“The early bird catches the worm.”
“If you want to see the sunrise, get up early.”
“An ounce of prevention is worth a pound of cure.”
All of these sayings signify that it is never too early to do the right thing and when it comes to avoiding fines and penalties, that means pre-transactional OIG exclusion due diligence.
Lawyers know that the devil is in the detail. That is why careful consideration and time is taken to conduct thorough and complete due diligence as a part of a transaction. If done properly, it will include an audit of many areas of compliance. An article in the Nashville Post discusses this point. According to the article, evaluating deals requires a larger compliance push that is driving up the overall cost of deals. “Compliance is actually the reason most deals don’t get done,” said Todd Rudsenske, Cain Brothers managing director. “If proper compliance checks haven’t been made, then what happens when the value goes out the door?”
The OIG maintains the federal List of Excluded Individuals and Entities (LEIE). This list contains almost 70,000 excluded individuals and entities and is updated monthly by OIG. The expectation is that employers are searching monthly for excluded individuals and entities. If an organization hires or contracts with an excluded individual or entity, the company can face civil monetary fines and penalties in the hundreds of thousands of dollars.
The good news is that these fines are 100% avoidable. A prudent pre-transactional due diligence item should include a search of all existing employees, third party contractors and supplier/entities for OIG exclusions BEFORE a company acquires another.
Recently, our organization was engaged by a major healthcare law firm to assist them in conducting an independent audit and compliance review of the sellers’ OIG exclusion list processes, procedures, and results. The firm had been conducting criminal background checks as a part of its pre-hire practices. A search of the OIG LEIE and GSA EPLS (Excluded Parties List System) was a part of that initial search. The lawyers were not sure if the seller regularly monitored its staff and vendors as recommended by the new CMS Guidelines and OIG requirements.
ProviderTrust conducted searches on over 1,000 employees against the OIG LEIE, GSA EPLS, SAM and the available state Medicaid exclusion registries. Whether the lawyers had a hunch or were just checking the box, our team uncovered two issues. The most serious of which involved a licensed employee who had been excluded in Texas since 2007 and had a revoked license.
The results of this OIG Exclusion audit demonstrates three key points:
- Due diligence should include a state and federal OIG exclusion and debarment search on all employees (licensed or not) as well as vendors, prior to the date of purchase.
- Best practice is to include a Representation and Warranty from the seller that all employees and vendors have current licenses and are not excluded or debarred.
- Taking the time to conduct OIG exclusion and license verifications can save the purchaser liability, fines, and bad publicity.
Here are 10 reasons why pre-transactional OIG Exclusion checking is key to a successful transaction:
- The employer is liable for any actions or bills submitted by an excluded individual or entity.
- A stock purchase includes assuming pre-existing liabilities.
- The standard of liability is “knew or should have known”. The OIG database is available for searching. Thus, the buyer is buying into the liability, even if not disclosed.
- If certain reps and warranties are made, you will have to go after the reserve for any undisclosed fines related to the exclusion.
- If purchasing the assets only, OIG will still hold the employer liable for the fines. As the new purchaser, why take the risk?
- The fines can be made for up to six years from the event.
- An organization that is under a Corporate Integrity Agreement, assumes the CIA responsibilities, which include disclosing OIG exclusions.
- A search of and for current exclusions in the month preceding the transaction will provide the purchaser with the comfort of knowing that it is not involved with excluded employees or vendors at the time of a transaction.
- It is best practice to conduct appropriate background checks and that includes OIG exclusion searches.
- Just like all of the other lists that have to be checked in order to assure that your client is buying a lawfully run and compliant company, OIG exclusion searches are one of the low hanging fruits of effective pre-transaction due diligence.
Have any questions about this process? We’d love to hear from you in the comments below, or send us a quick message!
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Written by Michael Rosen, ESQ
Michael brings over 20 years of experience founding and leading risk mitigation businesses, receiving numerous accolades such as Inc Magazine’s Inc 500 Award and Nashville Chamber of Commerce Small Business of the Year.