Exclusion from Medicare and Medicaid (and all federally funded health programs) is a serious penalty. 

42 USC §1320a-7 provides that individuals or entities may be excluded from participation in any health program that receives federal money if found to have been engaged in wrongdoing. This includes any hospital receiving federal funds, including Medicare or Veterans Affairs (VA) hospitals and state programs such as Medicaid.

Exclusion is a severe penalty, similar to an Amish shunning. It pushes the provider out into the cold, rendering it unable to work in most places. The provider is placed on a public “exclusion list” that all facilities are required to consult before hiring or engaging in contracts. This list also is monitored by commercial insurance companies.     

Litigation regarding exclusion is conducted in the Departmental Appeals Board at the U.S. Department of Health and Human Services (HHS). It publishes its decisions, and from these it is possible to ferret out a few rules of the road. A surprising number of cases involve fines against convenience stores that sell cigarettes to minors. With penalties of only $500-$1,000, one wonders how it is feasible to litigate these cases at all.

Sadly, there are all too many cases of skilled nursing facilities (SNFs) being fined or shut down because of abuse of their patients, usually helpless elders. It was a shock to see how many suppliers of medical equipment were kicked out of the program recently because on the day an inspector showed up, they were not open during their posted business hours, or because they had moved but failed to provide notification. 

A great variety of cases lead to exclusion. Many such cases concern doctors or registered nurses excluded from Medicare and Medicaid because of loss or suspension of their license in the state where they work. If a license is suspended in one state and the provider goes to another state and gets a license, they will remain excluded. Being re-licensed does not override that one’s license was suspended. A number of cases involve healthcare providers that argue that the number of years of exclusion is too great, but this generally is not considered reviewable. 

The harshest penalties come from those excluded because of being convicted of a felony. Exclusion is mandatory after a felony conviction “relating to” healthcare fraud or controlled substances. These include actions such as “unlawful manufacture, distribution, prescription, or dispensing of a controlled substance;” five years exclusion for “criminal sale of a prescription for a controlled substance” (the narcotic Percocet); or forging prescriptions for narcotics or “unlawfully writing multiple prescriptions for oxycodone in exchange for direct cash payments of $200 per prescription.” Any conviction for patient abuse or program-related crimes also triggers exclusion. 

From these various cases, it is possible to derive a number of lessons regarding the administrative law and how it is applied to the facts. We have picked out below a few aspects of the rulings that deserve note. 

Nolo Contendere

A plea and acceptance by the court of nolo contendere to an offense qualifies as “convicted” within the meaning codified by law, thus triggering mandatory exclusion.

Good Faith” Billing Mistakes or Reliance on Billing Expert

No excuse is allowed in such cases. Proof of culpability is not needed to justify revocation under 42 C.F.R. Sec 424.535(a)(8).It does not matter who filed the wrong claims, or why. The provider faces strict liability, and this liability can pierce the corporate veil of an LLC and rest solely on the individual provider.

Community Service and Character References

Some attempt to get penalties reduced by showing that providers are well-respected or provide extensive service to special communities, such as persons in extreme poverty, is a no go as well. This information is considered irrelevant.

Hearsay and FRE 403

Documents containing hearsay may be included in hearings, which are not bound by federal rules of evidence. There is no automatic hearsay exclusion rule. Rulings suggest that although the trier of fact may consider such argument, they are not bound by the court rules. 

Mitigating Factors

Many bring up that they have paid restitution for the problem and suggest this is a mitigating factor. It is not. The mitigating and aggravating factors are carved in statute, and the rulings seem never to step outside their boundaries. In one case, the wrongdoer had passed away; the company had paid restitution; and the provider desperately needed to continue operating in order to pay off the penalty. None of these factors were considered to be “mitigating.”

We have reviewed a number of interesting features in the litigation of the Departmental Appeals Board. It is possible many appeals never would have been filed if the past rulings had been considered.

We recommend that any counsel be aware of these rulings before advising their client on the best litigation strategy.

About the Author

Edward M. Roche is the founder of Barraclough NY LLC, a litigation support firm that helps healthcare providers fight against statistical extrapolations.

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