The United States Department of Health and Human Services, Office of the Inspector General ("OIG") posted an advisory opinion (Advisory Opinion No. 07-17) last week that addressed whether an individual excluded from federal health care programs who owns the intellectual property to certain technology may legally license the technology to an "unrelated" third party.
I have often heard OIG officials indicate that they consider their ability to exclude providers from federal health care programs to be their greatest weapon to combat fraud and abuse. This advisory opinion, perhaps even more than others, addresses how far-reaching this power in fact is--that is, whether the exclusion applies to intellectual property licensed to a third party company in which the excluded individual bears no relation, has no ownership interest, and would receive no remuneration in exchange, and whether ownership of the third party company by the excluded individual's children would have an impact on the analysis.
In the case before the OIG, the requestor pled guilty to a misdemeanor under Section 1128(b)(a)(2) of the Social Security Act, was sentenced to three years probation, fined $2,000,000 and excluded from participation for a mandatory five year period. The requestor owned the intellectual property rights to an invention and proposed to license the technology to a company formed and wholly owned by the requestor's three children.
The OIG noted that federal health care programs will not pay for items or services furnished directly or indirectly by excluded providers. The indirect furnishing of such items means that an excluded provider sells items to a distributor who ultimately sells the items to providers that bill federal health care programs for their costs.
The OIG concluded that the requestor's relationship was attenuated because the requestor would have no ownership interest in the new company and would receive no payments made by federal health care programs for the items provided to program beneficiaries.
Interestingly, the OIG could have extended its power of exclusion to cover both an excluded individual's children and the license of technology, but the OIG declined to do so. The OIG called the new company and distributors "intervening entities" that apparently cause a break in the chain. The OIG also commented on the fact that the requestor's children would own the new company, but decided that the filial relationship does not pose a substantial risk because the parties certified that funds would not flow to the requestor.
