This month, RFK Jr gave CMS itself the elective exclusion authority long reserved only for referral to the OIG's attorneys. Blog.
Here I've asked Chat GPT to put on its virtual law school professor hat and discuss how case law may have shaped the interpretation of the statute. (The statute allows years of exclusion for violations as loosely defined as "unnecessary services" or "overcharging." The exclusion arrives in days, but fighting it might mean years in court.)
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AI CORNER
Chat GPT 6
See alternate/longer essay by Claude here.
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CMS Exclusion Authority and the Lessons of Three Appellate Decisions
CMS’s expanded role in excluding providers from federal healthcare programs brings renewed attention to a longstanding question: how much discretion does the government have to remove a provider, and what must it demonstrate before doing so?
Three federal appellate decisions offer useful perspectives. One concerns laboratory referral arrangements, another the responsibility of pharmaceutical executives, and a third allegedly unnecessary medical procedures. Together, they distinguish the legal basis for exclusion, the justification for its duration, and the procedures available to challenge it.
A New Enforcement Role Under an Existing Statute
On October 14, 2026, HHS delegated to the CMS Administrator the Secretary’s permissive-exclusion authority under §1128(b) of the Social Security Act, codified at 42 U.S.C. §1320a-7(b). OIG retains its authority. The delegation expressly withholds authority to conduct hearings or issue regulations and requires compliance with applicable departmental procedures and rules. It changes who can exercise the authority without rewriting the statutory grounds for exclusion.
“Permissive” means that exclusion is authorized rather than automatically required once a qualifying circumstance exists. The circumstances vary considerably: some involve convictions, while others involve unnecessary services, substandard care, prohibited financial arrangements, or failures to provide required information. Consequently, permissive exclusion is not synonymous with exclusion without a conviction, although important provisions require none.
The following cases arose from HHS/OIG enforcement. Their relevance to CMS lies in their interpretation of the same statutory authority and the constraints surrounding its exercise.
Hanlester: A Laboratory Violation Did Not Necessarily Justify Exclusion
Hanlester Network v. Shalala, 51 F.3d 1390 (9th Cir. 1995)
Hanlester organized laboratory joint ventures in which physicians could purchase partnership interests. SmithKline BioScience Laboratories managed the laboratories and performed most of their testing. The government alleged that financial benefits offered to physician investors improperly induced referrals and that the relationship with SmithKline also involved unlawful remuneration.
HHS pursued permissive exclusions under §1128(b)(7), which reaches specified prohibited conduct, including kickback violations. The Ninth Circuit upheld certain entities’ liability for their marketing agent’s conduct but reversed the exclusions. It emphasized exclusion’s purpose of protecting programs and patients from future harmful conduct. On the particular record, the entities’ liability was vicarious, and the court concluded that the relevant untrustworthiness ended when the agent left.
The distinction is consequential: a finding of misconduct and a justification for exclusion are separate questions. The decision does not establish that dismissing an employee always prevents exclusion; its reasoning depended on the evidence and attribution of responsibility.
A qualification concerns the case’s separate interpretation of kickback intent. Congress subsequently eliminated the requirement for actual knowledge of the statute or specific intent to violate it. That older portion of Hanlester should not be presented as current law.
Friedman: Exclusion Was Authorized, but Twelve Years Required a Better Explanation
Friedman v. Sebelius, 686 F.3d 813 (D.C. Cir. 2012)
Purdue Frederick employees had promoted OxyContin as less addictive and less susceptible to abuse than other pain medications. Three senior executives pleaded guilty to misdemeanor misbranding under the responsible corporate officer doctrine. Their pleas admitted responsibility and authority to prevent or correct the misrepresentations; the doctrine did not require personal knowledge of the underlying fraudulent conduct.
HHS ultimately imposed twelve-year exclusions. The executives challenged both the statutory basis and the duration.
The D.C. Circuit held that §1128(b)(1) authorized exclusion because the misdemeanor convictions related to fraud. However, it remanded because HHS had not adequately explained the unusually lengthy exclusions in light of prior agency decisions. The court did not declare twelve years categorically impermissible; it required a reasoned explanation.
For policymakers, the case demonstrates that a lawful basis for exclusion does not settle its appropriate length. An agency changing enforcement intensity must explain its decisions and address relevant precedent. Unlike Hanlester, this case depended on criminal convictions, although the convictions did not require proof that the executives personally intended fraud.
Thorbus: Challenging Exclusion Does Not Necessarily Stop It
Thorbus v. Bowen, 848 F.2d 901 (8th Cir. 1988)
Dr. Ruben Thorbus practiced in rural Minnesota, where approximately 60% of his clinic patients received Medicare or Medicaid. Medical reviews identified allegedly excessive diagnostic endoscopic procedures and deficiencies in care. After giving him an opportunity to present evidence and argument, HHS imposed a five-year exclusion.
The cited authorities included §1128(b)(6)(B), covering substantially unnecessary or substandard services, and a separate quality-of-care provision. Thorbus requested an administrative hearing but also sought a federal court injunction to prevent exclusion while administrative proceedings continued.
The Eighth Circuit upheld the refusal to grant an injunction. It found no established constitutional violation and concluded that the asserted financial and reputational harm did not justify relief when balanced against potential harm to patients.
The decision illustrates the practical importance of timing: an available appeal does not necessarily postpone an exclusion. Its holding concerned interim relief and procedural adequacy, however, rather than a final judicial resolution of every disputed medical service.
Implications for CMS Policy
These decisions identify three questions that should remain distinct as CMS exercises its authority:
Is there a statutory basis for exclusion? The government must establish the elements of the particular provision invoked.
Is the exclusion decision adequately justified? The protective rationale, supporting evidence, and duration can be subject to judicial scrutiny.
When can the provider obtain review or interim protection? Procedures differ by statutory ground. Section 1128(b)(7), for example, generally provides for a hearing before exclusion takes effect, subject to a health-or-safety exception.
For laboratory policy, another distinction is essential. Excessive charges under §1128(b)(6)(A) and unnecessary services under §1128(b)(6)(B) are different grounds. The former addresses charges substantially above the provider’s usual charges, subject to statutory qualifications. The latter concerns patient need and professional standards. Thorbus therefore does not establish how the excessive-charge provision applies to laboratory prices. Nor does Hanlester, which involved referral arrangements rather than fee-schedule levels.
The significance of CMS’s delegation is institutional: the agency administering payment programs now has a broader route to pursue exclusion itself. The appellate cases underscore that this enforcement capacity remains tied to specific statutory grounds, evidentiary records, and reasoned decisions. Public concern about fraud may explain a stronger enforcement priority; each exclusion must still be justified under the law governing that action.
