Notorious Affiliate Exclusion Provision of PPACA Repealed

December 21, 2010

By Alan M. Kirschenbaum

Exclusion from Medicare and Medicaid is a potent weapon used by the government against program-related fraud, but it can be a double edged sword when wielded against drug and medical device companies.  Exclusion of a drug or device company means that the federal programs may not reimburse providers for any of the company’s products.  This would be a severe detriment to any drug or device company, but it is perhaps equally undesirable for the government, since the exclusion of just one large pharmaceutical company, for example, would deprive Medicare and Medicaid beneficiaries of a multitude of necessary drugs.  For this reason, where the HHS Office of the Inspector General ("OIG") has invoked exclusion against drug manufacturers that have pleaded guilty to antikickback law violations, which the OIG is required to do under the mandatory exclusion statute (42 U.S.C. § 1320a-7(a)) , the penalty has been imposed on a shell or defunct affiliate of the drug company, leaving Medicare and Medicaid free to cover the manufacturer’s drugs. 

During its brief existence, which ended last week, section 6502 of the Patient Protection and Affordable Care Act earned notoriety because it threatened to preclude this practice.  Section 6502 added to the Social Security Act a provision requiring, among other things, that State Medicaid agencies exclude from Medicaid any affiliate (or any individual or entity that owned, controlled, or managed an affiliate) of an entity excluded from a Federal health care program.  In other words, a drug or device manufacturer’s plea of guilty would necessarily subject the entire company, including all affiliates, to exclusion under Medicaid.  The provision would have severely constrained the Department of Justice’s ability to negotiate settlements that would impose appropriate penalties on drug and device manufacturer without harming Medicaid beneficiaries.  Fortunately, Congress relatively quickly saw the need for a fix.  Section 205(a) of the Medicare and Medicaid Extenders Act of 2010, which was signed into law last Wednesday, December 15, repealed the affiliate exclusion provision. 

Categories: Health Care