Face Challenges Confidently

Employment of Excluded (or Convicted) Individuals

Thursday, June 7th, 2018

By: Jeffrey S. Baird, Esq.

Generally, federal law prohibits health care providers from employing or contracting with individuals that are excluded from participation in federal health care programs (“Excluded Individuals”). Excluded Individuals can include persons convicted of crimes.

Excluded Individuals

While CMS does not prohibit a health care provider from ever hiring a convicted felon, there are specific federal laws related to the employment of Excluded Individuals. These rules are generally codified in 42 U.S.C. 1320a-7, 42 U.S.C. 1320a-7a, and 42 C.F.R. 1003.100 et seq. Generally, an Excluded Individual is precluded from providing any item or service to be paid for by a federal health care program, which includes Medicare, Medicaid, TRICARE, Medicare Advantage, and Medicaid managed care.1

Guidance published by the Department of Health and Human Services Office of Inspector General (“OIG”) states that this prohibition extends “beyond direct patient care.”2 For example, an Excluded Individual would be prohibited from providing administrative and management services for an entity that furnishes items/services payable by federal health care programs.3 This would include serving as an executive, general counsel, department director as well as providing IT services, or human resources.4

While the impacts of exclusion are more directly felt by Excluded Individuals, health care providers must also be aware of their responsibility to identify Excluded Individuals. A provider is prohibited from employing or contracting with an Excluded Individual for the provision of items and services that are payable by federal health care programs.5 In order to determine whether an individual is excluded from federal health care programs, the provider may check the OIG’s List of Excluded Individuals/Entities (“LEIE”), which lists all individuals and entities that are currently excluded from federal health care programs.6 To help determine whether a potential employee may be excluded, it is helpful for the provider to know that CMS is required by law to seek exclusion of an individual or entity that is convicted of:

  • Any crime “related to the delivery of an item or service under [Medicare] or under any State health care program”7
  • Any crime under federal or state law “relating to neglect or abuse of patients in connection with the delivery of a health care item or service”8
  • A felony after August 21, 1996 under federal or state law “in connection with the delivery of a health care item or service or with respect to any act or omission in a health care program [] operated by or financed in whole or in part by any Federal, State, or local government agency. . . relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.”9
  • A felony after August 21, 1996 under federal or state law “relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance.”10

There are also a number of scenarios under which CMS is permitted, but not required, to seek exclusion of an individual or entity. Examples of these scenarios include:

  • Misdemeanor conviction related to the provision of items or services covered by federal or state health care programs, including convictions for “fraud, theft, embezzlement, breach of fiduciary responsibility, other financial misconduct” as well as “any act or omission in a health care program operated by or financed in whole or in part by any Federal, State, or local government agency.”11
  • Misdemeanor conviction related to the “unlawful manufacture, distribution, prescription, or dispensing of a controlled substance.”12
  • An individual that has engaged in a kickback scheme or the provision of false claims, as determined by HHS.13

The time period of an individual’s exclusion can vary, depending on the severity of the individual’s violation, number of previous crimes, and any defenses argued by the individual’s counsel.14 But, as long as s/he remains on the LEIE, s/he is prohibited from participating in federal health care programs, and, therefore, prohibited from being hired by the provider.

If the potential candidate is not an Excluded Individual, then there is not a federal law that prohibits the provider from hiring the individual if s/he has been convicted of a crime. But, general employment law and state-specific laws should also be taken into account.

Convicted Individuals

With regard to conducting background checks, each state’s laws will vary on whether and to what extent an employer may consider the arrests and convictions of employees and applicants. Generally, however, it is a best practice to ask only about convictions, guilty pleas, and no contest pleas (collectively referred to herein as “convictions”) on any application for employment. Arrests are generally not considered sufficient proof that the employee/applicant engaged in the prohibited conduct. In addition, the Equal Employment Opportunity Commission has taken the position that consideration of arrests may lead to inadvertent discrimination, as arrest rates tend to be higher for minorities than non-minorities.

Individual states may also issue guidance on the relevant time period for consideration of past convictions. For example, in Texas, it is generally accepted that convictions older than seven years should not be considered in denying an applicant’s employment.

Further, the consideration of any employee’s or applicant’s conviction should be individually reviewed, considering how much time has passed since the crime occurred, the nature and gravity of the offense, and the specific functions of the job in question. For example, a provider would be justified in considering an individual’s 5-year-old felony conviction for breaking and entering if that individual applies for a position as a security guard. Alternatively, a provider should not consider an individual’s 15-year-old felony conviction for embezzlement in determining whether to hire that person as a shipping clerk.

Lastly, individuals may voluntarily disclose conviction information to a potential employer, but in order to run a formal background check on a person, the employer must have a signed release from the individual. Individual state laws may also govern the information required in a background check authorization. If a provider partners with a credit reporting agency to conduct the background check, then all such checks must comply with the federal Fair Credit Reporting Act (“FCRA”), which establishes specific rules for obtaining the report and making hiring decisions based on the report. For example, the FCRA requires employees and applicants to receive a very specific notice of rights pursuant to the FCRA. In addition, before an employer may make an adverse determination based on a background check (e.g., decide not to hire or to terminate an individual based on the results of the background check), the employer must provide the employee/applicant a copy of the background check and a pre-adverse action notice. As the FCRA has very detailed rules regarding the proper procedure for background checks, it is recommended that the provider utilize employment counsel before and during the background check process.

Individual states also have different requirements for individuals that are employed by health care providers. For example, the Florida DME license application requires all individuals with ownership or a controlling interest in a DME supplier to disclose convictions of certain crimes. Such disclosure includes written attestation as well as a criminal background check. Florida does not place a time limit on when the convictions occurred, and failure to appropriately disclose convictions could result in the denial or revocation of state licensure.15

Jeffrey S. Baird, Esq. is Chairman of the Health Care Group at Brown & Fortunato, P.C., a law firm based in Amarillo, Texas. He represents pharmacies, home medical equipment companies, and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization. He can be reached at (806) 345-6320 or jbaird@bf-law.com.

1 See Publication of the OIG Special Advisory Bulletin on the Effect of Exclusion From Participation in Federal
Health Care Programs, 64 Fed. Reg. 52791, 52792-93.
2 See UPDATED: Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Care
Programs, available at https://oig.hhs.gov/exclusions/files/sab-05092013.pdf.
3 Id.
4 Id.
5 42 C.F.R. §1003.200(b)(4).
6 See OIG LEIE Downloadable Databases, available at https://oig.hhs.gov/exclusions/exclusions_list.asp.
7 42 U.S.C. §1320a-7(a)(1).
8 42 U.S.C. §1320a-7(a)(2).
9 42 U.S.C. §1320a-7(a)(3).
10 42 U.S.C. §1320a-7(a)(4).
11 42 U.S.C. §1320a-7(b)(1).
12 42 U.S.C. §1320a-7(b)(3).
13 42 U.S.C. §1320a-7(b)(7).
14 See 42 C.F.R. §1003.140.
15 See Home Medical Equipment Provider Applications, available at http://ahca.myflorida.com/mchq/HQALicensureForms/index.shtml#hme.