'Exclusions list' warns consumers, providers

Natarajan Murugesan, an office manager, decided he was going to save his employer some money. So he found a new vendor that would sell particular products cheaper than his firm's regular supplier. Murugesan's business then used the less-expensive products in procedures with its customers but didn't adjust the amounts it billed for the provided services. The business implied that the higher price products — sourced from the original vendor — had been used in the customer procedures to the payer. Of course, the business now had a larger profit margin, which flowed to the owners. This simple billing fraud eventually caught the attention of the U.S. federal government. Why? Because the firm was the Hematology and Oncology Center PLLC (HOC) of Somerset, Kentucky. The product was a misbranded chemotherapy drug. The payer was Medicare, which doesn't pay for misbranded drugs used in patient procedures. And their transgressions landed them on a dreaded U.S. government "exclusions list."

Why was Murugesan charged?

According to the U.S. Attorney's Office for the Eastern District of Kentucky, HOC pleaded guilty June 17, 2014, to charges of knowingly receiving a misbranded cancer treatment drug.

Murugesan pleaded guilty to aiding and abetting in the introduction of an unapproved oncology drug into interstate commerce. The government found that HOC had violated the False Claims Act by submitting false claims to the Medicare program for misbranded and unapproved cancer-fighting drugs from a Canadian distributor it administered through the clinic from January 2010 through July 2011.

The Canadian distributor, which obtained the drugs from around the globe for use in the U.S., avoided the Food and Drug Administration's (FDA) controls over drug manufacturing and distribution within the U.S. Murugesan was prosecuted under a misbranding provision of the U.S. Food, Drug and Cosmetic Act because the foreign-made, illegally labeled drugs weren't approved versions for U.S. distribution. These laws and rules exist to protect patients, who have to rely on health care workers to use the correct versions of the drugs. If they use incorrect versions, the efficacy of treatments might be affected.

In January 2014, the government ultimately placed HOC on the exclusions list, which the Office of Inspector General of the Department of Health and Human Services (OIG-HHS) maintains. According to the 2014 Health Care Fraud and Abuse Control Program Report, HOC will be on the list for the next six years.

What does 'excluded' mean?

As of March 2015, 2,905 businesses were on the exclusions list. These companies — and any other legitimate businesses that use their services — can't submit bills for services to a U.S. federal government health program (such as Medicare or Medicaid, among others) for payment, according to the OIG-HHS. Therefore, if a business on the exclusions list continues to provide the same services, its patient population will need to change to self-payers or private insurance payers. Admittedly, as part of the credentialing process, private insurance entities can use the exclusion list to refuse to allow providers into their networks. (See How Healthy is Healthcare Credentialing? by Mike Rosen, Nov. 15, 2013, The Providertrust Blog.)

How do businesses get on the list?

The OIG-HHS can place businesses on the list for a variety of different reasons connected with the Social Security Act of 1965. More than 50 percent are on the list because they're connected with individuals at the businesses — usually the owners — who have been excluded from billing federal government programs. (As of March, 57,629 individuals were on the exclusion list, which means that more than 1,450 of these individuals committed acts that affected their affiliated business entities.) For example, a doctor — who was excluded for defaulting on loans — might be a partial owner in a laboratory, clinic or other health care business. However, the business might or might not be involved in the conduct that placed the individual on the exclusions list.

Approximately 30 percent of businesses are initially placed on the list because they have serious program issues often based on their interactions with Medicaid or Medicare. The rest of the list is populated with firms that violated regulations in 15 additional categories based on the Social Security Act — from fraud to obstructing an investigation. The government places each business in an initial violation classification but then can place it in multiple classifications. The classification is subjective because the OIG-HHS could classify some businesses in multiple categories after it reviews details of infractions.

Here are some entities' specific situations that likely contributed to the government placing them on the exclusions list:

Whistleblowing employees alleged that Hope Cancer Institute, located in Kansas City, Kansas, and owned by an oncologist, submitted bills to Medicare and Medicaid for twice the amount of drugs that patients received. (See Cancer center agrees to $2.9M settlement in whistleblower case, by Brianne Pfannenstiel, April 14, 2014, Kansas City Business Journal.)

After the FDA rejected OtisMed Corp.'s adulterated knee replacement surgery cutting guides, its board of directors halted shipment of the devices. However, company management, including the founder of the company, proceeded in 2009 to distribute the remaining units in stock to physicians that had existing surgeries scheduled. (See the Dec. 8, 2014, U.S. Department of Justice notice.)

Mujahid "Peter" Pervez had been convicted of defrauding Medicaid in 1991. But that didn't stop him from using his son, Raheel Pervez, as a front man for several New York City pharmacies. In June 2013, father and son — along with several others and three corporations — were indicted in a $16 million, multi-year scheme to steal from Medicaid. Employees at these pharmacies recruited HIV patients to accept money instead of their prescribed drugs; the pharmacies billed Medicaid for the drugs and kept the money. Law enforcement alleged medical professionals funneled patients to these pharmacies. (See the N.Y. attorney general release.)

An Indiana-based business sold multiple power wheelchairs and other pieces of medical equipment within a short period of time. In July 2010, the U.S. Department of Health and Human Services discovered the business' aberrant billing patterns. The business owner admitted to billing Medicaid for items that she never provided to patients, including four heavy-duty power wheelchairs at more than $9,000 each and 45 oximeters (devices for measuring blood oxygen levels) at $2,400 each. (See the FBI Indianapolis Division release.)

The exclusions list is mostly comprised of smaller businesses that would be recognizable to consumers in their local communities. While larger corporations could commit similar infractions, they might negotiate with the government to stay off the list, usually for additional concessions. Therefore, the list is a lever in the federal government's toolbox when prosecuting healthcare malfeasance. OIG-HHS varies in the number of business entities it places on the list during any one year (see the graph, "Number of businesses excluded by year" below), but it has excluded some companies from as far back as 1979. In reality, some of these entities haven't been operating for years. For example, Saugus General Hospital was placed on the exclusion list in 1979 but closed in 1980. Other businesses now continue to operate using revenue sources other than federal government health plans.

Which kinds of businesses are on the list?

Businesses from each of the 50 states are on the exclusions list, but the number ranges from a single business in North Dakota to 730 in Florida. The types of businesses include the expected physician practice entities, pharmacies, sleep clinics, durable medical equipment providers (wheelchairs, power scooters, etc.) and chiropractic firms. Other health care-related entities represented in the top 20 business categories include billing services, transportation companies, mental-health providers, ambulance companies, nursing homes and home health providers.

Interestingly, only 6.3 percent of these entities have billing numbers that they use to bill federal health programs. Most bill the government via the billing numbers of related workers, such as doctors, pharmacists, therapists, owners, etc.

The OIG-HHS website has an exclusions database lookup feature. Also, users can download the entire database in real time. OIG-HHS places businesses on the list for a set period or indefinitely. Businesses or consumers can scan the list to make informed decisions. Because some of these businesses have closed or are bankrupt, the database overstates active businesses currently excluded.

Why should a health care consumer care?

We need to identify the bad apples in health care providers because of three trends.

1. The shift in payment paradigm means that a consumer needs to be more aware of the ownership ties among health care providers. The idea of "value-based health care" — in which providers are paid on the quality of the health care — contrasts with the existing "fee for service" paradigm, a volume-based metric.

With value-based healthcare, health care providers are "financially incentivized" to keep patients out of the hospital. This encourages them to use outpatient services and multiple health care providers to assist with care, which hopefully prevents hospitalization. This means that patients trust their health care providers for recommendations for associated service providers such as therapists, home health aides, durable equipment providers, etc. These service providers typically are smaller and aren't subject to the same oversight that a larger medical institution might have over their professionals. Therefore, the OIG-HHS exemptions list alerts consumers that a health care provider might have ownership, and a financial interest, in other businesses. This should encourage a consumer to research a provider prior to accepting a health care provider's recommendation.

2. As consumers shift to high-deductible health plans, they have to actually pay health providers' bill for the first few thousand dollars of services each year. The price sensitivity and overall acknowledgement of the cost for services changes when you're writing the check instead of a third-party payer. Each business on the exclusions list is abusing and wasting resources from our health care system and passing along these costs to everybody else involved in paying for healthcare, including taxpayers.

3. Finally, aging baby boomers will exacerbate shortages of health care providers in certain fields in various geographic locations. Patient loads will increase while the supply of providers won't increase at the same rate. This stress will mean that health care fraud opportunities will continue to exist and probably grow. If consumers are aware of the companies on the exclusions list and their schemes, it might be easier for them to identify other entities that are committing similar fraud. At the very least, if a consumer doesn't feel comfortable with a health care provider, he or she can seek out another one before that firm might be placed on the exclusions list.

Does this apply only to the U.S.?

As the lead example shows, the U.S. health care system doesn't operate in a bubble. Drugs manufactured overseas in non-FDA approved facilities do enter the U.S. health care system. Medicare often pays physicians practicing outside the U.S. in Guam, Puerto Rico and elsewhere. The U.S. health care system routinely treats people from other nations — by their choice or by necessity. This list of bad apples gives a person one more data point when searching for the correct provider to help them recover.

What now?

The OIG-HHS exclusions list is not all-inclusive. Of course, other businesses are committing the same frauds, but they haven't been caught yet.

Consumers and businesses need to be wary. Fraud examiners can warn consumers and encourage them to check the list so they can avoid the crooks and be more aware of various health care fraud schemes. Health care businesses can use the OIG-HHS exclusions list to avoid excluded providers and increase the odds they'll be paid for claims.

Renee Flasher, Ph.D., CFE, CPA, CMA, is an assistant professor in the Miller College of Business Department of Accounting at Ball State University in Muncie, Indiana. Her email address is: rflasher@bsu.edu.