The True Cost of Employing an Excluded Individual in a Small Clinic (42 CFR § 1003.102)

Employing or contracting with an individual excluded from participation in federal healthcare programs can expose small clinics to significant financial and regulatory risk. Under 42 CFR § 1003.102, the Office of Inspector General (OIG) may impose civil monetary penalties (CMPs) and assessments when claims are submitted for items or services furnished by excluded individuals, when the clinic knew or should have known of the exclusion. While enforcement outcomes vary by case, even limited oversight failures can result in substantial repayment obligations, penalties, and long-term compliance monitoring.

This article explains the regulatory framework governing CMPs related to excluded individuals, clarifies how liability arises, and provides practical tools small clinics can use to reduce risk.

Small clinics often operate with lean staffing models and rely heavily on administrative personnel, contractors, and vendors to support patient care and billing. In these environments, exclusion screening may be misunderstood or inconsistently applied.

Federal enforcement does not hinge on job titles alone. When excluded individuals furnish items or services connected to claims submitted to federal healthcare programs, those claims may trigger CMP exposure if the clinic knew or should have known of the exclusion. Understanding this standard, and how it applies to everyday operations, is essential for small clinics seeking to manage compliance risk.

Regulatory Breakdown of 42 CFR § 1003.102

Purpose and Scope

42 CFR § 1003.102 sets forth the bases upon which OIG may impose civil monetary penalties and assessments. The regulation identifies specific conduct that may lead to enforcement action; it does not establish automatic or strict liability.

Key Provisions Relevant to Excluded Individuals

Under § 1003.102, OIG may impose penalties when a person:

• Submits or causes to be submitted claims for items or services that are false or fraudulent.

• Submits claims for items or services furnished during a period of exclusion.

• Submits claims for items or services furnished by an excluded individual employed by or under contract with the person, when the person knew or should have known of the exclusion.

• Engages in other specified misconduct tied to claims submitted to federal healthcare programs.

The regulation emphasizes knowledge standards (“knew or should have known”) rather than automatic liability.

Penalty Amounts

Penalty amounts are addressed in 42 CFR § 1003.103, with inflation-adjusted amounts published annually in 45 CFR Part 102. Historically referenced amounts (e.g., $10,000 per wrongful act) are subject to adjustment and should not be treated as fixed figures.

Assessments

In addition to penalties, OIG may impose assessments based on the amount claimed or paid. Assessments are separate from penalties and are intended to address financial harm to federal healthcare programs.

Case Study: Administrative Oversight

A family medicine clinic hired an administrative staff member who assisted with scheduling and billing support. The clinic did not independently verify exclusion status at onboarding and relied on standard background checks.

Months later, a review identified that the individual had been excluded from participation in federal healthcare programs prior to employment. Claims connected to services supported by the individual were examined.

Regulatory Analysis

OIG’s review focused on whether the clinic knew or should have known of the exclusion and whether reasonable oversight controls were in place. The analysis considered documentation practices, internal controls, and the scope of the individual’s involvement in claim-related activities.

Outcome

The clinic resolved the matter through repayment and corrective actions, including enhanced oversight procedures and documentation controls.

Lesson Learned

Administrative roles that support billing and claims can create CMP exposure. Oversight and documentation are critical to demonstrating reasonable diligence.

Potential Consequences

• Civil monetary penalties based on the nature and number of wrongful acts

• Assessments tied to the value of affected claims

• Repayment obligations
  

• Increased audit and monitoring activity

• Operational disruption during investigations and remediation

1. Identify Covered Activities
   Determine which staff, contractors, and vendors are involved in activities connected to federal healthcare program claims.

2. Review Oversight Controls
   Assess whether reasonable controls exist to identify exclusion-related risk.

3. Document Diligence
   Maintain records showing that exclusion considerations were reviewed.

4. Monitor Ongoing Relationships
   Periodically reassess active relationships for changes that may affect risk.

5. Respond to Findings
   If an exclusion is identified, take prompt action to address claim-related exposure.

Assuming Liability Is Automatic

CMP exposure under § 1003.102 depends on knowledge standards.

Overlooking Administrative Functions

Non-clinical roles may still be connected to claims.

Relying Solely on Background Checks

Standard checks do not address federal exclusion status.

Building a Sustainable Compliance Approach

Sustainable compliance requires consistency and documentation. Small clinics benefit from integrating exclusion awareness into hiring, contracting, and leadership review processes. Clear accountability and periodic review help demonstrate reasonable diligence and reduce enforcement risk.

Under 42 CFR § 1003.102, OIG may impose civil monetary penalties and assessments when claims are submitted for items or services furnished by excluded individuals and the clinic knew or should have known of the exclusion. For small clinics, understanding this standard, and maintaining reasonable oversight, can significantly reduce financial and operational risk.

Compliance should be a living process. By leveraging a regulatory tool, your practice can maintain real-time oversight of requirements, identify vulnerabilities before they escalate, and demonstrate to both patients and payers that compliance is built into your culture.

1. 42 CFR § 1003.102 – Basis for civil monetary penalties

2. OIG Exclusions Program (LEIE)
   

3. CMS – Compliance Guidance for Small Practices