[Federal Register Volume 63, Number 170 (Wednesday, September 2, 1998)]
[Rules and Regulations]
[Pages 46676-46692]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23462]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Parts 1000, 1001, 1002 and 1005

RIN 0991-AA87


Health Care Programs: Fraud and Abuse; Revised OIG Exclusion 
Authorities Resulting From Public Law 104-191

AGENCY: Office of Inspector General (OIG), HHS.

ACTION: Final rule.

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SUMMARY: This final rule addresses revisions to the OIG's 
administrative sanction authorities to comport with sections 211, 212 
and 213 of the Health Insurance Portability and Accountability Act 
(HIPAA) of 1996, along with other technical and conforming changes to 
the OIG exclusion authorities set forth in 42 CFR parts 1000, 1001, 
1002 and 1005. These revisions serve to expand the scope of certain 
basic fraud authorities, and revise and strengthen the current legal 
authorities pertaining to exclusions from the Medicare, Medicaid and 
all other Federal health care programs.

EFFECTIVE DATE: October 2, 1998.

FOR FURTHER INFORMATION CONTACT: Joel Schaer, (202) 619-0089, OIG 
Regulations Officer.

SUPPLEMENTARY INFORMATION:

I. Background

The Health Insurance Portability and Accountability Act of 1996

    On September 8, 1997, the Office of Inspector General (OIG) 
published proposed rulemaking (62 FR 47182) addressing the program 
exclusion provisions set forth in the Health Insurance Portability and 
Accountability Act (HIPAA) of 1996, Public Law 104-191. Among other 
things, the HIPAA provisions revised or expanded the authorities 
pertaining to exclusion from Medicare and the State health care 
programs. With respect to the OIG's program exclusion authorities, the 
HIPAA provisions served to (1) broaden the OIG's mandatory exclusion 
authority; (2) establish minimum periods of exclusion for certain 
permissive exclusions; and (3) establish a new permissive exclusion 
authority applicable to individuals with ownership or control interest 
in sanctioned entities.
    (The Balanced Budget Act (BBA) of 1997, Public Law 105-33, also 
enacted new or expanded exclusion and civil money penalty authorities. 
Among the provisions in the BBA, section 4331(c) amended sections 
1128(a) and (b) of the Act to (1) provide that the scope of an OIG 
exclusion extends beyond Medicare and the State health care programs to 
all Federal health care programs (as defined in section 1128B(f) of the 
Act) 1, and (2) enable the OIG to directly impose exclusions 
from all Federal health care programs. While regulations implementing 
the BBA exclusion provisions are being developed under separate 
rulemaking by the Department, for purposes of clarity, we are 
conforming language in this final rule to be consistent with the 
statute and the expanded scope of an OIG exclusion that encompasses all 
Federal health care programs. As a result, in all references in this 
preamble and in the regulations, as amended, we are substituting the 
phrase ``Medicare and the State health care programs'' with the phrase 
``Medicare, Medicaid and all other Federal health care programs.'' 
Additional regulatory changes in 42 CFR part 1001 with regard to this 
expanded scope of an OIG exclusion will be specifically addressed in 
the BBA-implementing regulations referenced above.)
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    \1\ In accordance with section 1128B(f) of the Act, the term 
``Federal health care program'' means (1) any plan or program that 
provides health benefits, whether directly, through insurance, or 
otherwise, which is funded directly, in whole or in part, by the 
United States Government (other than the health insurance program 
under 5 U.S.C. 89; or (2) and State health care program, as defined 
in section 1128(h) of the Act.
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    Because the new HIPAA statutory provisions afford the Department 
some policy discretion in their implementation, the OIG developed 
proposed rulemaking to address both the new statutory provisions of 
HIPAA and other technical revisions to the OIG's exclusion authorities, 
that were previously codified in 42 CFR parts 1000, 1001, 1002 and 
1005. The proposed rule established a 60-day public comment period 
during which interested parties were invited to submit written comments 
to the OIG on these proposed changes.

II. Summary of the Proposed Rule

1. The HIPAA Exclusion Provisions

    The proposed rule set forth the Department's three new exclusion 
authorities to be codified in 42 CFR part 1001 as follows:
     Mandatory OIG exclusion from Medicare and State health 
care program participation. Section 211 of HIPAA expanded the OIG's 
minimum 5-year mandatory program exclusion authority to cover any 
felony conviction under Federal, State or local law relating to health 
care fraud, even if governmental programs are not involved. Felony 
convictions relating to controlled substances were also made a basis 
for a mandatory exclusion. Accordingly, we proposed to revise 
Sec. 1001.101 to address the mandatory provisions set forth in new 
sections 1128(a)(3) and (4) of the Act. To appropriately restrict the 
imposition of mandatory program exclusions to only those individuals 
and entities who might reasonably be expected to have future contact 
with Medicare, Medicaid and all other Federal health care programs, we 
proposed to limit applicability of this provision only to those 
individuals or entities that (1) are or have been health care 
practitioners, providers or suppliers; (2) hold or have held a direct 
or indirect ownership or control interest in a health care entity; or 
(3) are or have been officers, directors, agents or managing employees 
of such an entity, or are or have ever been employed in any capacity in 
the direct or indirect provision of health care items or services.
     Establishment of minimum periods of exclusion for certain 
permissive exclusions. The proposed rule addressed the establishment of 
minimum periods of exclusion in 42 CFR part 1001 ranging from 1 to 3 
years for permissive exclusions from the Medicare , Medicaid and all 
other Federal programs. In accordance with section 212 of HIPAA--
    (1) A standard period of exclusion of 3 years would be established 
for convictions of misdemeanor criminal health care fraud offenses; 
criminal offenses relating to fraud in non-health Federal or State 
programs; convictions relating to obstruction of an investigation of 
health care fraud; and

[[Page 46677]]

convictions of misdemeanor offenses relating to controlled substances. 
Aggravating and mitigating circumstances may be taken into account to 
lengthen or shorten this period, as appropriate.
    (2) For permissive exclusions from Medicare, Medicaid and all other 
Federal programs resulting from the revocation, surrender or suspension 
of an individual's or entity's health care license relating to 
professional competence, professional performance or financial 
integrity, an exclusion would be imposed for a period not less than the 
period during which the individual's or entity's license was revoked or 
suspended.
    (3) For permissive exclusions derived from the suspension or 
exclusion from other Federal health care programs, such as CHAMPUS, 
Veterans and other State health care programs, relating to an 
individual's or entity's professional competence, professional 
performance or financial integrity, an exclusion would be imposed for a 
period not less than the period the individual or entity is excluded or 
suspended from that Federal or State health care program.
    (4) A minimum one-year period of exclusion would be established for 
individuals or entities who are found to have submitted claims for 
excessive charges or who furnished unnecessary or substandard items or 
services; and health maintenance organizations that are found to have 
failed to provide medically necessary items and services. (An 
inadvertent error was made in the proposed rule in addressing the scope 
of the minimum one-year period of exclusion. A technical revision is 
set forth in section IV. of this preamble.)
     Permissive exclusion of individuals with ownership or 
control interest in sanctioned entities. In accordance with section 213 
of HIPAA, a new Sec. 1001.1051 was proposed to implement permissive 
exclusions applicable to individuals who have a majority ownership 
interest in, or have significant control over the operations of, an 
entity that has been convicted of an offense or excluded. Under this 
section, we proposed that the length of exclusion generally be for the 
same period as that of the sanctioned entity with which the individual 
had a relationship.

2. Additional Technical and Conforming Changes

    In addition to proposing codification in regulations of the HIPAA 
exclusion provisions, we also set forth for comment a number of 
proposed technical and conforming changes designed to clarify OIG 
exclusion authority policy currently codified in 42 CFR parts 1000, 
1001, 1002 and 1005. Among the revisions set forth in the proposed 
rule--
     We proposed revising Sec. 1001.2 to indicate that the term 
``incarceration'' would include imprisonment or any type of 
confinement, with or without supervised release.
     Because the term ``patient'' has been narrowly defined in 
some instances to restrict its scope to only an individual in a 
traditional medical care setting, we proposed to revise Secs. 1001.2 
and 1001.101 to define the term to include any individual receiving 
health care services, including any item or service provided to meet 
his or her physical, mental or emotional needs, regardless of whether 
it is reimbursed under Medicare, Medicaid or any other Federal health 
care program and regardless of the location in which it is provided.
     In order to distinguish between more and less egregious 
cases involving patient abuse or neglect, we proposed adding a new 
aggravating factor to Sec. 1001.102(b) to indicate that the OIG would 
consider whether the action that resulted in the conviction was 
premeditated, part of a continuing pattern of behavior, or consisted of 
non-consensual sexual acts.
     In allowing greater flexibility to consider an additional 
conviction if the individual or entity is convicted of both Medicare 
fraud and another offense, such as tax evasion, we proposed to amend 
various sections of 42 CFR part 1001 to allow the Department to 
consider any other conviction or civil or administrative sanction prior 
to, concurrent with or subsequent to the conviction upon which the 
exclusion was based.
     We proposed to revise Secs. 1001.2002 and 1005.15 to 
indicate that the initial notice letter of exclusion to the affected 
individual or entity could be amended should any additional information 
or wrongdoing occur or come to the attention of the OIG subsequent to 
the letter, and that these additional items or information may be 
introduced into evidence by either party at the hearing before the 
administrative law judge.
     To encourage greater cooperation by individuals and 
entities, and to afford the OIG greater flexibility in identifying and 
addressing issues related to program fraud and abuse, we proposed 
adding a new mitigating factor applicable to the authorities in 42 CFR 
part 1001 that would take into account whether the cooperation of an 
individual or entity resulted in additional cases being investigated or 
reports issued by the appropriate law enforcement agency identifying 
program vulnerabilities or weaknesses.
     In Sec. 1001.701, we proposed to more clearly explain the 
imposition of exclusions under section 1128(b)(6) of the Act concerning 
excessive charges or costs and to whom an individual's or entity's 
excess charges or costs apply.
     We proposed to clarify the term ``agent'' in 
Sec. 1001.1001 by reiterating existing OIG policy concerning the 
legitimacy of transfer of a health care entity from an excluded 
individual to a spouse, and the circumstances constituting divestment 
of ownership and control of the entity by the excluded individual.
     To clarify that the obtaining of a program provider number 
or equivalent would not automatically result in an individual's or 
entity's reinstatement into the programs, we proposed revising 
Secs. 1001.1901, 1001.3001 and 1001.3002 to clarify existing OIG policy 
that an excluded individual or entity continues to be excluded until 
officially reinstated by the OIG, regardless of whether a provider 
number or equivalent is obtained prior to this OIG action. In 
Sec. 1001.1901, we also proposed to reiterate current HCFA policy 
regarding payment of the first claim of a supplier after notice of a 
provider's exclusion, i.e., HCFA will not pay for items and services 
furnished by a supplier past the fifth day following the date of the 
written notice to the supplier of the provider's program exclusion.
     Because the OIG has the obligation to impose an exclusion 
on individuals or entities when the statutory requirements of section 
1128 of the Act are met, regardless of whether the individual or entity 
is paid by the programs directly, or the items or services are 
reimbursed by the programs indirectly through claims of a third party 
who is a direct provider, we proposed to clarify the definition of 
``furnished'' in Sec. 1000.10 to indicate that exclusions would apply 
to any individual or entity that provides or supplies items or 
services, directly or indirectly. In this section, we proposed to make 
clear that no payment would be made to any direct provider for items 
and services manufactured, distributed or otherwise provided by an 
excluded individual or entity.
     With regard to the Medicaid State agency's obligations to 
notify the OIG of certain actions, we proposed revising Sec. 1002.3 to 
state that the Medicaid agency would be required to promptly notify the 
OIG of any and all actions--including suspension actions, settlement 
agreements and situations where the individual or entity voluntarily 
agrees to withdraw from the

[[Page 46678]]

program to avoid a formal sanction action--that it takes to limit any 
individual's or entity's ability to participate in its program.

III. Response to Comments and Summary of Revisions

    In response to the notice of proposed rulemaking, the OIG received 
a total of 109 timely-filed public comments from various health care 
providers and organizations, State and professional medical societies 
and associations, and other interested parties. Set forth below is an 
abstract of the various comments and recommendations received, our 
response to those concerns, and a summary of the specific revisions and 
further clarifications being made to the regulations at 42 CFR parts 
1000, 1001, 1002 and 1005 as a result of the proposed HIPAA exclusion 
rule and these public comments.

Section 1000.10, Definition of the term ``furnished''

    Comment: We proposed to clarify the current definition of the term 
``furnished'' in Sec. 1000.10 to indicate that exclusions will apply to 
any individual or entity that provides or supplies items or services, 
directly or indirectly.2 A total of 22 comments responded to 
this proposed revision. Citing sections 1128a-7a and 1128(b)(7) of the 
Act and the legislative history of the 1987 amendments to the Act, a 
number of commenters questioned whether the OIG had the statutory 
authority to take remedial action and exclude individuals or entities 
from participation in Medicare and Medicaid if such individuals or 
entities do not directly ``participate'' in these programs by 
submitting claims for reimbursement to them. Commenters further stated 
that the expansion of the exclusion authority to indirect providers was 
proposed and contemplated in previous OIG rulemakings (55 FR 12205, 
April 2, 1990; 57 FR 3298, January 29, 1992)--addressing revisions to 
OIG sanction authorities resulting from Public Law 100-93--and that no 
new circumstances or substantive reasons exist now that warrant further 
consideration of this revision.
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    \2\ The term ``indirectly'' means the provision of items and 
services manufactured, distributed or otherwise supplied by 
individuals or entities who do not directly submit claims to 
Medicare, Medicaid or other Federal health care programs, but that 
provide items and services to providers, practitioners or suppliers 
who submit claims to these programs for such items and services. The 
term ``indirectly'' does not include individuals and entities that 
submit claims directly to these programs for items and services 
ordered or prescribed by another individual or entity.
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    Response: As indicated in the preamble to the proposed rule, the 
OIG intends to change its position on this issue. In 1992, we elected 
to publicly state in the preamble to the final exclusion regulations 
implementing the Medicare and Medicaid Patient and Program Protection 
Act of 1987 our intention to refrain from exercising our exclusion 
authority in the case of manufacturers or distributors that could be 
subject to exclusion but do not submit claims to the programs for the 
items they supply (57 FR 3298, January 29, 1992). While we were 
cognizant at that time of our authority to exclude such indirect 
providers, and said so explicitly in the preamble to that final rule, 
we were also concerned that it would be difficult to administer 
exclusions against entities that are not reimbursed directly by the 
Department. We have now concluded that such exclusions should be 
undertaken, when warranted by the conduct of such entities, 
notwithstanding the administrative burdens.
    In our earlier discussion of the effect of an exclusion, we cited 
section 1862(e) of the Act, which denies both payment for items and 
services provided by an excluded individual or entity and payment for 
services furnished at the medical direction or on the prescription of 
an excluded physician. This provision reflects the intent of Congress 
and the Secretary that the Government not pay--directly or indirectly--
for the services of untrustworthy individuals and entities with whom 
the Department has determined it should cease doing business. 
Historically, with each set of amendments to the original 1977 
exclusion statute (section 1128(a) of the Act) mandating ``suspension'' 
of ``physicians and other practitioners'' from the programs subsequent 
to any conviction for a program-related crime, Congress has expanded 
the scope of the exclusion authority to permit, and sometimes to 
mandate, exclusion of a wider scope of ``untrustworthy'' individuals 
and entities.
    For example, in the 1980 amendments to section 1128(a) of the Act, 
Congress stated that it was broadening the exclusion authorities to 
make such authorities ``apply to other categories of health 
professionals, such as administrators of health care institutions' 
(House Report 96-1167, p. 5572). The Report by Congress went on to say 
that ``[i]n the case of those professionals who do not directly furnish 
medical care or services, payment would not be made to the provider for 
the cost of any services furnished to or on behalf of the provider by 
the convicted professional * * *'' (underlining added). We believe that 
the 1980 amendments made it clear that indirect providers that were 
convicted were to be excluded, and that the effect of such an exclusion 
would be that items and services furnished by these indirect providers 
could not be reimbursed. We believe this is consistent with the 
Department's interpretation of its current authority to exclude any 
individual or entity that violates the prohibitions of section 1128 of 
the Act.
    Further, in the Balanced Budget Act (BBA) of 1997, Congress again 
indicated its continued expectation that indirect providers of items 
and services will be excluded from the programs. In the BBA, Congress 
enacted a civil money penalty (CMP) to deter providers from doing 
business with excluded individuals or entities. The new statutory 
authority--section 1128A(a)(6) of the Act--permits the Secretary to 
impose a CMP against any person (defined broadly in the statute to 
include entities) who ``arranges or contracts (by employment or 
otherwise) with an individual or entity that the person knows or should 
know is excluded from participation in a federal health care program * 
* * for the provision of items or services for which payment may be 
made under such a program.'' Implicit in the enactment of this CMP 
authority is Congress' expectation that indirect providers who do not 
submit claims to the programs are subject to exclusion. Services 
furnished by such indirect providers, and items manufactured or 
supplied by them, would be unreimbursable due to the excluded status of 
the individual or entity. In addition, the direct provider who submits 
a request for reimbursement for such items or services is subject to a 
CMP. Thus, from 1980 to the present, Congress has consistently and 
repeatedly expressed its view that any individual and entity that 
furnishes items or services that are reimbursable under the programs is 
subject to exclusion from the programs, regardless of whether that 
individual or entity directly presents a bill to the program.
    Thus, we have concluded that our original regulatory policy, while 
perhaps sensible from the standpoint of administrative ease of 
enforcement, is not fully consistent with the legislative intent of 
section 1128 of the Act. Furthermore, it is not appropriate to continue 
to exempt untrustworthy manufacturers and distributors of products from 
exclusion, when many other providers are excluded every year due to 
similar concerns.

[[Page 46679]]

    Comment: Many commenters believed that the proposed rule failed to 
provide sufficient information about how an exclusion would be applied 
to indirect providers and to which indirect providers it would apply. 
Commenters indicated that this definition of ``furnished'' would 
neither be fair nor effective since the use of an exclusion against 
individuals or entities that do not receive reimbursement from the 
Medicare or Medicaid programs will have more of a punitive effect on 
innocent third parties than it would on the actual wrongdoer. 
Commenters indicated that limiting the number of available or 
appropriate sources of equipment or supplies would have anti-
competitive effects and could result in beneficiaries being denied 
services or supplies. In addition, the commenters stated that direct 
providers may be inappropriately denied reimbursement, unfairly 
burdened with monitoring responsibilities, and inappropriately subject 
to False Claims Act prosecution. Some commenters believed that since 
some equipment manufacturers and suppliers rely heavily on their 
ability to sell their products to providers who receive Medicare and 
Medicaid program reimbursement, this lack of ability to sell their 
products to program providers would effectively force them out of 
business.
    Response: Since 1980, the Department has been excluding many 
``indirect'' providers of items and services that are reimbursed by the 
programs. Nurses, home health aides and laboratory technicians, for 
example, cannot submit claims yet have often been excluded from the 
programs. During their exclusion period, no employer, such as a 
hospital or nursing home, may be paid by the programs for any services 
furnished by these individuals. Employees of companies who provide 
transportation to nursing home residents, accountants who keep the 
account books for health care institutions, and an employee of a 
Medicare carrier who stole checks that belonged to physicians as 
payment for services provided to beneficiaries are all examples of 
individuals who have been excluded from the programs. In all cases, the 
costs attributable to their services may not be charged on cost reports 
or be claimed by an employer in any other way during the period of 
their exclusion.
    As discussed above, the new CMP authority enacted in BBA is the 
most recent indication that Congress has not carved out an exception 
for indirect providers simply because they do not participate in the 
programs directly through submitting claims and receiving direct 
reimbursement. Through the new BBA CMP authority, Congress, in fact, 
has provided the OIG with a new tool to enforce exclusions against 
indirect providers. By making direct providers liable if they submit 
claims for others who are excluded, the direct provider is likely to be 
deterred from doing so. Because fewer of these impermissible claims 
should be submitted, it should become less common for the programs to 
unwittingly pay indirectly for items and services furnished by excluded 
parties.
    By law, the Department has an ongoing obligation to impose 
mandatory exclusions when warranted. Notwithstanding the difficulty in 
monitoring and administering exclusions against so-called ``indirect'' 
providers, we believe that an exception for indirect providers and 
suppliers is not appropriate as a matter of policy. Just as nurses, 
home health aides, administrators and others who do not bill the 
programs directly for their services have been excluded over the years, 
we believe that untrustworthy manufacturers and suppliers of drugs, 
medical devices and durable medical equipment and other reimbursable 
items must be treated in a similar fashion.
    In addition to revising the definition for the term ``furnished'' 
in Sec. 1000.10, we are addressing some concerns raised by adding 
definitions to this section for the terms ``directly'' and 
``indirectly,'' as used in the definition of ``furnished,'' to 
specifically clarify the meaning of these terms.
    Comment: Commenters recommended that clearer, more specific 
guidance was necessary on how the OIG intended to administer this 
authority. Specifically, a number of commenters raised concerns about 
the effect that this revision would have on current inventories held by 
providers, and the potential confusion that could result when more than 
one manufacturer is licensed to manufacture a product, e.g., a 
prescription drug. It was indicated by some commenters that determining 
the actual manufacturer of certain products could sometimes be 
extremely difficult or impossible. Clarification was also requested on 
the impact on providers who receive a physician's prescription, for 
example, for a specific item or equipment manufactured by an excluded 
entity.
    Response: In clarifying the definition of the term ``furnished,'' 
we are indicating that exclusions of indirect providers may be imposed, 
when appropriate. We would not expect that manufacturers would often be 
convicted and subject to a mandatory exclusion. However, on those 
exceptional or infrequent occasions when a manufacturer is convicted, 
we cannot justify treating it more favorably than we would treat others 
similarly convicted. Moreover, the concern for protecting the programs 
from those who are untrustworthy applies to all those convicted of 
health care criminal offenses.
    We are fully aware that exclusion of a manufacturer or supplier may 
have a significant effect on direct providers, practitioners or 
suppliers who would be paid by the programs for items or services 
manufactured, distributed or otherwise provided by an excluded entity. 
We are committed to exercising this sanction authority carefully and 
prudently, and acting only where the excluded provider's product can be 
clearly identified. We are committed to assisting affected 
beneficiaries to avoid hardship as a consequence of any exclusion of a 
manufacturer or supplier. Moreover, we are committed to ensuring that 
no inappropriate hardships will be imposed on direct providers who 
unknowingly bill Federal health care programs for items and services 
furnished by an excluded indirect provider. The new civil money penalty 
provision authorized by section 4304(a) of BBA against those who 
arrange or contract with an excluded individual or entity will only be 
used where a direct provider ``knows or should know'' of the exclusion.
    While it is impossible to predict every possible scenario and to 
provide much specific guidance in this document, there is, however, 
some general guidance that we can offer. Under our proposed revisions, 
we never intended that items within a direct provider's existing 
inventory be affected by the exclusion of a manufacturer. Specifically, 
any health care items that a practitioner, provider or supplier has in 
inventory from the excluded manufacturer prior to the effective date of 
the exclusion of the manufacturer will not be affected by the 
exclusion, and claims may be submitted for the furnishing of such items 
by the practitioner, provider or supplier. This will include all 
supplies and items maintained in inventory by a practitioner, provider 
or supplier that are billed to Medicare or other Federal health care 
programs through a claims form or on a cost report.
    In addition, in an attempt to alleviate some concerns raised by 
commenters, we have decided to amend Sec. 1001.1901(c)(3) by adding a 
new provision to permit payment for health care items ordered from an 
excluded manufacturer prior to the effective date of the exclusion and 
delivered up to 30 days after the effective date of such

[[Page 46680]]

exclusion.3 We believe this will further protect 
beneficiaries and direct providers from significant financial harm due 
to the indirect provider's exclusion.
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    \3\ For the first year from the effective date of this provision 
only, we are permitting payment for health care items ordered from 
an excluded manufacturer prior to the effective date of the 
exclusion and delivered up to a 60 day period after the effective 
date of the exclusion.
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    In those unusual cases where a manufacturer is convicted of health 
care-related fraud, the OIG will carefully examine the products or 
services being provided or distributed, and on a case-by-case basis 
provide the necessary guidance to affected direct providers. Our 
interest is in enforcing the exclusion while guaranteeing, with 
reasonable assurance, that no substantial harm comes to program 
beneficiaries and direct providers. When appropriate and permitted by 
law, the OIG will entertain a request for waiver of an exclusion, such 
as, for example, if a convicted pharmaceutical company manufactures the 
only drug deemed effective to treat a particular disease. If a waiver 
is requested by a State agency and the OIG deems that such waiver is 
appropriate and should be implemented nationally, we believe that the 
OIG has the discretion to extend the waiver to all State Medicaid 
programs, as well as to Medicare.
    Comment: Several commenters addressed the potential adverse impact 
of a manufacturer's exclusion on direct providers and suppliers, 
indicating that providers such as hospitals could suffer extreme 
administrative and financial costs in complying with this exclusion 
authority. Commenters stated that since direct providers or suppliers 
would not be paid for a particular item or supply furnished by an 
excluded entity, providers or suppliers may have to collect or maintain 
additional information to demonstrate to the programs that the item for 
which it is seeking payment was not furnished by an excluded entity.
    Response: We do not agree that there will be significant new 
administrative costs to direct providers, such as hospitals, nursing 
homes and physicians, in ensuring that they do not submit claims for 
items manufactured or supplied by excluded parties. Exclusions of 
manufacturers are rare and usually well-publicized in the press and 
other media. Further, the OIG will quickly inform the public of the 
exclusion over the internet, as it does with all exclusions. Direct 
providers must keep themselves apprised of all exclusions, not only to 
ensure that their claims are reimbursable, but also to ensure that they 
are not subject to the new CMP for contracting with or employing an 
individual or entity that is excluded. We do not believe that the 
revision to the definition of ``furnished'' will place significant new 
burdens on direct providers above and beyond the responsibility they 
already have to refrain from doing business with excluded parties.

Section 1001.2, Definitions

    Comment:  One commenter believed that amending the term 
``exclusion,'' that is, by adding the words ``ordered or prescribed'' 
to prohibit Medicare payment to providers that furnish services ordered 
or prescribed by an excluded provider, confuses the issue of fraud and 
the real need for medical care since a provider, such as a physician, 
that has been excluded from the Medicare program may still order 
services that are medically necessary that need to be furnished by 
another entity.
    Response: We believe the commenter has misinterpreted the statutory 
language. The revised definition of the term ``exclusion'' is being set 
forth to conform and be consistent with statutory language in Public 
Law 100-93 under which items and services will not be reimbursed under 
the programs when furnished, ordered or prescribed by an excluded 
individual or entity. Although an excluded individual or entity may 
continue to order or prescribe items and services, those items and 
services are not reimbursable under the programs.
    Comment: We proposed revising the definition of the term 
``patient'' to ensure that it includes any individual who is receiving 
any health care items or services to meet physical, mental or emotional 
needs, whether or not the item or service is reimbursed under Medicare, 
Medicaid or any Federal health care program and irrespective of the 
location of where the service is provided. While supportive of this 
approach, one commenter believed that the statute was not necessarily 
intended to extend to patient neglect and abuse related to items and 
services ``wholly unconnected'' with Medicare, Medicaid and all other 
Federal health care programs, and believed that we should look at other 
statutory authorities elsewhere to sanction abuse of such individuals 
before expanding the existing definition.
    Response: Section 1128(a)(2) of the Act does not directly relate to 
Medicare, Medicaid or any other specific Federal health care program. 
This statutory provision covers conduct against any patient regardless 
of that individual's relationship with these programs. The OIG believes 
that the statute is intended to prohibit neglect and abuse of all 
individuals receiving health care items and services, regardless of the 
care giver or the location within which the items or services are 
provided, and is adopting this definition to ensure consistent 
interpretation of this provision.

Part 1001, Additional Aggravating Factor in Determining Length of 
Exclusion; Conviction of More Than One Offense

    Comment: We proposed revising one of the aggravating factors in 
Secs. 1001.102 through 1001.951, that would permit consideration of any 
adverse actions by other Federal, State or local government agencies or 
boards based on the same conduct as a basis for lengthening an 
exclusion. The proposed factor was set forth to consider ``whether the 
individual or entity was convicted of other offenses besides those 
which formed the basis for the exclusion, or has been the subject of 
any other adverse action by a Federal, State or local government agency 
or board, even if the adverse action is based on the same set of 
circumstances that serves as the basis for imposition of the 
exclusion'' (underlining added). A number of commenters disagreed that 
the OIG should have the discretion to consider other convictions, 
whether in the past or contemporaneous, as an aggravating factor. 
Commenters argued that in the case of an individual or entity that was 
the subject of various ``adverse actions'' by a locality on a matter, 
unrelated to a later conviction, such other actions should have no 
bearing on the appropriate length of an individual's program exclusion, 
and believed that some limits should be placed on the consideration of 
adverse actions since different agencies (especially ones with no 
health care responsibilities) may reach varying conclusions based on 
very different policy considerations. Commenters stated that since 
simultaneous convictions may be based on only one course of conduct and 
represent a prosecutor's decision to charge essentially the same 
conduct under various offenses, we should not be allowed to increase an 
exclusion period where an individual is convicted of multiple offenses 
at the same time he or she is convicted of the offense that forms the 
basis for the exclusion.
    Response: While the language set forth in these sections is 
permissive, it is specifically designed to address the issue of an 
individual's or entity's trustworthiness. Thus, we are revising the 
language throughout part 1001 so that the factor will be relevant to 
the

[[Page 46681]]

same conduct and circumstances that serves as the basis for the 
imposition of the OIG exclusion. We believe that the revised language 
is fairer, while allowing the OIG to attain the intended goal of 
allowing an increased sanction only if the adverse action was related 
in some way to the original basis for the exclusion. The intent of the 
revised language is to allow the OIG to increase the length of 
exclusion if an individual or entity was convicted of other offenses at 
the same time as he or she was convicted of the offense that served as 
the basis for the exclusion. Inclusion of this aggravating factor will 
permit the OIG to increase a length of exclusion when an individual is 
convicted of Medicare fraud and any other offense, such as drug 
distribution or income tax evasion. The aggravating factor will take 
into consideration separate and different types of convictions that 
occurred concurrently; we do not intend to use the basis of the OIG 
exclusion more than once as a factor in lengthening an exclusion.

Part 1001, New Mitigating Factor in Determining Length of Exclusion

    Comment: A number of commenters supported the proposed new 
mitigating factor in Secs. 1001.102(c)(3) , 1001.201(b)(3)(iii), 
1001.301(b)(3)(ii), 1001.401((c)(3)(i), 1001.501(b)(3)(i) and 
1001.601(b)(3)(ii) that would take into account whether the cooperation 
of an individual or entity resulted in additional cases being 
investigated, or reports being issued, by the appropriate law 
enforcement agency identifying program vulnerabilities or weaknesses. 
The commenters believed that this additional factor would positively 
impact on individuals' cooperation and encourage offenders to assist 
board investigators and other State authorities. One commenter, 
however, stated that the value of some information may not be 
determined until much later, and recommended that credit should also be 
given to individuals and entities that cooperate and provide 
information that is not immediately validated by the commencement of a 
new case or report issuance since preliminary investigations may 
require a significant amount of time before a case is opened or a 
report prepared.
    Response: While we expect this mitigating factor to be taken into 
consideration only in those situations where the law enforcement agency 
validated the person's information by opening up a case investigation 
or by issuing a report, we nevertheless believe that this additional 
factor will afford the OIG greater flexibility in identifying and 
addressing issues related to program waste, fraud and abuse.

Section 1001.701, Excessive Claims or Furnishing of Unnecessary or 
Substandard Items or Services

    Comment: In an effort to more clearly define the scope of an action 
under section 1128(b)(6) of the Act, we proposed to revise 
Sec. 1001.701(a)(1) to further clarify to whom an individual's or 
entity's excess charges or costs apply. Many commenters strongly 
objected to what they believed was the OIG's setting of Medicare 
payment policy (for bills submitted on the basis of costs or charges) 
at the best price charged to any payer. Specifically, the proposed 
language addressed possible exclusion of providers that have 
``submitted, or caused to be submitted, bills or request for Medicare, 
Medicaid and all other Federal health care program payments that 
contain charges or costs that are substantially in excess of their 
usual charges or costs for items or services furnished to any of their 
customers, clients or patients.'' Many of the commenters indicated that 
this proposed revision would create excessive administrative and 
billing difficulties that would require a comprehensive and consistent 
review of charges to all customers. Further commenters stated that this 
proposal would have substantive implications for providers who work 
with managed care programs, discouraging providers from entering into 
these discounted rate arrangements or possibly forcing physicians 
participating in these programs to increase their contract rates in an 
effort to recover what may constitute a loss on Medicare program 
claims. In addition, commenters indicated that the proposed revision 
fails to take into account that most physician payments under Medicare 
are now determined by a resource-based relative value scale system.
    Response: Many commenters misunderstood our proposal. The proposed 
rule intended to subject those who submit bills based on costs or 
charges to liability for exclusion if they presented bills for amounts 
``substantially in excess'' of lowest prices charged any customer. 
Nevertheless, persuasive arguments have been raised, and we are 
withdrawing our proposed modification to Sec. 1001.701 at this time. We 
have become convinced that the prohibitions of section 1128(b)(6)(A) of 
the Act have very limited applicability with respect to the current 
Medicare reimbursement system. The recently-enacted Balanced Budget Act 
of 1997, Public Law 105-33, either directly mandates prospective 
payment or provides authority for the Secretary to develop additional 
fee schedules to replace almost all existing cost or charged-based 
reimbursement methodologies. The purpose of fee schedules is to bring 
Medicare reimbursement more in line with market rates. As fee schedules 
are implemented, providers may have less incentive and less opportunity 
to claim Medicare payment that is substantially in excess of their 
usual charges. Therefore, we would expect this statutory authority to 
have declining relevance within the Medicare reimbursement system. 
Moreover, the statute contains the undefined term ``substantially in 
excess,'' which makes enforcement action difficult. As such, we now 
believe that modifying the definition of ``usual charges'' will have 
very little impact.

Section 1001.801. Minimum Period of Exclusion

    Comment: Based on section 212 of HIPAA, we proposed amending 
Sec. 1001.801(c) to require a minimum exclusion period of one year for 
managed care organizations that are found to have failed to provide 
medically necessary items or services. One commenter believed that the 
OIG was in error in interpreting section 212 applicability to this 
provision. The commenter indicated that section 212 of HIPAA 
establishes minimum periods of exclusion for some activities prohibited 
under section 1128(b) of the Act, specifically only those activities 
described in section 1128(b)(6)(B) of the Act. As a result, the 
commenter stated that under the exclusion authority in Sec. 1001.801 
for managed care organizations that fail to provide medically necessary 
services, there is no legal authority to mandate a one-year minimum 
exclusion period. The commenter indicated that under the proposed 
language if a single physician acts inappropriately, and the managed 
care organization in which he or she is participating finds out about 
the issue and acts appropriately and promptly to address the problem, 
in this instance the OIG would be inappropriately forced to impose a 
one year exclusion.
    Response: We believe the commenter is correct in this regard and 
that the concerns set forth are valid. As a result, we are amending 
paragraph (c)(1) of this section.

Section 1001.1051, Exclusion of Individuals With Ownership or Control 
Interest in Sanctioned Entities

    Comment: In accordance with a new HIPAA provision, we proposed to 
add Sec. 1001.1051 to permit the exclusion of

[[Page 46682]]

individuals (1) who have a ``direct or indirect'' ownership or control 
interest in a sanctioned entity if the individual ``knows or should 
know'' of the action constituting the basis for the conviction or 
exclusion, and (2) who are officers or managing employees of a 
sanctioned entity. Commenters indicated that because the exclusion is 
potentially applicable in the latter category to persons with no 
knowledge of the sanctioned entity's wrongdoing, the OIG should provide 
specific criteria on which decisions are based on whether to seek the 
imposition of a permissive exclusion against such individuals. Some 
commenters recommended that the OIG follow a ``deliberate ignorance'' 
standard for excluding officers and managing employees of sanctioned 
entities. Commenters indicated that in failing to use a standard of 
``deliberate ignorance,'' the OIG would be targeting individual 
physicians who may have no reason to know whether the entity with which 
they are affiliated was convicted or excluded. As a result, these 
commenters believed that to exclude an officer or managing employee 
without having to show some knowledge of the underlying sanction would 
be excessive and inappropriate. In addition, some commenters were 
concerned that the proposed rule did not specifically preclude 
exclusion of an officer or managing employee who joins a previously 
sanctioned entity after commission of the conduct on which the sanction 
was based, and when he or she had no relationship with the entity at 
the time of the commission of the wrongful actions.
    Response: In accordance with the statute, in the case of an officer 
or managing employee, the OIG does not have to demonstrate that such 
individuals acted in deliberate ignorance of the offense constituting 
the sanctionable action. It appears that Congress believed that any 
person serving as an officer or managing employee of the entity is 
presumed to have specific knowledge of the actions constituting the 
basis for the exclusion. Our language in Sec. 1001.1051(a) is 
consistent with the statute and does not afford the OIG policy 
discretion in this regard when considering the relationship between an 
officer or managing employee and a sanctioned entity during the period 
the sanctionable actions were committed.
    Comment: Several commenters objected to the fact that the period of 
exclusion for individuals under Sec. 1001.1051(c)(1) would be the same 
as the period of exclusion for the entity, if the entity is excluded. 
Commenters stated that an individual's reinstatement request under this 
section should be judged on its own merits rather than linked to a 
particular entity's status. The commenters believed that arbitrary 
application of this provision would impact on individuals, especially 
in situations where the entity may in fact no longer exist.
    Response: The language in Sec. 1001.1051(c) is being revised to 
address these concerns in some respects. While the length of exclusion 
for such individuals will be for the same period of time as that of the 
sanctioned entity with which he or she has had the prohibited 
relationship, any individual excluded under this provision may apply 
for reinstatement in accordance with the procedures set forth in 
Sec. 1001.3001 of the regulations.

Section 1001.1901, Scope and Effect of Exclusion

    Comment: We proposed revising Sec. 1001.1901(b)(3) to indicate that 
submitting, or causing to submit, claims for items or services ordered 
or prescribed by an excluded individual or entity may be sufficient 
grounds to deny reinstatement to the programs. One commenter believed 
that this provision would prevent an excluded person not only from 
program participation, but also from operating in the health care arena 
at all during the period of exclusion, and as such, was unwarranted and 
impermissible.
    Response: We believe that the revised language is not overly broad, 
serves to more clearly define what an excluded individual or entity can 
do, and specifically re-enforces existing OIG policy set forth in 
exclusion notice letters currently sent to individuals and entities. 
Accordingly, we are retaining the language in paragraph (b)(3) of this 
section as set forth in the proposed rule.

Section 1001.2001, Elimination of In-Person Hearings Prior to When 
Exclusion is Proposed

    Comment: We proposed deletion of Sec. 1001.2001(b) which provides 
for an in-person hearing when an exclusion is proposed under section 
1128(b)(6)(B) and (C) of the Act. Paragraph (b) of Sec. 1001.2001 
states that with respect to such exclusions the individual or entity 
``may submit, in addition to the information described in paragraph (a) 
of this subsection, a written request to present evidence or argument 
orally to an OIG official.'' Several commenters opposed the elimination 
of an opportunity for oral evidence and argument, and believed it was 
essential that providers be given full due process rights before the 
effective date of the exclusion and not after the exclusion has gone 
into effect. Commenters stated that failure to present information 
directly and in person presents a significant due process problem, and 
believed that a provider facing exclusion should be permitted the 
opportunity to present its case in person rather than just on paper. 
For example, one commenter, representing orthotic and prosthetic 
interests stated that since most people are not familiar with the 
fabrication or use of certain items or devices, a visual demonstration 
often easily clears up a misunderstanding that would continue were it 
to be based solely upon written information, and would enhance the 
possibility of resolving issues at an early stage. In addition, some 
commenters stated that although a provider still retains the ability to 
challenge the proposed exclusion, an exclusion by the OIG would remain 
in effect during the formal appeals process until overturned, thus 
potentially resulting in financial harm to that provider. As an 
example, one commenter stated that a successful appeal during a formal 
appeals process would be meaningless for a managed care organization 
that was excluded, had its contract terminated and had its Medicare and 
Medicaid members disenrolled or subsequently enrolled into other health 
plans.
    Response: As we indicated in the preamble discussion of the 
proposed rule, the vast majority of cases involving a proposal to 
exclude are medical in nature, with the OIG relying on a Medicare 
intermediary or carrier, a peer review organization or other medical 
reviewer to provide medical review of a case prior to it being referred 
by the OIG. In addition to relying on this prior medical review, under 
the revised regulation the provider is still afforded an opportunity to 
submit any appropriate written material to the OIG for review and 
consideration. We believe this revised approach will usually be the 
most appropriate, efficient and timely use of resources for protecting 
the programs and its beneficiaries. However, we recognize that there 
may be situations where the OIG may, at its discretion, wish to hear 
oral argument prior to deciding whether to impose an exclusion. As a 
result, we will permit individuals and entities to request, in 
conjunction with their written submission, an opportunity to present 
oral argument to an OIG official. Regardless of whether oral argument 
is allowed, individuals and entities will still retain the ability to 
challenge in the administrative process any OIG proposed exclusion. The 
administrative process includes, among other things,

[[Page 46683]]

the right to call witnesses, the cross-examination of witnesses, and 
the presentation of evidence to an Administrative Law Judge, as set 
forth in 42 CFR part 1005.

Section 1001.2005, Notice to State Licensing Agencies

    Comment: We proposed deleting Sec. 1001.2005(b) and revising this 
section to indicate that while the Department will continue to notify 
State and local agencies of the circumstances leading to an exclusion, 
it would not be tied to a specific notification process. Commenters 
believed that whether or not the Department advocates specific State 
and local actions may significantly influence the actions generally 
taken by these agencies, and recommended that any revision to this 
section include guidelines regarding the OIG's intended position on 
notification of exclusions to these agencies and the designation of a 
general time frame within which the agencies may be notified of the 
exclusions.
    Response: The statute obligates the Department to notify State and 
local agencies of any exclusion action taken by the OIG, but is not 
does not require us to delineate the precise methods as to when and how 
this notification will occur. We believe it would be an unnecessary 
paperwork burden to establish specific notification procedures to be 
used, and thus remained opposed to placing such internal procedures in 
regulations. We are, however, sensitive to the commenters concerns of 
keeping State and local agencies promptly and directly informed of any 
exclusion action taken by the OIG. As a result, in an effort to 
increase the effectiveness of the process and allow the use of 
alternative means of notification, we are reinserting paragraph (b) of 
this section, but will continue to reserve the right to alter this 
notification process to consider alternative, more efficient methods as 
appropriate.

Section 1001.3001, Timing and Method of Request for Reinstatement

    Comment: We proposed to revise this section to permit submission of 
a request for reinstatement only after the full period of exclusion has 
expired. Commenters believed that this provision, as interpreted, would 
guarantee that the period of exclusion would exceed the period 
originally specified since it would also incorporate the amount of time 
taken by the OIG to process a reinstatement request. One commenter 
believed that this was especially problematic since the regulation does 
not impose constraints on the amount of time the OIG may take in 
processing such requests.
    Response: We believe that commenters' concerns are valid and are 
agreeing to take no action in revising the existing regulatory language 
with regard to the time frames for reinstatement. We are also 
withdrawing the conforming change proposed in Sec. 1001.3002(a). We 
are, however, clarifying in Sec. 1001.3001(a) that obtaining a program 
provider number or equivalent, in and of itself, does not reinstate an 
individual's or entity's eligibility nor does it connote permission to 
bill the programs. Thus, merely obtaining a program provider number or 
equivalent from HCFA, a State agency or other Federal health care 
agency cannot vitiate an exclusion by the OIG; an exclusion will remain 
in effect until such time as the OIG formally reinstates the individual 
or entity.

Section 1001.3002, Basis for Reinstatement

    Comment: A technical revision was proposed in 
Sec. 1001.3002(a)(1)(ii) to delete the ``unwillingness and inability'' 
factor as a basis for consideration by the OIG in making a 
reinstatement determination. One commenter used this opportunity to 
take exception to the language in this paragraph that the OIG will make 
a determination that the types of actions that formed the basis for the 
original exclusion ``will not recur.'' The commenter believed that such 
a standard is impossible to prove, and provides too much discretion to 
the OIG in determining whether an individual or entity is to be 
reinstated in the programs. As a result, the commenter recommended that 
the term ``will not recur'' be deleted.
    Response: Use and consideration of this term is specifically 
required by the statutory language set forth in section 1128(g)(2)(B) 
of the Act.

Section 1002.3, Disclosure of Information

    Comment: One commenter recommended that we clarify the reporting 
requirements imposed on State Medicaid agencies in Sec. 1002.3 with 
respect to actions taken to limit an individual's or entity's 
participation in a State program. Specifically, the commenter suggested 
that guidance be provided as to when a State agency is obligated to 
report ``suspension actions, settlement agreements and situations where 
an individual or entity voluntarily withdraws from the program in order 
to avoid a formal sanction.''
    Response: Under section 1128(b)(5) of the Act, the OIG is 
authorized to exclude from program participation any individual or 
entity ``suspended or excluded from participation, or otherwise 
sanctioned * * *'' under a Federal or State health care program ``for 
reasons bearing on the individual's or entity's professional 
competence, professional performance, or financial integrity'' (42 CFR 
1001.601). Since 1992, Sec. 1001.601(a)(2) of our regulations has 
defined the phrase ``otherwise sanctioned'' to cover ``all actions that 
limit the ability of a person to participate in the program at issue 
regardless of what such an action is called * * *,'' including where 
there is a voluntary withdrawal from program participation in order to 
avoid a formal sanction. 4 With respect to a State agency's 
obligation to report sanctions to the OIG, Sec. 1002.3 sets forth and 
clarifies the circumstances under which a ``voluntary withdrawal'' 
should be reported.
---------------------------------------------------------------------------

    \4\  Administrative decisions have upheld exclusions under 
section 1128(b)(5) of the Act based on a physician withdrawing from 
participation in a State Medicaid program in order to avoid a formal 
sanction under this language (see Hassan M. Ibrahim, M.D. DAB CR445 
(1996)).
---------------------------------------------------------------------------

    The OIG is obligated under the statute to review providers who no 
longer qualify to participate in a State's Medicaid program, and relies 
on State Medicaid agencies to report on a timely and complete basis 
those cases where a provider has been sanctioned, including where an 
individual or entity voluntarily withdraws from a program to avoid a 
formal sanction.
    Typically, when a State agency receives a complaint or allegation, 
or is made aware of other circumstances, regarding a physician or other 
health care provider that causes the State agency to open an 
investigation or review, the physician or provider is sent a letter and 
given an opportunity to respond. Under this scenario, withdrawal from 
the State program after notice and opportunity to respond, and prior to 
the completion of a formal proceeding, would subject the physician or 
provider to possible exclusion under section 1128(b)(5) of the Act.
    Informal contacts with the provider, short of written notice, have 
been viewed as not constituting the start of a formal proceeding. If a 
provider withdraws from program participation at this early stage of an 
investigation or review prior to when formal charges or notification 
has been made, and the provider has not been offered an opportunity to 
respond, such a withdrawal would not be grounds for an exclusion. Under 
this situation, the State Medicaid agency is not required to report the 
matter to the OIG.

[[Page 46684]]

    We wish to clarify that consistent with the first example, in those 
situations where a written notice of charges or allegations has been 
given by the State agency to a provider with an opportunity to respond, 
and he or she voluntarily withdraws from program participation in order 
to avoid formal sanction, the State Medicaid agency is obligated under 
Sec. 1002.3(b)(3) to report the matter to the OIG for review and a 
determination by the OIG of whether an exclusion under section 
1128(b)(5) of the Act is appropriate. We are revising the section 
heading to Sec. 1002.3 to more accurately reflect the requirements of 
this section.

IV. Technical Revisions

    We are including in these final regulations a number of technical 
revisions in parts 1001 and 1005.
     Section 1001.2, Definitions: We are clarifying the 
definition of the term ``patient'' in Sec. 1001.2 to include residents 
receiving care in a facility described in 42 CFR part 483.
     Section 1001.1007, Excessive claims or furnishing of 
unnecessary or substandard items or services: We are making a technical 
revision to Sec. 1001.701(d)(1), the regulations implementing section 
1128(b)(6) of the Act. We incorrectly stated in the proposed rule that 
a minimum one-year period of exclusion would apply to violations of 
section 1128(b)(6)(A) of the Act (claims for excessive charges) and 
section 1128(b)(2)(B) of the Act (the furnishing of unnecessary or 
substandard items or services). However, section 1128(c)(3)(F) of the 
Act, enacted by HIPAA, mandated a minimum one-year period of exclusion 
only for individuals and entities excluded under section 1128(b)(6)(B) 
of the Act. As a result, we are clarifying Sec. 1001.701(d)(1) to 
properly reflect the statutory language.
     Section 1005.21, Appeals to the DAB: We are revising the 
language in Sec. 1005.21(k)(2) and (k)(3) by deleting the current 
reference to ``the Associate General Counsel, Inspector General 
Division, HHS,'' and by inserting the term ``Chief Counsel to the IG'' 
in its place. These changes reflect the recent consolidation of the IG 
Division of the Office of the General Counsel into the OIG (62 FR 
30859, June 6, 1997).

V. Regulatory Impact Statement

Executive Order 12866 and Regulatory Flexibility Act

    The Office of Management and Budget (OMB) has reviewed this final 
rule in accordance with the provisions of Executive Order 12866 and the 
Regulatory Flexibility Act (5 U.S.C. 601-612), and has determined that 
it does not meet the criteria for a significant regulatory action. 
Executive Order 12866 directs agencies to assess all costs and benefits 
of available regulatory alternatives and, when rulemaking is necessary, 
to select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health, safety distributive 
and equity effects). In addition, under the Regulatory Flexibility Act, 
if a rule has a significant economic effect on a substantial number of 
small businesses the Secretary must specifically consider the economic 
effect of a rule on small business entities and analyze regulatory 
options that could lessen the impact of the rule.
    The provisions set forth in this final rule, for the most part, 
implement statutory requirements, and are designed to broaden the scope 
of the OIG's authority to exclude individuals and entities from the 
Medicare, Medicaid and all other Federal health care programs. As 
indicated above, these provisions implement the new statutory 
requirements regarding the period of exclusion for some individuals and 
entities by: (1) broadening the minimum 5-year mandatory exclusion 
authority to cover felony convictions under Federal, State or local law 
relating to health care fraud, and (2) establishing minimum periods of 
exclusion for certain permissive exclusions. We believe that the number 
of individuals and entities affected these statutory changes will be 
minimal in light of the fact that these felony convictions were 
previously subject to a permissive program exclusion in accordance with 
section 1128(b)(1) of the Act prior to the enactment of the HIPAA 
changes.
    Further, while the provisions in this rule serve to clarify the 
OIG's sanction authorities by (1) establishing a new permissive 
exclusion applicable to individuals having major ownership interest in 
(or significant control over the operations of) an entity convicted of 
a program-related offense; (2) clarifying what would constitute patient 
abuse or neglect for purposes of exclusion; and (3) setting forth a 
definition for ``furnished'' that would apply to individuals and 
entities that provide or supply items or services directly or 
indirectly, we also believe the increase in the number of exclusion 
cases will be small in light of past experience with respect to 
imposing program exclusions under section 1128(b)(8) of the Act. 
Specifically, while the statutory requirement to impose exclusions in 
cases of certain types of convictions has been broadened in sections 
1128 (a)(3) and (a)(4) of the Act, the process for excluding 
individuals and entities who are convicted in accordance with the new 
requirements remains essentially the same. Cases to be processed under 
the new mandatory provisions set forth in sections 1128 (a)(3) and 
(a)(4) for the minimum mandatory 5-year exclusion were previously 
processed under the permissive authority provisions in sections 1128 
(b)(1) and (b)(3) of the Act, with a benchmark of 3 years. As a result, 
while there may be minor increases in the number of mandatory 
exclusions imposed, we see no significant increase or decrease in the 
number of these cases. Similarly, the clarification of what constitutes 
patient neglect or abuse should not result in a significant increase in 
the number of cases under section 1128(a)(2) of the Act, but merely 
support prior findings of abuse and neglect while delivering health 
care services.
    In addition, we do not anticipate a significant workload resulting 
from the implementation of section 1128(b)(15) of the Act (in light of 
past experience with respect to section 1128(b)(8) of the Act), and 
Sec. 1001.1051 of these regulations, as the requirements for 
effectuating this authority are rather stringent at the present time, 
and will limit the number of exclusions to be implemented under this 
authority.
    Since the vast majority of individuals, organizations and entities 
addressed by these regulations do not engage in such prohibited 
activities and practices, we believe that any aggregate economic effect 
of these revised exclusion regulations will be minimal, affecting only 
those limited few who engage in prohibited behavior in violation of the 
statute. As such, this final rule should have no significant economic 
impact. Similarly, while some sanctions may have an impact on small 
entities, it is the nature of the violation and not the size of the 
entity that will result in an action by the OIG. We believe that the 
aggregate economic impact of this rulemaking should be minimal, 
affecting only those limited few who have chosen to engage in 
prohibited arrangements, schemes or practices in violation of statutory 
intent. Therefore, we have concluded that these final regulations 
should not have a significant economic impact on a number of small 
business entities, and that a regulatory flexibility analysis is not 
required for this rulemaking.

[[Page 46685]]

Paperwork Reduction Act

1. Reporting Requirements on State Medicaid Agencies in Accordance With 
Sec. 1002.3
    A Federal agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid OMB control number. The valid OMB control number for 
the information collection requirements with respect to Sec. 1002.3 of 
these regulations is 0990-0218. Public reporting burden for this 
collection of information--that is, the burden on the State Medicaid 
agencies in preparing and submitting the notification to the OIG in 
accordance Sec. 1002.3--is estimated to average of less than one-half 
hour per submitted notification, including time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the necessary data, and completing and reviewing the 
collection of information.
2. Clarifying Definition of the Term ``Furnished''
    With respect to the clarifying definition of the term ``furnished'' 
being set forth in these regulations, we do not believe there will be 
any new or significant administrative costs or burden requirements 
placed on direct providers, such as hospitals, nursing homes and 
physicians, for ensuring that claims are not submitted for items 
manufactured or supplied by excluded parties. Specifically, the 
mandatory exclusion of indirect providers is rare. On those exceptional 
and infrequent occasions that an indirect provider is convicted and 
subject to an exclusion, the OIG will quickly make this action known 
through posting this information on the OIG web site, as is done in the 
case of all OIG exclusions. Since direct providers are already required 
to keep themselves apprised of all exclusions (not only to ensure their 
claims are reimbursable, but also to ensure they are not subject to a 
CMP for contracting with or employing an individual or entity that has 
been excluded), we do not believe this clarifying definition places any 
significant new burdens on direct providers beyond the responsibility 
already existing to refrain from doing business with excluded parties.
    Past OIG experience has indicated that the exclusion of indirect 
providers, such as in the case of a hospital administrator or a nurse 
aide in a nursing home setting, have created no significant 
administrative or cost burden problems to a direct provider. In the 
cases of a hospital administrator's exclusion or a nurse aide's 
exclusion, the hospital or nursing home was able to separate out the 
salaries of these individuals on their cost reports without added or 
significant burden to them. The vast majority of comments to the 
proposed rule did not allude to any additional administrative or cost 
burdens that they faced in this regard.
    Further, as we have stated above in this preamble, it is our goal 
to implement program exclusions in a prudent manner that will minimize 
any inconveniences or hardship. As a result, we have indicated that, 
with respect to items in a direct provider's existing inventory which 
may be affected by the exclusion of a manufacturer, any health care 
items that a direct provider has in inventory from the excluded 
manufacturer prior to the effective date of the exclusion of the 
manufacturer will not be affected by the exclusion, and claims may be 
submitted for the furnishing of such items by the practitioner , 
provider or supplier. In addition, as indicated in the regulations, we 
are permitting payment for health care items that are ordered from an 
excluded manufacturer prior to the effective date of the exclusion and 
delivered up to 30 days (or 60 days for the first year from the 
effective date of this provision) after the effective date of such 
exclusion. We believe this will serve to more effectively protect 
direct providers from significant financial harm and lessen the impact 
of any administrative burden on direct providers as a result of an 
indirect provider's exclusion.
    In addition, to provide reasonable assurance that no substantial, 
harm is encountered by direct providers, we have reiterated in the 
preamble of this final rule that, when appropriate and permitted under 
the existing statute, the OIG will entertain requests for waivers of 
program exclusion in appropriate cases. As a result, we do not 
anticipate any additional information collection and reporting burden 
requirements being imposed on direct providers as a result of the 
exclusion of an indirect provider.

List of Subjects

42 Part 1001

    Administrative practice and procedure, Fraud, Health facilities, 
Health professions, Medicaid, Medicare.

42 Part 1002

    Fraud, Grant programs--health, Health facilities, Health 
professions, Medicaid, Reporting and recordkeeping.

42 Part 1005

    Administrative practice and procedure, Fraud, Penalties.

    Accordingly, 42 Parts 1000, 1001, 1002 and 1005 are amended as set 
forth below:

PART 1000--[AMENDED]

    A. Part 1000 is amended as follows:
    1. The authority citation for part 1000 continues to read as 
follows:

    Authority: 42 U.S.C. 1320 and 1395hh.

    2. Section 1000.10 is amended by republishing the introductory 
paragraph; by revising the definition for the term Furnished; and by 
adding, alphabetically, definitions for the terms Directly and 
Indirectly to read as follows:


Sec. 1000.10  General definitions.

    In this chapter, unless the context indicates otherwise----
* * * * *
    Directly, as used in the definition of ``furnished'' in this 
section, means the provision of items and services by individuals or 
entities (including items and services provided by them, but 
manufactured, ordered or prescribed by another individual or entity) 
who submit claims to Medicare, Medicaid or other Federal health care 
programs.
* * * * *
    Furnished refers to items or services provided or supplied, 
directly or indirectly, by any individual or entity. This includes 
items and services manufactured, distributed or otherwise provided by 
individuals or entities that do not directly submit claims to Medicare, 
Medicaid or other Federal health care programs, but that supply items 
or services to providers, practitioners or suppliers who submit claims 
to these programs for such items or services.
* * * * *
    Indirectly, as used in the definition of ``furnished'' in this 
section, means the provision of items and services manufactured, 
distributed or otherwise supplied by individuals or entities who do not 
directly submit claims to Medicare, Medicaid or other Federal health 
care programs, but that provide items and services to providers, 
practitioners or suppliers who submit claims to these programs for such 
items and services. This term does not include individuals and entities 
that submit claims directly to these programs for items and services 
ordered or prescribed by another individual or entity.
* * * * *

PART 1001--[AMENDED]

    B. Part 1001 is amended as follows:
    1. The authority citation for part 1001 is revised to read as 
follows:


[[Page 46686]]


    Authority: 42 U.S.C. 1302, 1320a-7, 1320a-7b, 1395u(j), 
1395u(k), 1395y(d), 1395y(e), 1395cc(b)(2) (D), (E) and (F), and 
1395hh; and sec. 2455, Pub.L. 103-355, 108 Stat. 3327 (31 U.S.C. 
6101 note).

    2. Section 1001.2 is amended by revising the definitions for the 
terms Exclusion, Professionally recognized standards of health care, 
and Sole source of essential specialized services in the community; and 
by adding definitions for the terms Incarceration and Patient to read 
as follows:


Sec. 1001.2  Definitions.

* * * * *
    Exclusion means that items and services furnished, ordered or 
prescribed by a specified individual or entity will not be reimbursed 
under Medicare, Medicaid and all other Federal health care programs 
until the individual or entity is reinstated by the OIG.
* * * * *
    Incarceration means imprisonment or any type of confinement with or 
without supervised release, including, but not limited to, community 
confinement, house arrest and home detention.
* * * * *
    Patient means any individual who is receiving health care items or 
services, including any item or service provided to meet his or her 
physical, mental or emotional needs or well-being (including a resident 
receiving care in a facility as described in part 483 of this chapter), 
whether or not reimbursed under Medicare, Medicaid and any other 
Federal health care program and regardless of the location in which 
such item or service is provided.
* * * * *
    Professionally recognized standards of health care are Statewide or 
national standards of care, whether in writing or not, that 
professional peers of the individual or entity whose provision of care 
is an issue, recognize as applying to those peers practicing or 
providing care within a State. When the Department has declared a 
treatment modality not to be safe and effective, practitioners who 
employ such a treatment modality will be deemed not to meet 
professionally recognized standards of health care. This definition 
will not be construed to mean that all other treatments meet 
professionally recognized standards.
* * * * *
    Sole source of essential specialized services in the community 
means that an individual or entity--
    (1) Is the only practitioner, supplier or provider furnishing 
specialized services in an area designated by the Health Resources 
Services Administration as a health professional shortage area for that 
medical specialty, as listed in 42 part 5, appendices B-F;
    (2) Is a sole community hospital, as defined in Sec. 412.92 of this 
title; or
    (3) Is the only source of specialized services in a reasonably 
defined service area where services by a non-specialist could not be 
substituted for the source without jeopardizing the health or safety of 
beneficiaries.
* * * * *
    3. Section 1001.101 is revised to read as follows:


Sec. 1001.101  Basis for liability.

    The OIG will exclude any individual or entity that--
    (a) Has been convicted of a criminal offense related to the 
delivery of an item or service under Medicare or a State health care 
program, including the performance of management or administrative 
services relating to the delivery of items or services under any such 
program;
    (b) Has been convicted, under Federal or State law, of a criminal 
offense related to the neglect or abuse of a patient, in connection 
with the delivery of a health care item or service, including any 
offense that the OIG concludes entailed, or resulted in, neglect or 
abuse of patients (the delivery of a health care item or service 
includes the provision of any item or service to an individual to meet 
his or her physical, mental or emotional needs or well-being, whether 
or not reimbursed under Medicare, Medicaid or any Federal health care 
program);
    (c) Has been convicted, under Federal or State law, of a felony 
that occurred after August 21, 1996 relating to fraud, theft, 
embezzlement, breach of fiduciary responsibility, or other misconduct--
    (1) In connection with the delivery of a health care item or 
service, including the performance of management or administrative 
services relating to the delivery of such items or services, or
    (2) With respect to any act or omission in a health care program 
(other than Medicare and a State health care program) operated by, or 
financed in whole or in part, by any Federal, State or local government 
agency; or
    (d) Has been convicted, under Federal or State law, of a felony 
that occurred after August 21, 1996 relating to the unlawful 
manufacture, distribution, prescription or dispensing of a controlled 
substance, as defined under Federal or State law. This applies to any 
individual or entity that--
    (1) Is, or has ever been, a health care practitioner, provider or 
supplier;
    (2) Holds, or has held, a direct or indirect ownership or control 
interest (as defined in section 1124(a)(3) of the Act) in an entity 
that is a health care provider or supplier, or is, or has ever been, an 
officer, director, agent or managing employee (as defined in section 
1126(b) of the Act) of such an entity; or
    (3) Is, or has ever been, employed in any capacity in the health 
care industry.
    4. Section 1001.102 is amended by revising paragraph (b); 
republishing introductory paragraph (c); and revising paragraph (c)(3) 
to read as follows:


Sec. 1001.102  Length of exclusion.

* * * * *
    (b) Any of the following factors may be considered to be 
aggravating and a basis for lengthening the period of exclusion--
    (1) The acts resulting in the conviction, or similar acts, resulted 
in financial loss to a government program or to one or more entities of 
$1,500 or more. (The entire amount of financial loss to such programs 
or entities, including any amounts resulting from similar acts not 
adjudicated, will be considered regardless of whether full or partial 
restitution has been made);
    (2) The acts that resulted in the conviction, or similar acts, were 
committed over a period of one year or more;
    (3) The acts that resulted in the conviction, or similar acts, had 
a significant adverse physical, mental or financial impact on one or 
more program beneficiaries or other individuals;
    (4) In convictions involving patient abuse or neglect, the action 
that resulted in the conviction was premeditated, was part of a 
continuing pattern or behavior, or consisted of non-consensual sexual 
acts;
    (5) The sentence imposed by the court included incarceration;
    (6) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing;
    (7) The individual or entity has at any time been overpaid a total 
of $1,500 or more by Medicare, Medicaid and all other Federal health 
care programs, or other third-party payers, as a result of improper 
billings; or
    (8) Whether the individual or entity was convicted of other 
offenses besides those which formed the basis for the exclusion, or has 
been the subject of any other adverse action by any Federal, State or 
local government agency or board, if the adverse action is based on the 
same set of circumstances that serves as the basis for imposition of 
the exclusion.

[[Page 46687]]

    (c) Only if any of the aggravating factors set forth in paragraph 
(b) of this section justifies an exclusion longer than 5 years, may 
mitigating factors be considered as the basis for reducing the period 
of exclusion to no less than 5 years. Only the following factors may be 
considered mitigating--
* * * * *
    (3) The individual's or entity's cooperation with Federal or State 
officials resulted in--
    (i) Others being convicted or excluded from Medicare, Medicaid and 
all other Federal health care programs,
    (ii) Additional cases being investigated or reports being issued by 
the appropriate law enforcement agency identifying program 
vulnerabilities or weaknesses, or
    (iii) The imposition against anyone of a civil money penalty or 
assessment under part 1003 of this chapter.
    5. Section 1001.201 is amended by revising the section heading; 
revising paragraph (a); republishing introductory paragraph (b)(2), 
revising paragraphs (b)(2)(iv) and (v), and adding a new paragraph 
(b)(2)(vi); and by republishing introductory paragraph (b)(3) and 
revising paragraphs (b)(3)(i) and (b)(3)(iii) to read as follows:


Sec. 1001.201  Conviction relating to fraud.

    (a) Circumstance for exclusion. The OIG may exclude an individual 
or entity convicted under Federal or State law of--
    (1) A misdemeanor relating to fraud, theft, embezzlement, breach of 
fiduciary responsibility, or other financial misconduct--
    (i) In connection with the delivery of any health care item or 
service, including the performance of management or administrative 
services relating to the delivery of such items or services, or
    (ii) With respect to any act or omission in a health care program, 
other than Medicare and a State health care program, operated by, or 
financed in whole or in part by, any Federal, State or local government 
agency; or
    (2) Fraud, theft, embezzlement, breach of fiduciary responsibility, 
or other financial misconduct with respect to any act or omission in a 
program, other than a health care program, operated by or financed in 
whole or in part by any Federal, State or local government agency.
    (b) Length of exclusion. * * *
* * * * *
    (2) Any of the following factors may be considered to be 
aggravating and a basis for lengthening the period of exclusion--
* * * * *
    (iv) The sentence imposed by the court included incarceration;
    (v) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing; or
    (vi) Whether the individual or entity was convicted of other 
offenses besides those which formed the basis for the exclusion, or has 
been the subject of any other adverse action by any Federal, State or 
local government agency or board, if the adverse action is based on the 
same set of circumstances that serves as the basis for the imposition 
of the exclusion.
    (3) Only the following factors may be considered as mitigating and 
a basis for reducing the period of exclusion--
    (i) The individual or entity was convicted of 3 or fewer offenses, 
and the entire amount of financial loss to a government program or to 
other individuals or entities due to the acts that resulted in the 
conviction and similar acts is less than $1,500;
* * * * *
    (iii) The individual's or entity's cooperation with Federal or 
State officials resulted in--
    (A) Others being convicted or excluded from Medicare, Medicaid and 
all other Federal health care programs,
    (B) Additional cases being investigated or reports being issued by 
the appropriate law enforcement agency identifying program 
vulnerabilities or weaknesses, or
    (C) The imposition of a civil money penalty against others; or
* * * * *
    6. Section 1001.301 is amended by republishing introductory 
paragraph (b)(2); revising paragraphs (b)(2)(iv) and (v); by adding a 
new paragraph (b)(2)(vi); by republishing introductory paragraph 
(b)(3); and by revising paragraph (b)(3)(ii) to read as follows:


Sec. 1001.301  Conviction relating to obstruction of an investigation.

* * * * *
    (b) Length of exclusion. * * *
* * * * *
    (2) Any of the following factors may be considered to be 
aggravating and a basis for lengthening the period of exclusion--
* * * * *
    (iv) The sentence imposed by the court included incarceration;
    (v) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing; or
    (vi) Whether the individual or entity was convicted of other 
offenses besides those which formed the basis for the exclusion, or has 
been the subject of any other adverse action by any Federal, State or 
local government agency or board, if the adverse action is based on the 
same set of circumstances that serves as the basis for the imposition 
of the exclusion.
    (3) Only the following factors may be considered as mitigating and 
a basis for reducing the period of exclusion--
* * * * *
    (ii) The individual's or entity's cooperation with Federal or State 
officials resulted in--
    (A) Others being convicted or excluded from Medicare, Medicaid and 
all other Federal health care programs,
    (B) Additional cases being investigated or reports being issued by 
the appropriate law enforcement agency identifying program 
vulnerabilities or weaknesses, or
    (C) The imposition of a civil money penalty against others; or
* * * * *
    7. Section 1001.401 is amended by revising the section heading; 
revising paragraph (a); by republishing introductory paragraph (c)(2); 
by revising paragraphs (c)(2)(iii) and (iv); by adding a new paragraph 
(c)(2)(v); by republishing introductory paragraph (c)(3); and by 
revising paragraph (c)(3)(i) to read as follows:


Sec. 1001.401  Misdemeanor conviction relating to controlled 
substances.

    (a) Circumstance for exclusion. The OIG may exclude an individual 
or entity convicted under Federal or State law of a misdemeanor 
relating to the unlawful manufacture, distribution, prescription or 
dispensing of a controlled substance, as defined under Federal or State 
law. This section applies to any individual or entity that--
    (1) Is, or has ever been, a health care practitioner, provider or 
supplier;
    (2) Holds or has held a direct or indirect ownership or control 
interest, as defined in section 1124(a)(3) of the Act, in an entity 
that is a health care provider or supplier, or is or has been an 
officer, director, agent or managing employee, as defined in section 
1126(b) of the Act, of such an entity; or
    (3) Is, or has ever been, employed in any capacity in the health 
care industry.
* * * * *
    (c) Length of exclusion. * * *
    (2) Any of the following factors may be considered to be 
aggravating and a basis for lengthening the period of exclusion--
* * * * *
    (iii) The sentence imposed by the court included incarceration;
    (iv) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing; or

[[Page 46688]]

    (v) Whether the individual or entity was convicted of other 
offenses besides those which formed the basis for the exclusion, or has 
been the subject of any other adverse action by any other Federal, 
State or local government agency or board, if the adverse action is 
based on the same set of circumstances that serves as the basis for the 
imposition of the exclusion.
    (3) Only the following factors may be considered as mitigating and 
a basis for shortening the period of exclusion--
    (i) The individual's or entity's cooperation with Federal or State 
officials resulted in--
    (A) Others being convicted or excluded from Medicare, Medicaid and 
all other Federal health care programs,
    (B) Additional cases being investigated or reports being issued by 
the appropriate law enforcement agency identifying program 
vulnerabilities or weaknesses, or
    (C) The imposition of a civil money penalty against others; or
* * * * *
    8. Section 1001.501 is amended by revising paragraph (b)(1); 
republishing introductory paragraph (b)(2), revising paragraphs 
(b)(2)(ii) and (iii), and adding a new paragraph (b)(2)(iv); by 
republishing introductory paragraph (b)(3) and revising paragraph 
(b)(3)(i); and by deleting paragraph (c) to read as follows:


Sec. 1001.501  License revocation or suspension.

* * * * *
    (b) Length of exclusion. (1) An exclusion imposed in accordance 
with this section will not be for a period of time less than the period 
during which an individual's or entity's license is revoked, suspended 
or otherwise not in effect as a result of, or in connection with, a 
State licensing agency action.
    (2) Any of the following factors may be considered aggravating and 
a basis for lengthening the period for exclusion--
* * * * *
    (ii) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing;
    (iii) The acts, or similar acts, had or could have had a 
significant adverse impact on the financial integrity of the programs; 
or
    (iv) The individual or entity has been the subject of any other 
adverse action by any other Federal, State or local government agency 
or board, if the adverse action is based on the same set of 
circumstances that serves as the basis for the imposition of the 
exclusion.
    (3) Only if any of the aggravating factors listed in paragraph 
(b)(2) of this section justifies a longer exclusion may mitigating 
factors be considered as a basis for reducing the period of exclusion 
to a period not less than that set forth in paragraph (b)(1) of this 
section. Only the following factors may be considered mitigating--
    (i) The individual's or entity's cooperation with a State licensing 
authority resulted in--
    (A) The sanctioning of other individuals or entities, or
    (B) Additional cases being investigated or reports being issued by 
the appropriate law enforcement agency identifying program 
vulnerabilities or weaknesses; or
* * * * *
    9. Section 1001.601 is amended by revising paragraph (b) to read as 
follows:


Sec. 1001.601  Exclusion or suspension under a Federal or State health 
care program.

* * * * *
    (b) Length of exclusion. (1) An exclusion imposed in accordance 
with this section will not be for a period of time less than the period 
during which the individual or entity is excluded or suspended from a 
Federal or State health care program.
    (2) Any of the following factors may be considered aggravating and 
a basis for lengthening the period of exclusion--
    (i) The acts that resulted in the exclusion, suspension or other 
sanction under Medicare, Medicaid and all other Federal health care 
programs had, or could have had, a significant adverse impact on 
Federal or State health care programs or the beneficiaries of those 
programs or other individuals;
    (ii) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing; or
    (iii) The individual or entity has been the subject of any other 
adverse action by any Federal, State or local government agency or 
board, if the adverse action is based on the same set of circumstances 
that serves as the basis for the imposition of the exclusion.
    (3) Only if any of the aggravating factors set forth in paragraph 
(b)(2) of this section justifies a longer exclusion may mitigating 
factors be considered as a basis for reducing the period of exclusion 
to a period not less than that set forth in paragraph (b)(1) of this 
section. Only the following factors may be considered mitigating--
    (i) The individual's or entity's cooperation with Federal or State 
officials resulted in--
    (A) The sanctioning of other individuals or entities, or
    (B) Additional cases being investigated or reports being issued by 
the appropriate law enforcement agency identifying program 
vulnerabilities or weaknesses; or
    (ii) Alternative sources of the types of health care items or 
services furnished by the individual or entity are not available.
    (4) If the individual or entity is eligible to apply for 
reinstatement in accordance with Sec. 1001.3001 of this part, and the 
sole reason for the State denying reinstatement is the existing 
Medicare exclusion imposed by the OIG as a result of the original State 
action, the OIG will consider a request for reinstatement.
    10. Section 1001.701 is amended by revising paragraph (d)(1); 
republishing introductory paragraph (d)(2), revising paragraphs 
(d)(2)(iii) and (iv), and adding paragraph (d)(2)(v) to read as 
follows:


Sec. 1001.701  Excessive claims or furnishing of unnecessary or 
substandard items and services.

* * * * *
    (d) Length of exclusion. (1) An exclusion imposed in accordance 
with this section will be for a period of 3 years, unless aggravating 
or mitigating factors set forth in paragraphs (d)(2) and (d)(3) of this 
section form a basis for lengthening or shortening the period. In no 
case may the period be shorter than 1 year for any exclusion taken in 
accordance with paragraph (a)(2) of this section.
    (2) Any of the following factors may be considered aggravating and 
a basis for lengthening the period of exclusion--
* * * * *
    (iii) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing;
    (iv) The violation resulted in financial loss to Medicare, Medicaid 
and all other Federal health care programs of $1,500 or more; or
    (v) The individual or entity has been the subject of any other 
adverse action by any Federal, State or local government agency or 
board, if the adverse action is based on the same set of circumstances 
that serves as the basis for the imposition of the exclusion.
* * * * *
    11. Section 1001.801 is amended by revising paragraph (c)(1); and 
by republishing introductory paragraph (c)(2), revising paragraphs 
(c)(2)(iii) and (iv), and adding a new paragraph (c)(2)(v) to read as 
follows:


Sec. 1001.801  Failure of HMOs and CMPs to furnish medically necessary 
items and services.

* * * * *

[[Page 46689]]

    (c) Length of exclusion. (1) An exclusion imposed in accordance 
with this section will be for a period of 3 years, unless aggravating 
or mitigating factors set forth in paragraphs (c)(2) and (c)(3) of this 
section form a basis for lengthening or shortening the period.
    (2) Any of the following factors may be considered aggravating and 
a basis for lengthening the period of exclusion--
* * * * *
    (iii) The entity's failure to provide a necessary item or service 
that had or could have had a serious adverse effect;
    (iv) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing; or
    (v) The individual or entity has been the subject of any other 
adverse action by any Federal, State or local government agency or 
board, if the adverse action is based on the same set of circumstances 
that serves as the basis for the imposition of the exclusion.
* * * * *
    12. Section 1001.901 is amended by republishing introductory 
paragraph (b), revising paragraph (b)(3), redesignating existing 
paragraph (b)(4) as (b)(5), and adding a new paragraph (b)(4) to read 
as follows:


Sec. 1001.901  False or improper claims.

* * * * *
    (b) Length of exclusion. In determining the length of exclusion 
imposed in accordance with this section, the OIG will consider the 
following factors--
* * * * *
    (3) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing (The lack of any prior 
record is to be considered neutral);
    (4) The individual or entity has been the subject of any other 
adverse action by any Federal, State or local government agency or 
board, if the adverse action is based on the same set of circumstances 
that serves as the basis for the imposition of the exclusion; or
* * * * *
    13. Section 1001.951 is amended by republishing introductory 
paragraph (b)(1), revising paragraph (b)(1)(iii), redesignating 
existing paragraph (b)(1)(iv) as (b)(1)(v), and adding a new paragraph 
(b)(1)(iv) to read as follows:


Sec. 1001.951  Fraud and kickbacks and other prohibited activities.

* * * * *
    (b) Length of exclusion. (1) The following factors will be 
considered in determining the length of exclusion in accordance with 
this section--
* * * * *
    (iii) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing (The lack of any prior 
record is to be considered neutral);
    (iv) The individual or entity has been the subject of any other 
adverse action by any Federal, State or local government agency or 
board, if the adverse action is based on the same set of circumstances 
that serves as the basis for the imposition of the exclusion; or
* * * * *


Sec. 1001.953  [Removed]

    14. Section 1001.953 is removed.
    15. A new section 1001.1051 is added to read as follows:


Sec. 1001.1051  Exclusion of individuals with ownership or control 
interest in sanctioned entities.

    (a) Circumstance for exclusion. The OIG may exclude any individual 
who--
    (1) Has a direct or indirect ownership or control interest in a 
sanctioned entity, and who knows or should know (as defined in section 
1128A(i)(6) of the Act) of the action constituting the basis for the 
conviction or exclusion set forth in paragraph (b) of this section; or
    (2) Is an officer or managing employee (as defined in section 
1126(b) of the Act) of such an entity.
    (b) For purposes of paragraph (a) of this section, the term 
``sanctioned entity'' means an entity that--
    (1) Has been convicted of any offense described in Secs. 1001.101 
through 1001.401 of this part; or
    (2) Has been terminated or excluded from participation in Medicare, 
Medicaid and all other Federal health care programs.
    (c) Length of exclusion. (1) If the entity has been excluded, the 
length of the individual's exclusion will be for the same period as 
that of the sanctioned entity with which the individual has the 
prohibited relationship.
    (2) If the entity was not excluded, the length of the individual's 
exclusion will be determined by considering the factors that would have 
been considered if the entity had been excluded.
    (3) An individual excluded under this section may apply for 
reinstatement in accordance with the procedures set forth in 
Sec. 1001.3001.
    16. Section 1001.1101 is amended by republishing the introductory 
text of (b) and revising paragraph (b)(3) to read as follows:


Sec. 1001.1101  Failure to disclose certain information.

* * * * *
    (b) Length of exclusion. The following factors will be considered 
in determining the length of an exclusion under this section--
* * * * *
    (3) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing (The lack of any prior 
record is to be considered neutral);
* * * * *
    17. Section 1001.1201 is amended by revising paragraph (b)(4) to 
read as follows:


Sec. 1001.1201  Failure to provide payment information.

* * * * *
    (b) * * *
    (4) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing (The lack of any prior 
record is to be considered neutral); and
* * * * *
    18. Section 1001.1301 is amended by revising paragraph (b)(2)(iv) 
to read as follows:


Sec. 1001.1301  Failure to grant immediate access.

* * * * *
    (b) * * *
    (2) * * *
    (iv) Whether the entity has a documented history of criminal, civil 
or administrative wrongdoing (The lack of any prior record is to be 
considered neutral).
* * * * *
    19. Section 1001.1401 is amended by revising paragraph (b)(5) to 
read as follows:


Sec. 1001.1401  Violations of PPS corrective action.

* * * * *
    (b) Length of exclusion. * * *
    (5) Whether the individual or entity has a documented history of 
criminal, civil or administrative wrongdoing (The lack of any prior 
record is to be considered neutral).
    20. Section 1001.1601 is amended by revising paragraph (b)(1)(iv) 
to read as follows:


Sec. 1001.1601  Violations of the limitations on physician charges.

* * * * *
    (b) Length of exclusion. (1) * * *
    (iv) Whether the physician has a documented history of criminal, 
civil or administrative wrongdoing (The lack of any prior record is to 
be considered neutral); and
* * * * *
    21. Section 1001.1701 is amended by revising paragraph (c)(1)(v) to 
read as follows:

[[Page 46690]]

Sec. 1001.1701  Billing for services of assistant at surgery during 
cataract operations.

* * * * *
    (c) Length of exclusion. (1) * * *
    (v) Whether the physician has a documented history of criminal, 
civil or administrative wrongdoing (The lack of any prior record is to 
be considered neutral); and
* * * * *
    22. Section 1001.1901 is amended by revising paragraphs (b)(1), 
(b)(3) and (c)(3); (i) (ii) and (iii) redesignating (c)(4) as (c)(5) 
and revising paragraph (c)(5)(ii); and by adding a new paragraph (c)(4) 
to read as follows:


Sec. 1001.1901  Scope and effect of exclusion.

* * * * *
    (b) Effect of exclusion on excluded individuals and entities. (1) 
Unless and until an individual or entity is reinstated into the 
Medicare program in accordance with subpart F of this part, no payment 
will be made by Medicare, Medicaid and all other Federal health care 
programs for any item or service furnished, on or after the effective 
date specified in the notice period, by an excluded individual or 
entity, or at the medical direction or on the prescription of a 
physician or other authorized individual who is excluded when the 
individual or entity furnishing such item or service knew, or had 
reason to know, of the exclusion. This section applies regardless of 
whether an individual or entity has obtained a program provider number 
or equivalent, either as an individual or as a member of a group, prior 
to being reinstated.
* * * * *
    (3) An excluded individual or entity that submits, or causes to be 
submitted, claims for items or services furnished during the exclusion 
period is subject to civil money penalty liability under section 
1128A(a)(1)(D) of the Act, and criminal liability under section 
1128B(a)(3) of the Act and other provisions. In addition, submitting 
claims, or causing claims to be submitted or payments to be made for 
items or services furnished, ordered or prescribed, including 
administrative and management services or salary, may serve as the 
basis for denying reinstatement to the programs.
    (c) Exceptions to paragraph (b)(1) of this section. * * *
    (3) * * *
    (i) Inpatient institutional services furnished to an individual who 
was admitted to an excluded institution before the date of the 
exclusion,
    (ii) Home health services and hospice care furnished to an 
individual under a plan of care established before the effective date 
of the exclusion, and
    (iii) Any health care items that are ordered by a practitioner, 
provider or supplier from an excluded manufacturer before the effective 
date of the exclusion and delivered within 30 days of the effective 
date of such exclusion. (For the period October 2, 1998 to October 4, 
1999) payment may be made under Medicare or a State health care program 
for up to 60 days after the effective date of the exclusion for any 
health care items that are ordered by a practitioner, provider or 
supplier from an excluded manufacturer before the effective date of 
such exclusion and delivered within 60 days of the effect of the 
exclusion.)
    (4) HCFA will not pay any claims submitted by, or for items or 
services ordered or prescribed by, an excluded provider for dates of 
service 15 days or more after the notice of the provider's exclusion 
was mailed to the supplier.
    (5) * * *
    (ii) Notwithstanding paragraph (c)(5)(i) of this section, no claim 
for emergency items or services will be payable if such items or 
services were provided by an excluded individual who, through an 
employment, contractual or any other arrangement, routinely provides 
emergency health care items or services.
    23. Section 1001.2001 is revised to read as follows:


Sec. 1001.2001  Notice of intent to exclude.

    (a) Except as provided in paragraph (b) of this section, if the OIG 
proposes to exclude an individual or entity in accordance with subpart 
C of this part, or in accordance with subpart B of this part where the 
exclusion is for a period exceeding 5 years, it will send written 
notice of its intent, the basis for the proposed exclusion and the 
potential effect of an exclusion. Within 30 days of receipt of notice, 
which will be deemed to be 5 days after the date on the notice, the 
individual or entity may submit documentary evidence and written 
argument concerning whether the exclusion is warranted and any related 
issues. In conjunction with this submission, an individual or entity 
may request an opportunity to present oral argument to an OIG official.
    (b) Exception. If the OIG proposes to exclude an individual or 
entity under the provisions of Secs. 1001.1301, 1001.1401 or 1001.1501 
of this part, paragraph (a) of this section will not apply.
    (c) If an entity has a provider agreement under section 1866 of the 
Act, and the OIG proposes to terminate that agreement in accordance 
with section 1866(b)(2)(C) of the Act, the notice provided for in 
paragraph (a) of this section will so state.
    24. Section 1001.2002 is amended by adding a new paragraph (e) to 
read as follows:


Sec. 1001.2002  Notice of exclusion.

* * * * *
    (e) No later than 15 days prior to the final exhibit exchanges 
required under Sec. 1005.8 of this chapter, the OIG may amend its 
notice letter if information comes to light that justifies the 
imposition of a different period of exclusion other than the one 
proposed in the original notice letter.
    25. Section 1001.2003 is amended by revising introductory paragraph 
(a) to read as follows:


Sec. 1001.2003  Notice of proposal to exclude.

    (a) Except as provided in paragraph (c) of this section, if the OIG 
proposes to exclude an individual or entity in accordance with 
Secs. 1001.901, 1001.951, 1001.1601 or 1001.1701, it will send written 
notice of this decision to the affected individual or entity. The 
written notice will provide the same information set forth in 
Sec. 1001.2002(c). If an entity has a provider agreement under section 
1866 of the Act, and the OIG also proposes to terminate that agreement 
in accordance with section 1866(b)(2)(C) of the Act, the notice will so 
indicate. The exclusion will be effective 60 days after the receipt of 
the notice (as defined in Sec. 1005.2 of this chapter) unless, within 
that period, the individual or entity files a written request for a 
hearing in accordance with part 1005 of this chapter. Such request must 
set forth--
* * * * *
    26. Section 1001.2006 is amended by republishing introductory 
paragraph (a); revising paragraphs (a)(1) and (a)(7); redesignating 
existing paragraph (a)(8) as (a)(9); and by adding a new paragraph 
(a)(8) to read as follows:


Sec. 1001.2006  Notice to others regarding exclusion.

    (a) HHS will give notice of the exclusion and the effective date to 
the public, to beneficiaries (in accordance with Sec. 1001.1901(c)), 
and, as appropriate, to--
    (1) Any entity in which the excluded individual is known to be 
serving as an employee, administrator, operator, or in which the 
individual is serving in any other capacity and is receiving payment 
for providing services (The lack of this notice will not affect HCFA's 
ability to deny payment for services);
* * * * *

[[Page 46691]]

    (7) The State and Area Agencies on Aging established under title 
III of the Older Americans Act;
    (8) The National Practitioner Data Bank.
* * * * *
    27. Section 1001.3001 is amended by revising paragraph (a)(1) to 
read as follows:


Sec. 1001.3001  Timing and method of request for reinstatement.

    (a)(1) Except as provided in paragraphs (a)(2) and (a)(3) of this 
section or in Sec. 1001.501(b)(4) of this part, an excluded individual 
or entity (other than those excluded in accordance with Secs. 1001.1001 
and 1001.1501) may submit a written request for reinstatement to the 
OIG only after the date specified in the notice of exclusion. Obtaining 
a program provider number or equivalent does not reinstate eligibility.
* * * * *
    28. Section 1001.3002 is amended by revising paragraph (a); 
republishing introductory paragraph (b), revising paragraphs (b)(3) and 
(4) and deleting paragraph (b)(5); and by revising introductory 
paragraph (c) and paragraph (d) to read as follows:


Sec. 1001.3002  Basis for reinstatement.

    (a)(1) The OIG will authorize reinstatement if it determines that--
    (i) The period of exclusion has expired;
    (ii) There are reasonable assurances that the types of actions that 
formed the basis for the original exclusion have not recurred and will 
not recur; and
    (iii) There is no additional basis under sections 1128(a) or (b) or 
1128A of the Act for continuation of the exclusion.
    (2) Submitting claims or causing claims to be submitted or payments 
to be made by the programs for items or services furnished, ordered or 
prescribed, including administrative and management services or salary, 
may serve as the basis for denying reinstatement. This section applies 
regardless of whether an individual or entity has obtained a program 
provider number or equivalent, either as an individual or as a member 
of a group, prior to being reinstated.
    (b) In making the reinstatement determination, the OIG will 
consider--
* * * * *
    (3) Whether all fines, and all debts due and owing (including 
overpayments) to any Federal, State or local government that relate to 
Medicare, Medicaid and all other Federal health care programs, have 
been paid or satisfactory arrangements have been made to fulfill these 
obligations; and
    (4) Whether HCFA has determined that the individual or entity 
complies with, or has made satisfactory arrangements to fulfill, all of 
the applicable conditions of participation or supplier conditions for 
coverage under the statutes and regulations.
    (c) If the OIG determines that the criteria in paragraphs 
(a)(1)(ii) and (iii) of this section have been met, an entity excluded 
in accordance with Sec. 1001.1001 will be reinstated upon a 
determination by the OIG that the individual whose conviction, 
exclusion or civil money penalty was the basis for the entity's 
exclusion--
* * * * *
    (d) Reinstatement will not be effective until the OIG grants the 
request and provides notice under Sec. 1001.3003(a) of this part. 
Reinstatement will be effective as provided in the notice.
* * * * *

PART 1002--[AMENDED]

    C. Part 1002 is amended as follows:
    1. The authority citation for part 1002 continues to read as 
follows:

    Authority: 42 U.S.C. 1302, 1320a-3, 1320a-5, 1320a-7, 
1396(a)(4)(A), 1396(p)(1), 1396a(30), 1396a(39), 1396b(a)(6), 
1396b(b)(3), 1396b(i)(2) and 1396b(q).

    2. Section 1002.3 is amended by revising the section heading and 
paragraph (b)(2), and by adding a new paragraph (b)(3) to read as 
follows:


Sec. 1002.3  Disclosure by providers and State Medicaid agencies.

* * * * *
    (b) Notification to Inspector General.
* * * * *
    (2) The agency must promptly notify the Inspector General of any 
action it takes on the provider's application for participation in the 
program.
    (3) The agency must also promptly notify the Inspector General of 
any action it takes to limit the ability of an individual or entity to 
participate in its program, regardless of what such an action is 
called. This includes, but is not limited to, suspension actions, 
settlement agreements and situations where an individual or entity 
voluntarily withdraws from the program to avoid a formal sanction.
* * * * *
    3. Section 1002.203 is amended by revising paragraph (a) to read as 
follows:


Sec. 1002.203  Mandatory exclusion.

    (a) The State agency, in order to receive Federal financial 
participation (FFP), must provide that it will exclude from 
participation any HMO, or entity furnishing services under a waiver 
approved under section 1915(b)(1) of the Act, if such organization or 
entity--
    (1) Could be excluded under Sec. 1001.1001 or Sec. 1001.1051 of 
this chapter, or
    (2) Has, directly or indirectly, a substantial contractual 
relationship with an individual or entity that could be excluded under 
Sec. 1001.1001 or Sec. 1001.1051 of this chapter.
* * * * *
    4. Section 1002.211 is amended by revising paragraph (a) to read as 
follows:


Sec. 1002.211  Effect of exclusion.

    (a) Denial of payment. Except as provided for in 
Sec. 1001.1901(c)(3), (c)(4) and (c)(5)(i) of this chapter, no payment 
may be made by the State agency for any item or service furnished on or 
after the effective date specified in the notice by an excluded 
individual or entity, or at the medical direction or on the 
prescription of a physician who is excluded when a person furnishing 
such item or service knew, or had reason to know, of the exclusion.
* * * * *

PART 1005--[AMENDED]

    D. Part 1005 is amended as follows:
    1. The authority citation for part 1005 continues to read as 
follows:

    Authority: 42 U.S.C. 405(a), 405(b), 1302, 1320a-7, 1320a-7a and 
1320c-5.

    2. Section 1005.15 is amended by revising introductory paragraph 
(f)(1) to read as follows:


Sec. 1005.15  The hearing and burden of proof.

* * * * *
    (f)(1) A hearing under this part is not limited to specific items 
and information set forth in the notice letter to the petitioner or 
respondent. Subject to the 15-day requirement under Sec. 1005.8, 
additional items and information, including aggravating or mitigating 
circumstances that arose or became known subsequent to the issuance of 
the notice letter, may be introduced by either party during its case-
in-chief unless such information or items are--
* * * * *
    3. Section 1005.21 is amended by revising paragraphs (k)(2) and (3) 
to read as follows:


Sec. 1005.21,  Appeal to DAB.

* * * * *
    (k) * * *
    (2) In compliance with 28 U.S.C. 2112(a), a copy of any petition 
for judicial review filed in any U.S. Court of Appeals challenging a 
final action of

[[Page 46692]]

the DAB will be sent by certified mail, return receipt requested, to 
the Chief Counsel to the IG. The petition copy will be time-stamped by 
the clerk of the court when the original is filed with the court.
    (3) If the Chief Counsel to the IG receives two or more petitions 
within 10 days after the DAB issues its decision, the Chief Counsel to 
the IG will notify the U.S. Judicial Panel on Multidistrict Litigation 
of any petitions that were received within the 10-day period.

    Dated: March 11, 1998.
June Gibbs Brown,
Inspector General, Department of Health and Human Services.

    Approved: April 13, 1998.
Donna E. Shalala,
Secretary.
[FR Doc. 98-23462 Filed 8-28-98; 4:23pm]
BILLING CODE 4150-04-P