will consider the following factors when making an exclusion determination:

1. Circumstances of the misconduct and seriousness of the offense. The nature and scope of the misconduct for which the entity was sanctioned (and any other relevant misconduct); the criminal sanction imposed against the entity (or related entities) or any individuals, including any criminal fine, forfeiture or penalty, as well as any civil or administrative payment; whether there was evidence of actual or potential harm to beneficiaries or other individuals or financial harm to any federal health care program; and whether the misconduct was an isolated incident or part of a pattern of wrongdoing over a significant period of time.
2. Individual’s role in sanctioned entity. The individual’s current position and any other position he or she has held; the degree of managerial control; and the relationship between the individual’s position and the underlying misconduct (i.e., whether misconduct occurred within the individual’s chain of command).
3. Individual’s actions in response to misconduct. Whether the individual took steps to stop the underlying misconduct and the timing thereof; and whether the individual disclosed the misconduct to the appropriate federal or state authorities.
4. Information about the entity. Whether the sanctioned entity or a related entity previously has been convicted of a crime or otherwise found civilly or administratively liable; and the size of the entity and its corporate structure.

Mary Riordan, Senior Counsel, Office of Counsel to the Inspector General, HHS-OIG, unveiled the guidelines last week when addressing the Eleventh Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum, describing individual exclusions as an emerging trend in the industry. The full text of the OIG’s guidance document is available here.

For more information about the guidance, please contact:

Kimberly K. Egan

Stephen L. Goff

Carolyn Fitzhugh McNiven

Zachary Neil Coseglia