Overpayment Alert: Billing for Services from Excluded Staff (42 CFR § 1001.1901)

Billing for services furnished by excluded staff exposes small healthcare practices to significant financial penalties, repayment demands, and reputational harm. Under 42 CFR 1001.1901, the Office of Inspector General (OIG) prohibits payment for any item or service provided, ordered, or prescribed by an excluded individual. Even when the practice is unaware of the exclusion, claims associated with the excluded staff member are considered “tainted” and subject to overpayment recovery. This article explores the regulatory framework, presents a real-world case study, outlines a self-audit checklist, highlights common pitfalls, and provides best practices for small medical offices to prevent overpayment liabilities.

Small medical practices frequently operate under tight budgets and limited staffing, making compliance a constant challenge. Yet federal regulations impose strict accountability, requiring practices to avoid employing excluded individuals in any capacity connected to federal healthcare programs. Overpayments resulting from excluded staff can devastate a practice, forcing repayment of thousands or even millions of dollars, in addition to civil monetary penalties under 42 CFR Part 1003.

OIG has consistently emphasized that ignorance of an employee’s exclusion status is not a defense. Practices must establish screening procedures, train staff, and document compliance activities. By understanding the risks of billing for services furnished by excluded staff, practices can build safeguards that protect their financial stability and patient trust.

Regulatory Breakdown

42 CFR 1001.1901 establishes that no federal healthcare program payment may be made for any item or service furnished by an excluded individual or entity, whether directly or indirectly (42 CFR §1001.1901(b)(1)). This regulation applies to:

• Clinical Services: Services directly rendered by excluded physicians, nurses, or other providers.

• Administrative Functions: Services indirectly related to claims, such as billing or coding, performed by excluded staff.

• Ordered or Prescribed Services: Items prescribed or ordered by an excluded professional, even when delivered by non-excluded staff.

The breadth of the rule means that all claims associated with excluded individuals are subject to repayment, regardless of the individual’s role.

It is important to note that §1001.1901 also recognizes limited exceptions. Under §1001.1901(c), certain payments may still be made temporarily, such as inpatient institutional services for patients admitted before the exclusion date, home health or hospice services under care plans established prior to exclusion, or emergency services when properly documented with a sworn statement. These narrow exceptions do not negate the general rule but clarify that exclusions are not always absolute.

Overpayment Obligations

Under Section 1128A of the Social Security Act and 42 CFR Part 1003, claims associated with excluded individuals constitute overpayments. Providers are obligated to return overpayments within 60 days of identification, as required by the Affordable Care Act and CMS guidance. Failure to return funds promptly can trigger False Claims Act liability.

Enforcement and Penalties

Civil monetary penalties for billing services tied to excluded individuals can reach $10,000 per item or service, plus treble damages (42 CFR Part 1003). For small practices, such penalties may be existential threats, underscoring the importance of robust exclusion screening and documentation.

A primary care clinic in the Midwest hired a medical assistant without conducting exclusion screening. The assistant, excluded due to a state Medicaid fraud conviction, performed patient intake and assisted in claim submissions. For over a year, the practice billed Medicare and Medicaid for services in which the excluded staff participated.

During a CMS audit, the exclusion was identified. The clinic was ordered to repay more than $500,000 in overpayments and was assessed additional civil penalties. The absence of a written policy and screening documentation was cited as evidence of noncompliance. Despite the clinic’s argument that the assistant did not directly provide billable services, OIG determined that all claims were tainted by the individual’s participation (42 CFR §1001.1901(b)(1)(i)–(ii)).

The financial strain forced the clinic to lay off staff and consider closure. This case illustrates how even indirect involvement by excluded personnel can trigger overpayment obligations.

Self-Audit Checklist

Small practices can use a self-audit checklist to proactively detect risks of overpayment due to excluded staff:

1. Pre-Employment Screening: Verify that all applicants are screened against the OIG LEIE and state exclusion lists before hire. Document results with dates and staff initials (OIG LEIE Database).

2. Monthly Re-Screening: Conduct monthly screenings of all staff, contractors, and vendors to identify mid-employment exclusions. Retain electronic or paper records for each screening.

3. Vendor Oversight: Confirm that contracts with billing companies, IT providers, and staffing agencies include obligations to screen and provide proof of compliance.

4. Audit Claims: Review a random sample of recent claims to ensure no services were linked to excluded individuals. Investigate anomalies promptly.

5. Training Records: Maintain documentation showing that staff have been trained annually on exclusion risks and overpayment consequences.

6. Corrective Action Documentation: If an exclusion is discovered, retain records of staff suspension, claim review, and repayments made to CMS or Medicaid.

Completing this checklist provides evidence of diligence and reduces exposure in enforcement proceedings.

Common Pitfalls and How to Avoid Them

Despite good intentions, small practices often make mistakes that increase risk:

1. Assuming Non-Clinical Roles Are Safe: Practices may believe exclusions only matter for licensed providers.

• Avoidance: Train staff that all roles connected to claims or patient services must be screened, as indirect involvement still taints claims (42 CFR §1001.1901(b)(1)(ii)).

2. Relying Solely on Staffing Agencies: Agencies may not consistently check exclusion status.

• Avoidance: Require agencies to certify screenings and independently verify individuals through LEIE.

3. Failing to Document Screenings: Regulators consider undocumented screenings as never performed.

• Avoidance: Save dated screenshots or reports for every screening, stored centrally for audit access.

4. Screening Only at Hire: Practices often neglect ongoing monthly screenings.

• Avoidance: Implement recurring checks to capture mid-employment exclusions, as OIG updates its LEIE monthly.

5. Delaying Response to Identified Exclusions: Some practices continue billing while investigating possible matches.

• Avoidance: Immediately suspend duties of suspected excluded staff until verification is complete.

By avoiding these pitfalls, practices can substantially reduce the likelihood of overpayment liabilities.

Step-by-Step Policy Development

Creating an OIG screening policy can be done quickly and effectively by including:

• Scope covering all staff, contractors, and vendors.

• Responsibility assigned to a compliance officer or manager.

• Pre-employment and monthly screening requirements.

• Use of the OIG LEIE and state lists as primary sources.

• Documentation protocols requiring dated logs or screenshots.

• Escalation procedures for potential matches, including suspension and legal consultation.

This structure aligns with OIG guidance and provides a defensible compliance framework.

Leveraging Free and Low-Cost Tools

Small practices can minimize costs by using:

• OIG LEIE Online Search Tool and Downloadable Database (free at oig.hhs.gov).

• State Medicaid Exclusion Lists (free on state health websites).

• Shared Digital Folders for storing screening logs and training records.

• Free Webinars and Training Modules from CMS and OIG.

These resources provide compliance without straining practice budgets.

Corrective Action Planning

If an exclusion is discovered, practices must act immediately:

• Suspend the excluded individual from any duties tied to federal program claims.

• Conduct a retrospective review of claims associated with the individual.

• Report overpayments and return funds within 60 days, consistent with CMS guidance.

• Document all steps taken to demonstrate good faith compliance.

Prompt corrective action can serve as a mitigating factor in OIG enforcement decisions.

Preventing overpayments requires more than policies; it requires culture. Small practices can build a compliance culture by:

• Leadership Commitment: Owners must prioritize exclusion screening as critical to practice survival.

• Shared Responsibility: All staff should understand their role in preventing billing errors tied to excluded individuals.

• Transparency: Audit results should be shared in team meetings to reinforce accountability.

• Recognition and Reinforcement: Staff who diligently perform screenings or identify potential risks should be recognized for their contributions.

When compliance becomes part of daily practice, staff are more likely to perform screenings consistently and escalate issues promptly.

Billing for services furnished by excluded staff under 42 CFR 1001.1901 is a high-risk area for small practices, with potential liabilities ranging from repayment of claims to crippling civil penalties. Overpayments tied to excluded individuals must be returned promptly, and ignorance offers no defense (see also 42 CFR §1001.1901(c) for limited exceptions). 

By drafting clear policies, training staff, leveraging free OIG tools, and embedding compliance into practice culture, small medical offices can defend against overpayment liabilities. The strategies outlined, self-audits, documentation, corrective action planning, and culture-building, equip practices to meet regulatory expectations while managing limited resources. Proactive compliance is not only a legal requirement but also a safeguard for patient trust and the practice’s long-term survival.

Strengthening compliance isn’t just about checking boxes. A compliance platform helps your practice stay ahead by tracking regulatory requirements, running proactive risk assessments, and keeping you audit-ready, proving to patients and regulators that you prioritize accountability.

• U.S. Department of Health & Human Services, Office of Inspector General. Exclusions Guidance and Special Advisory Bulletins.

• Federal Register. 42 CFR Part 1001 – Program Integrity; Exclusions

• Centers for Medicare & Medicaid Services. Medicare Program Integrity Manual