Original Publish Date: April 4, 2017
Since the inception of the Medicare and Medicaid Programs, federal and state agencies have had the power to terminate provider participation in the programs for failing to provide adequate quality of care. However, such determinations are subjective and rarely result in outright termination. In 2006, regulations went into effect giving the Centers for Medicare and Medicaid Services (“CMS”) the authority to revoke a provider’s enrollment in the Medicare and Medicaid Programs for reasons unrelated to quality of care. One such area that federal and state regulators have focused on in recent years is revocation of provider participation if an owner or key employee of the provider is convicted of a qualifying felony.
CMS, including CMS contractors, can revoke a Medicare provider or supplier’s billing privileges if the provider or supplier has a current owner or managing employee who was convicted of a felony under state or federal law within the last 10 years which is detrimental to the best interests of the Medicare Program and its beneficiaries. Revocation may be based on offenses which include felony crimes against persons (such as murder, rape, assault or similar crimes); financial crimes (such as extortion, embezzlement, insurance fraud or other similar crimes); or any felony that placed the Medicare Program or its beneficiaries at immediate risk (such as a malpractice conviction of criminal neglect or misconduct). Conviction occurs when the judgment of conviction has been entered by the court against the individual or entity regardless of whether there is a post-trial motion or appeal pending, the judgment of conviction has been expunged or otherwise removed, the conviction is entered after adjudication or pursuant to a settlement, or the convicted felon has entered a program or other arrangement where the judgment of conviction has been withheld or deferred. 42 CFR Section 424.535.
A provider whose billing enrollment and privileges have been revoked may request reconsideration and review by CMS or its contractors. If the decision on reconsideration is unfavorable, the provider has the right to request a hearing by an administrative law judge and further review by the Departmental Appeals Board of the Department of Health and Human Services. (“DAB”) 42 USC Section 1395cc (j)(8).
Since the Affordable Care Act went into effect, Medicare and Medicaid revocations have been on the rise and the DAB has upheld a significant number of revocations notwithstanding challenges by the affected provider. A review of recent cases reveals some common situations and traps for the unwary.
In one scenario, the convicted individual attempts to divest his entire interest in the provider retroactively after the conviction is entered. The individual’s position is that he had no interest in the provider at the time of the conviction, since the effective date of the divestiture of the interest occurred prior to the conviction. The DAB has rejected this approach, holding that: “It is the ownership status of the convicted individual or entity on the date of conviction that is determinative. Subsequent contractual arrangements to divest retroactively may be effective as a matter of contract law, but the authority of CMS to revoke is based on the Act and regulations and not contract law.” Palmetto, DAB Decision No. CR 4781.
There are other cases where, instead of divesting the interest, the individual re-characterizes it in what is usually an unsuccessful attempt to escape the reach of the statute. For example, instead of cutting his ties with a laboratory, its director attempted to re-characterize his position as that of a consultant. The DAB nonetheless upheld the termination, finding that the individual accepted operational responsibilities of the laboratory. Gen. Sys. Incorporated, DAB Decision No. CR 889.
In another common scenario, the convicted individual successfully divests his entire interest prior to the effective date of the conviction, but fails to update the enrollment website maintained by CMS. So even though the documentation reflects pre-conviction divestiture, according to the data maintained by the regulator the convicted felon is still acting in an official capacity for the provider. In these cases, the DAB has refused to reverse the revocation. Care Pro Home Health, DAB Decision No. CR 4321 at 6, fn 7.
Where the individual or entity fails to divest the interest prior to the conviction, CMS has the authority to reverse the revocation if the individual or entity notifies CMS that it has divested its interest within 30 days of receiving notification from CMS of the revocation. 42 CFR Section 424.535(e). However, in this regard, the authority of CMS to act in favor of the provider is purely discretionary and the DAB has ruled that it lacks the authority to review the refusal of CMS to exercise such discretion. Palmetto, DAB Decision No. CR 4781 at 15.
When faced with a felony conviction for a crime covered by the revocation statute, the individual or entity facing conviction needs to take all necessary steps to completely divest its entire interest in the provider prior to entry of the conviction. These steps must include updating the CMS website to show that the individual or entity no longer has any interest in the provider. Failure to effectively take these steps will likely result in revocation of the provider’s enrollment in all government payor programs. While CMS has the discretion to reverse revocation if the provider timely notifies it of divestiture after revocation, the authority of CMS to do so is purely discretionary and the refusal of CMS to exercise such discretion will not be overturned by the DAB on appeal.
For almost 25 years, Jon has focused on representing institutional health care providers, including general acute and long term care facilities. Jon is an experienced litigator and trial lawyer and has defended providers against commercial, reimbursement and compliance claims in administrative tribunals and state and federal courts, including the United States and California Supreme Courts. He also appears regularly in proceedings before the Departmental Appeals Board of the Department of Health and Human Services. He can be reached at 310-556-6761 or jcohn@polsinelli.
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