Two years after a report critical of how the Centers for Medicare & Medicaid Services (CMS) addresses potential conflicts of interest (COIs) when choosing Zone Program Integrity Contractors (ZPICs), the chickens are finally coming home to roost – with extreme prejudice. In July 2012, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a report finding that CMS had failed to properly safeguard against COIs because it rarely considered other business relationships between contractors, subcontractors and CMS to raise problematic COI issues in ZPIC procurements. Now that CMS has explained how it intends to address the OIG’s concerns, some are wondering whether the proposed solution goes too far.
After detailing a number of problems, the OIG report recommends that CMS: (1) provide clearer guidance to contractors regarding what relationships should be identified as conflicts; (2) direct contractors to distinguish possible conflicts from actual conflicts; (3) require contractors to report details of other contracts with CMS along with key personnel’s income from other employment; (4) create a standardized format for reporting conflicts; and (5) develop a formal policy outlining how conflicts need to be reviewed by CMS. In response, CMS has developed a new COI policy and related procedures, including solicitation and contract clauses. It recently shared the new approach with representatives of the ZPIC community and announced that the updated policy and procedures are to take effect before the end of the year.
Jackson Kelly has learned that CMS appears to be adopting a strategy of addressing Personal Conflicts of Interest (PCI) and Organizational Conflicts of Interest (OCI) by collecting as much information as possible from ZPIC offerors, contractors, and their subcontractors. The list of required submissions under the new Compliance Program and Conflict of Interest is substantial, to say the least.
The initial submission of information and materials, which must be made in connection with an offeror’s proposal includes: (1) an explanation of the contractor’s corporate/organizational structure; (2) a copy of its code of business ethics and conduct; (3) a description of its plan for an annual independent audit (if required); (4) an explanation of its OCI/PCI compliance process; (5) identification of all current and anticipated healthcare contracts; (6) disclosure of any potential or actual conflicts of interests that have been identified, categorized by OCI type; (7) a description of all financial interests/relationships of itself and its parent(s) and affiliates; (8) a copy of its proposed mitigation plan for any actual and potential conflicts identified; (9) PCI financial disclosure for all of the contractor’s principals, officers, and directors, as well as managers and key personnel involved in contract performance; (10) a statement that its compliance officer has analyzed each PCI disclosure and determined whether potential or actual conflicts exist; (11) a COI mitigation plan for each potential or apparent conflict identified; (12) subcontractor OCI/PCI disclosures and analysis of the disclosures in the same way the contractor or offeror analyzed its own organization and identified possible and apparent conflicts; (13) a COI mitigation plan for each potential or apparent conflict identified in the subcontractor analysis; and (14) identification of any and all known False Claims Act violations, civil monetary penalty violations, criminal investigations, criminal indictments, and Qui Tam lawsuits or other administrative misconduct including alleged acts.
The required PCI financial interest disclosures for principals, officers, and directors, as well as managers and key personnel involved in contract performance entail disclosure of a wide variety of detailed financial information relating to the individuals, their spouses, and their dependents, including: (1) healthcare-related assets valued at greater than $10,000; (2) healthcare-related investments that have produced more than $2,500 in returns; (3) healthcare-related sources and amounts of income; (4) loans of over $10,000 from individuals employed by or having a business relationship with a healthcare-related entity; (5) gifts worth more than $250 received from healthcare-related companies; and 6) non-employer healthcare-related travel reimbursements, plus reasons for travel, date and purpose of the trip. Additionally, these individuals must detail all healthcare-related positions held within the last two years. While the precise reach of the new procedures remains uncertain in many cases, the rules suggest that a ZPIC officer would need to report, for example, the fact that her daughter sells medical devices regardless of whether those devices have any potential relationship with the contractor’s performance of its duties under a ZPIC contract.
Offerors must obtain all of this initial disclosure information from their subcontractors for submission with their proposals, along with the offeror’s analysis of those submissions (including recommendations concerning any proposed OCI mitigation plans).
After contract award, contractors must make interim revisions to their initial disclosures and any subsequent disclosures. For example, if at any time during the performance of the contract the contractor or offeror learns of any potential or apparent OCI/PCI, it must, within five days, notify the contracting officer in writing and edit the initial disclosures. Further, if any findings from any required annual independent audit or a government audit require a change in the previous disclosures, the contractor must make those changes within thirty days of the finding. Contractors must also update their previous COI disclosures at least forty-five days prior to a change due to proposed or planned business actions (i.e., selling a business or a business segment). They must also obtain and analyze their subcontractors’ post-award information on an ongoing basis.
The new rules also require annual updates, made by submitting either additional information reflecting any changes to previous COI disclosures or a statement that no changes are required. If the contract in question includes options, the annual update must be made 90 days prior to the exercise of an option. If the contract has no options, the annual update must instead be made 30 days after each anniversary of the effective date of the contract.
While no one can doubt that CMS has responded to the HHS OIG’s recommendations, the breadth and depth of the information it plans to obtain from ZPICs, offerors seeking ZPIC awards, and their subcontractors appears to go well beyond that necessary to allow CMS to properly address the COI issues identified in the OIG report. Unfortunately, the true impact will not be known until the new rules have been in place long enough for the implementation process to force CMS to provide better guidance. In the meantime, ZPICs need to begin the hard work of making plans to comply with the new CMS approach to COIs.
Andrew Michael and Eric Whytsell are responsible for the contents of this article.
© Jackson Kelly PLLC 2014