AMARILLO, TX – In virtually all instances, when an individual is convicted of a federal felony that touches on health care fraud, then the person will be mandatorily excluded from participating in a federal health care program. 42 U.S.C. § 1320a-7(a) states that exclusion is mandatory for felony convictions related to health care fraud.
Generally speaking, this means that if a person is excluded, then he cannot be directly or indirectly connected to a business that bills a federal health care program. In short, the excluded individual can sell “Big Gulps” at 7-Eleven . . . and that’s about it.
Interestingly, the Office of Inspector General (“OIG”), in Advisory Opinion No. 18-01 (“AO”), backs away from a hard line position and allows an excluded individual to have an indirect connection with health care providers.
Factual Background
The applicant (i.e., the person requesting the AO) was convicted for health care fraud under 18 U.S.C. § 1347 and, pursuant to a civil False Claims Act settlement, agreed to be permanently excluded from participation in Medicare, Medicaid, and all other Federal health care programs.
In requesting the AO, the applicant certified that he received a good faith employment offer from a company (the “Company”), a newly formed, for-profit corporation. The Company informed the applicant that the Company’s services consist of offering long-term care pharmacies (the “LTC Pharmacies”) access to discounted rates for emergency medications that the Company negotiates with local retail pharmacies. The prices the Company would charge for the medications the LTC Pharmacies obtain from the local retail pharmacies would be the discounted rate the Company negotiated with the local retail pharmacies, plus a mark-up.
The applicant certified that neither he nor the Company would directly submit claims for items or services that are paid for by any Federal health care program, including any medications the LTC Pharmacies obtain from the local retail pharmacies. The applicant further certified that neither he nor the Company would directly or indirectly have any role in the LTC Pharmacies’ or their customers’ submission of claims to any Federal health care program. In addition, the applicant certified that neither he nor the Company would submit claims to Medicare, Medicaid, or any other Federal health care program for any items or services that the applicant and/or Company provide in connection with the proposed arrangement (“Proposed Arrangement”).
Under the Proposed Arrangement, the applicant would market the Company’s services to the LTC Pharmacies and offer them the opportunity to contract with the Company to receive lower prices than they normally would pay when ordering emergency medications from a local retail pharmacy. The applicant certified that, because the LTC Pharmacies and their customers would determine the volume, type, and frequency of any medications they would need or order, neither the applicant nor the Company would exercise any direct or indirect control over those determinations. The Company would pay the applicant a fixed salary plus a commission based on the number of LTC Pharmacy accounts the applicant secures for the Company. The applicant certified that his compensation would not be determined based on the volume, value, frequency, price, or selection of any medications, including federally reimbursable medications, the LTC Pharmacies or their customers would order. The applicant also certified that neither he, nor any of his immediate family members, nor any member of his household, have any direct or indirect ownership or control interest in the Company or would obtain such ownership or control interest during the term of the Proposed Arrangement.
Legal Analysis
According to the OIG, when an individual is excluded pursuant to 42 U.S.C. § 1320a-7(a), no payment may be made by Medicare, Medicaid, or any other Federal health care program for any item or service furnished by that individual on or after the effective date of the exclusion. An excluded individual who submits, or causes to be submitted, claims to Medicare, Medicaid, or any other Federal health care program for items or services furnished during the exclusion period is subject to civil monetary penalty liability.
Under the Proposed Arrangement, the Company would employ the applicant to market the Company’s services to the LTC Pharmacies, which then would obtain emergency medications at discounted rates from local retail pharmacies. The applicant certified that the Company would not submit claims to Medicare, Medicaid, or any other Federal health care programs for any medications the LTC Pharmacies obtain from the local retail pharmacies or for any items or services that the applicant provides in connection with the Proposed Arrangement. It is the OIG’s understanding that the prices the Company would charge to the LTC Pharmacies for the emergency medications they obtain from the local retail pharmacies would be the discounted rate the Company negotiated, plus a mark-up. The OIG presumes that this mark-up would include costs the Company incurred to negotiate the discounted medication rates with the local retail pharmacies, such as general business expenses and employee expenses, including the cost to employ the applicant to market the Company’s services.
According to the OIG, for purposes of 42 U.S.C. § 1320a-7(a), the term “items or services” includes, without limitation, any item, device, drug, biological, supply, or service (including management or administrative services). 42 C.F.R. § 1003.110. According to the OIG, the term “furnished” refers to items or services provided or supplied, directly or indirectly, by an individual or entity. 42 C.F.R. § 1000.10. According to the OIG, this includes items or services provided by individuals or entities that do not directly submit claims to any Federal health care programs, but that provide items or services to providers who submit claims to those programs. Id. According to the OIG, the emergency medications obtained by the LTC Pharmacies from local retail pharmacies are “items or services” for which claims may be submitted to a Federal health care program.
It is the OIG’s understanding that under the Proposed Arrangement, neither the applicant nor the Company would submit claims to Medicare, Medicaid, or any other Federal health care program for items or services furnished by the applicant. However, the LTC Pharmacies or their customers may submit claims to Medicare, Medicaid, or another Federal health care program for services furnished by the applicant. In marketing the Company’s services the applicant would enable the LTC Pharmacies to obtain emergency medications at discounted rates from local retail pharmacies. If the amounts Medicare, Medicaid, or other Federal health care programs reimburse the LTC Pharmacies or their customers for the emergency medications include the LTC Pharmacies’ acquisition costs (which costs would take into account the costs of the applicant’s marketing services), then the Medicare, Medicaid, or other Federal health care programs may indirectly pay for the marketing services that the applicant provides to the Company. Therefore, the applicant would be indirectly furnishing an item or service for which a claim is submitted to the Medicare, Medicaid, or other Federal health care programs. According to the OIG, if the applicant is furnishing services, even indirectly, for which a claim is submitted or caused to be submitted to the Federal health care programs, then the Proposed Arrangement would violate the terms of the applicant’s exclusion and could constitute grounds for the imposition of administrative sanctions.
Notwithstanding the foregoing, the OIG noted that the applicant’s employment responsibilities would be limited to marketing the Company’s services to the LTC Pharmacies. The applicant certified that neither he nor the Company would directly or indirectly have any role in the LTC Pharmacies’ or their customers’ submission of claims to Federal health care programs. The applicant further certified that neither he nor the Company would directly or indirectly exercise any control over the volume, type, or frequency of any medications the LTC Pharmacies or their customers would need or order because the LTC Pharmacies or their customers would make those determinations. The applicant also certified that neither he, nor any of his immediate family members, nor any member of his household, have any direct or indirect ownership or control interest in the Company or would obtain such ownership or control interest during the term of the Proposed Arrangement, and that the applicant’s compensation would not be determined based on the volume, value, frequency, price, or selection of any medications, including federally reimbursable medications, the LTC Pharmacies or their customers would order.
Accordingly, because the applicant’s marketing services on behalf of the Company would be so far removed from the emergency medications the LTC Pharmacies or their customers would provide to program beneficiaries (and for which claims would be submitted), the OIG concluded that the Proposed Arrangement poses minimal risk to Federal health care programs and beneficiaries, and the OIG would not subject the applicant to administrative sanctions in connection with the Proposed Arrangement.
Conclusion
This AO is very fact-specific. In looking at the totality of the Proposed Arrangement, the OIG concluded that the Proposed Arrangement poses minimal risk to Federal health care programs and beneficiaries. The message for DME suppliers is that while the general rule is that they should have no direct or indirect connection with an excluded individual, the OIG will show some flexibility if safeguards are in place.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or [email protected].
Monique A. Pena, JD, is an attorney with the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. She represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Ms. Pena can be reached at (806) 345-6316 or [email protected].
