Background Checks vs. OIG Screening: Why Your Clinic Must Do Both (42 CFR § 1001.1901)

Small medical practices often assume that conducting employment background checks is enough to protect against compliance risks. While background checks are important, they do not replace Office of Inspector General (OIG) exclusion screening obligations tied to federal healthcare program payment rules. Under 42 CFR § 1001.1901, if an excluded individual or entity participates in items or services billed to federal healthcare programs, payment may be prohibited and the practice can face repayment exposure and additional liability.

This article explains the difference between background checks and OIG exclusion screening, why both are required from a compliance standpoint, and how small practices can structure a defensible screening process that aligns with federal regulations.

When hiring staff or contracting with vendors, most clinics perform standard background checks. These checks typically include criminal history, education verification, licensing validation, and prior employment review. While these steps are important for hiring decisions, they do not determine whether an individual or entity is eligible to participate in federally reimbursed healthcare services.

An individual may pass a criminal background check yet still be excluded from participation in Medicare, Medicaid, or other federal healthcare programs. If that individual appears on the OIG List of Excluded Individuals and Entities (LEIE), a clinic may not receive payment for items or services connected to that individual’s work. Failure to identify an exclusion can lead to denied claims, repayment obligations, and additional enforcement consequences.

Regulatory Breakdown of 42 CFR § 1001.1901

Scope of Exclusion

42 CFR § 1001.1901 establishes that exclusions apply to Medicare, Medicaid, and all other federal healthcare programs. Exclusion is not limited to a single payer or benefit category.

Effect of Exclusion on Payment

The regulation states that no payment may be made for any item or service furnished on or after the effective date of exclusion if the item or service is:

• Furnished by an excluded individual or entity, or

• Furnished at the medical direction or on the prescription of an excluded physician or authorized individual, when the person furnishing the service knew or had reason to know of the exclusion.

Roles Covered by the Payment Prohibition

Exclusion is not limited to clinical services. Administrative, management, billing, scheduling, and other non-clinical services can also fall within the scope of the payment prohibition if they contribute to federally reimbursed items or services.

Liability Regardless of Knowledge

Liability rests with the practice. Even if a clinic was unaware that an employee or vendor was excluded, claims involving that individual or entity may still be subject to repayment, civil monetary penalties, and other enforcement consequences. Lack of knowledge does not negate the effect of exclusion under the regulation.

Background Checks: What They Cover, and What They Miss

What Background Checks Typically Cover

• Criminal history at the federal, state, or county level

• Employment verification

• Professional license verification

• Education verification

• Credit history, when relevant

What Background Checks Typically Miss

• OIG exclusions that prohibit participation in federal healthcare programs

• State Medicaid exclusion lists

• Program-specific federal payment restrictions

• Administrative exclusions not tied to criminal convictions

As a result, an individual can have a clean criminal record and still be barred from participation in federal healthcare program reimbursement.

A small dermatology practice hired a medical assistant after completing a standard pre-employment background check. Criminal history, licensing, and references all appeared clear. The practice proceeded with onboarding, confident that due diligence had been completed.

What the clinic did not identify was a prior OIG exclusion related to a Medicaid billing fraud matter at a previous employer. Because the practice did not conduct an OIG exclusion screening, the excluded status went undetected.

Consequences

• Claims involving the excluded individual’s services were submitted to Medicare and Medicaid.

• Reimbursement was denied, resulting in repayment of approximately $85,000.

• Additional civil monetary penalties were imposed due to failure to screen.

• The practice was required to implement a corrective action plan, including ongoing screening, documentation requirements, and compliance training.

Lesson Learned

Passing a background check does not equate to eligibility for federal healthcare program participation. Exclusion may stem from administrative or civil enforcement actions that are not visible through traditional background screening methods.

Step 1: Screen at Hire

Conduct standard background checks and a separate OIG exclusion screening for all employees, contractors, and vendors prior to engagement.

Step 2: Screen All Relevant Roles

Apply exclusion screening to any role that contributes to items or services billed to federal healthcare programs, including non-clinical and vendor roles.

Step 3: Re-Screen Periodically

The regulation does not specify a required screening frequency. However, because the exclusion database is updated regularly, many practices conduct periodic re-screening as a compliance best practice rather than a regulatory mandate.

Step 4: Document Results

Maintain records showing who was screened, when the screening occurred, which database was used, and the outcome of the search.

Step 5: Act on Identified Exclusions

If an exclusion is identified, immediately halt involvement in federally reimbursed services and assess claim impact consistent with the payment prohibition rules.

Common Pitfalls and How to Avoid Them

One-Time Screening Only

Screening only at hire ignores the possibility of later exclusions.

Not Screening Vendors

Vendors can create the same payment risk as employees if excluded.

Relying Solely on Background Checks

Background checks do not identify federal program exclusions.

Inconsistent Documentation

Lack of documentation undermines audit defensibility.

Lack of Staff Awareness

Failure to train staff can lead to missed screening obligations.

• Maintain written screening policies and procedures

• Apply screening consistently across roles

• Retain clear documentation

• Review screening processes periodically

• Ensure leadership oversight

Effective compliance requires more than isolated checks. Embedding screening into routine compliance activities reinforces accountability and helps demonstrate proactive management of federal healthcare program risk.

Background checks and OIG exclusion screening serve different purposes. Background checks support hiring decisions, while exclusion screening protects against federal healthcare program payment and enforcement risk under 42 CFR § 1001.1901.

To further strengthen your compliance posture, consider using a compliance regulatory tool. These platforms help track and manage requirements, provide ongoing risk assessments, and keep you audit-ready by identifying vulnerabilities before they become liabilities, demonstrating a proactive approach to regulators, payers, and patients alike.

1. 42 CFR § 1001.1901 – Scope and effect of exclusion (eCFR)

2. HHS OIG – List of Excluded Individuals/Entities (LEIE)

3. HHS OIG – Exclusions Program (overview)