OIG Opines on Nominal Value, Federal Health Care Program Carve-Outs, and Applicability of Safe Harbors in Context of Multi-Layered Relationships

Providing insight yet instilling difficult analytical considerations into the determination of whether a beneficiary inducement is “nominal,” and thus permissible, the Officer of Inspector General stated in OIG Advisory Opinion 06-01 that a home health agency's provision of free preoperative home safety assessments to prospective patients could violate both the anti-kickback law and the prohibition of inducements to beneficiaries, potentially warranting administrative sanctions and the imposition of civil monetary penalties, respectively. As a result, health care providers are left with perhaps more questions than answers as to the scope and form that beneficiary inducements may take while still avoiding anti-kickback risk.

The entity requesting the opinion, a nationwide network of home health agencies (the “HHA”), proposed to provide free preoperative home safety assessments to patients scheduled to undergo orthopedic surgery. The assessments would be provided through either 10 to 15 minute telephone calls or in-home meetings with one of the entity's licensed physical therapists. The assessments, which may be recommended by surgeons, purport to determine whether the patient's home is suitable for postoperative recovery. At the time of the basic assessment, which requires no skilled care, patient education, exercise or other therapeutic instruction, the physical therapist provides and discusses with the patient written materials which state that the patient is not obligated to use the HHA, but rather may select any available home health care provider for post-operative care. Neither Medicare nor any commercial insurer reimburses a provider for such a telephone assessment, the value of which the HHA estimates to be less than $10. Some commercial insurers reimburse providers for in-home assessments, at a rate of $85 to $100, but Medicare does not.

In the Advisory Opinion, the OIG first states that such a practice could violate 1) 42 U.S.C. §1320a-7a(a)(5), which prohibits the provision of anything of value to a Medicare or Medicaid beneficiary that the provider knows or should know is likely to influence the beneficiary's selection of a particular provider, practitioner or supplier of any item or service that Medicare or Medicaid may pay for; and 2) 42 U.S.C. §1320a-7b(b), which makes it a criminal offense to knowingly and willfully offer, pay, solicit or receive any remuneration to induce or reward referrals of items or services that are reimbursable by a federal health care program. Civil monetary penalties and administrative sanctions could also be imposed for such violations, respectively.

Analyzing the practice, the OIG concluded that the free provision of the $85-$100 in-home assessment clearly violates both prohibitions and further, that the free provision of a telephone assessment could also violate both prohibitions as well, despite the OIG's historical tolerance for inducements that are of a “nominal” value, i.e., less than $10 per item and $50 in the annual aggregate.

Intending to shed light on – but instead adding confusion to – how to value an inducement and determine if it is “nominal,” and thus benign, the OIG first stated that the absence of a paying market is not dispositive, as it could indicate that: 1) the service has little or no value; 2) the service is novel or emerging in the marketplace; or 3) the market has been distorted by the availability of free services. Moreover, for anti-kickback analytical purposes, the OIG refused to focus on the $10 cost to the HHA of providing the telephone assessment, but rather focused on the value of the assessment to the beneficiary. The OIG posited that the performance of a telephone assessment by a licensed physical therapist, together with a possible recommendation from a surgeon, “create an impression that [it] is of substantial value and will contribute to successful surgical outcome and recovery.”

The OIG further indicated that the free assessment is not only likely to influence the beneficiary's selection of a post-operative care provider, as the physical therapist will have had an opportunity to establish a personal relationship with the patient prior to surgery, but that the HHA knows that the free assessment will likely influence the selection of a home health provider as well. Indeed, the OIG concluded that the HHA's program is calculated to generate post-operative business.

The Advisory Opinion is useful in that it instructs a health care entity that the mere cost of an item or benefit is not a good basis for determining the “value” of the item or benefit for kickback analytical purposes. Nonetheless, health care entities will likely experience difficulty in analyzing and calculating numerous patients, or even an average patient's “impression of value” of any given inducement. Moreover, by introducing the concept of “impressions” into the rubric of determining value – nominal or otherwise – the OIG may have unwittingly cast doubt on the reliability of typical valuation approaches, such as market rates and comparables. For instance, what is a relocating physician's “impression of value” of a complimentary advertisement placed by a hospital in a local newspaper, the cost of which is nominal to the hospital, if the advertisement results in a) no patient visitations to the physician's office; vs. b) several patient visitations to the physician's office?

http://www.oig.hhs.gov/fraud/docs/advisoryopinions/2006/AdvOpn06-01A.pdf

OIG Advisory Opinion 06-02, March 21, 2006

Asserting that it would look beyond the “component parts” of a complex, multi-layered relationship and scrutinize the relationship in its totality, the Office of Inspector General (“OIG”), in OIG Advisory Opinion 06-02, concluded that two programs that a DME and orthotics manufacturer and supplier proposed to offer to individual physicians and physician groups could both violate the anti-kickback statute and lead to exclusion from federal health care programs and/or the imposition of civil monetary penalties, even if federal health care program beneficiaries and payments would be excluded from the relationship. The opinion presents difficult hurdles to overcome for health care entities that seek to properly structure complex relationships with other entities, as not only must each facet of the relationship survive anti-kickback scrutiny, but so must the entire relationship as a whole.

The First Program: Covering Only Commercial and Self-Insured Patients

A durable medical equipment and orthotics manufacturer and supplier that designs, develops, manufactures and markets certain DME and orthotic products (the “Company”), proposed to allow individual physicians and physician groups (the “Practices”) to become DME suppliers for items and services furnished exclusively to commercial and self-insured patients (“Patients”). Specifically:

1) The Company would sell DME and orthotic products (the “Products”) to Practices at pre-arranged prices, which the Practices would then provide to Patients and bill for directly, at a profit;

2) The Company would rent to Practices, on an as-needed, daily and fair market value basis, Continuous Passive Motion devices (“CPMs”), (1) which the Practices would in turn rent to Patients, again at a profit; and

3) The Company would provide to the Practices, for a fixed monthly fee:

i) The services of trained technicians, who would fit Patients with the Products and provide other related personal and management services; and

ii) Certain coding, billing and collection services related to the Products.

All such arrangements would comply with applicable safe harbors, except for the CPM arrangement, which would be fair market value, but would not set in advance the total rental amounts, schedule or length of the rental relationship. Moreover, the Practices would not furnish DME and orthotic products to federal health care program beneficiaries (“Beneficiaries”), but would remain able to prescribe such products and indicate that the Beneficiaries could procure them from any local supplier, including suppliers that purchase Products from the Company.

The Second Program: Covering All Patients, Including Federal Health Care Program Beneficiaries

Under the second proposed program, the Company would remain the Product supplier, billing directly for Products furnished to Patients and Beneficiaries. However:

•  The Company would rent from the Practices, for a fixed monthly fee, on-site storage space for consignment of the Products;

•  In return for the provision of inventory management and other administrative services related to the consigned Products, the Company would pay to the Practices a percentage of revenues related to Products sold and/or rented to Patients, but not to Beneficiaries; and

•  The Company would provide to the Practices, for a fixed monthly fee, the services of trained technicians, who would fit Patients with the Products and provide other related personal and management services

The first and third arrangements would comply with applicable safe harbors, but the second arrangement would necessarily include compensation not “set in advance.”

Analysis

In the Advisory Opinion, the OIG first noted that the anti-kickback statute, 42 U.S.C. §1320a-7b(b), makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal health care program. The OIG then concluded that the first program amounted to a “contractual joint venture,” allowing a Practice the opportunity not only to expand into another line of business with little or no risk, but also to retain a share of profits from the Product business that it generates.

The OIG was not persuaded that the program's “carve out” of federal health care program business saved it from anti-kickback scrutiny. First, such carve-out arrangements – generally a long-standing concern to the OIG – may disguise remuneration for federal health care program patient referrals through the payment of amounts purportedly related only to products sold to private pay patients. Second, a Practice could still prescribe the Company's Products for Beneficiaries (if not furnish them directly), an action that could “demonstrate commitment” to the Company and “potentially secure more favorable pricing on private pay Products.” Finally, and perhaps most importantly, the OIG stressed that it will scrutinize a contractual joint venture in its totality: “an attempt to carve otherwise problematic contracting arrangements into several different contracts for discrete items or services and then qualify each separate contract for protection under a safe harbor may be ineffectual and place parties at risk for prosecution.”

With respect to the second program, the OIG quickly singled out the impropriety of the percentage compensation arrangement for “inventory management services,” stating that such arrangements – regardless if they “carve out” federal health care program business – are “inherently problematic under the anti-kickback statute, because they relate to the volume and value of business generated between parties.” The OIG noted that the Company could easily manipulate the arrangement and reward Practices for Beneficiary referrals by inflating the percentage portion related to private pay Products. Finally, the OIG noted its general and continued skepticism not only with respect to closet storage rental arrangements in general, but also with respect to manufacturers' and suppliers' furnishing of management and administrative services to physicians, which provide such companies a “physical presence” in the physicians' offices and businesses and thus create “additional opportunities to influence and reward referrals.”

Finally, the OIG asserted that the Practices' ability to switch back and forth between the two programs did not affect its analysis, although it heightened the risk of fraud and abuse.

In sum, the Advisory Opinion reflects the OIG's continued, healthy skepticism of not only programs that “carve out” federal health care program beneficiaries and payments, but also relationships between physicians and DME manufacturers and suppliers, generally. However, it may be overreaching for the OIG to assert that DME-physician relationships, even if properly structured, would remain problematic as necessarily providing, on a going-forward basis, “additional opportunities to influence and reward referrals.” It may also be incorrect as a matter of law for the OIG to assert that the totality of a multi-faceted relationship may run afoul of the anti-kickback statute, even if each facet is properly structured. Nonetheless, health care entities that maintain complex relationships with other entities must now be doubly wary of anti-kickback scrutiny.

(1) CPM devices are used for a few weeks by post-operative patients to move joints without requiring muscle strain.

http://www.oig.hhs.gov/fraud/docs/advisoryopinions/2006/ao0602.pdf