What to Do the Moment an OIG Screening Flags an Employee (42 CFR § 1001.2002)

Discovering that an employee or contractor may appear on the Office of Inspector General’s (OIG) List of Excluded Individuals and Entities (LEIE) is a critical compliance moment for small healthcare practices. Under 42 CFR § 1001.1901, federal healthcare programs may not pay for items or services furnished, ordered, or prescribed by excluded individuals or entities. 42 CFR § 1001.2002 governs how exclusion is formally noticed and when it becomes effective.

When a screening flag occurs, practices must act in a structured and well-documented manner to prevent non-payable claims and limit potential enforcement exposure. This article explains how to interpret a screening flag, clarifies what the regulations do and do not require, and provides practical steps, a case study, and self-audit tools suitable for small practices.

Exclusion screening is a widely used compliance safeguard, but it is often misunderstood. While federal regulations do not prescribe specific screening frequencies or documentation formats, surveyors and auditors routinely expect practices to demonstrate reasonable diligence in preventing excluded individuals from participating in federally reimbursed services.

When a screening “hit” occurs, uncertainty can lead to delayed or inconsistent responses. Small practices, which often lack dedicated compliance staff, must understand the regulatory framework clearly to avoid compounding risk through missteps or overcorrection.

Regulatory Framework

42 CFR § 1001.1901 – Effect of Exclusion

42 CFR § 1001.1901 establishes the scope and effect of exclusion from participation in federal healthcare programs. The regulation provides that:

• Exclusion applies to Medicare, Medicaid, and all other federal healthcare programs.

• No payment may be made for items or services furnished by an excluded individual or entity after the effective date of exclusion.

• Payment is also prohibited for items or services furnished at the medical direction of, or on the prescription of, an excluded individual when the furnishing party knew or had reason to know of the exclusion.

• Excluded individuals may not submit claims or take assignment of claims during the exclusion period.

The regulation addresses payment eligibility, not screening schedules or employment procedures.

42 CFR § 1001.2002 – Notice of Exclusion

42 CFR § 1001.2002 governs the notice and effective date of exclusion. Key provisions include:

• OIG issues written notice when it determines that exclusion is warranted.

• Exclusion generally becomes effective 20 days from the date of the notice, unless a regulatory exception applies.

• The notice specifies:

• • The basis for exclusion

  • The length of exclusion

  • The effect of exclusion

  • Reinstatement eligibility and procedures

  • Appeal rights

This regulation does not impose duties on providers to suspend employees, but it defines when exclusion is legally effective.

The authoritative regulatory text is reflected in the uploaded source file:

Enforcement Authority

When claims are submitted that violate exclusion-related payment rules, enforcement authority arises under 42 CFR Part 1003, the Civil Monetary Penalties Law. Depending on the facts, consequences may include:

• Civil monetary penalties

• Assessments based on improper claims

• Repayment obligations

• Additional oversight or monitoring

Penalty amounts and standards are governed by Part 1003 and related statutory authority, not by §§ 1001.1901 or 1001.2002 themselves.

A screening flag indicates a potential match, not a confirmed exclusion. Names may be similar or identical, and verification is required before conclusions are drawn. However, delays or undocumented responses may raise concerns during audits if non-payable claims result.

Practices should distinguish clearly between:

• Identification of a potential match, and

• Confirmation of exclusion status

A small internal medicine practice conducted routine exclusion screening and identified a potential match for a billing clerk. Because the practice was uncertain how to proceed, it allowed the clerk to continue working while attempting to verify the match.

Months later, a Medicaid audit determined that the match was valid and that the clerk had been excluded prior to the screening flag. Claims associated with work performed after the exclusion effective date were reviewed, resulting in repayment obligations and additional scrutiny.

Key Takeaway

While regulations do not dictate specific interim actions, delayed or undocumented responses may increase exposure if excluded individuals continue to participate in claim-related activities.

1. Document the Flag
   Record the date, name identified, and source of the potential match.

2. Verify the Information
   Compare available identifiers (such as date of birth or license information) to determine whether the match is valid.

3. Assess Role Involvement
   Determine whether the individual is involved in furnishing, ordering, prescribing, or billing items or services paid by federal programs.

4. Document Findings
   Record verification steps and conclusions clearly.

5. Address Confirmed Exclusions
   If exclusion is confirmed, review affected claims and take appropriate corrective actions.

Treating Every Flag as a Confirmed Exclusion

Potential matches require verification; assumptions can lead to unnecessary disruption.

Failing to Document Actions

Undocumented responses are difficult to defend during audits.

Overlooking Administrative Functions

Billing and support roles may still affect payment eligibility.

Delaying Claim Review After Confirmation

Once exclusion is confirmed, timely review of affected claims is essential.

• Use consistent documentation formats

• Centralize screening and verification records

• Clearly assign responsibility for follow-up

• Periodically review logs for completeness

These practices help demonstrate reasonable diligence without imposing unnecessary administrative burden.

Building a Culture of Compliance

Clear procedures, leadership involvement, and consistent documentation reinforce compliance expectations. When staff understand how and why screening flags are handled, responses are more likely to be timely and defensible.

Under 42 CFR §§ 1001.1901 and 1001.2002, excluded individuals may not participate in federally reimbursed services, and claims connected to such participation are not payable. Screening flags require careful verification, documentation, and follow-up, even though the regulations do not prescribe specific workflows.

By responding in a structured and well-documented manner, small practices can reduce exposure and demonstrate good-faith compliance during audits and reviews.

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.

• U.S. Department of Health & Human Services, Office of Inspector General. 42 CFR 1001.1901 – Effect of Exclusion

• U.S. Department of Health & Human Services, Office of Inspector General. 42 CFR 1001.2002 – Effect of Exclusion

• U.S. Department of Health & Human Services, Office of Inspector General. List of Excluded Individuals and Entities (LEIE)

• U.S. Department of Health & Human Services, Office of Inspector General. Provider Self-Disclosure Protocol

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

• U.S. Department of Health & Human Services. HIPAA Administrative Simplification Regulations, Documentation Retention (45 CFR 164.530(j)(2))