Moving the HME Industry Forward

General Healthcare

OIG Advisory Opinion – Assisting Hospitals in Preventing Readmissions

October 28, 2013

AMARILLO, TX – The OIG recently published an advisory opinion (“AO No. 13-10”) that addresses the assistance that other providers can provide to a hospital in order to prevent readmissions. Inasmuch as an increasing number of DME suppliers are entering into arrangements with hospitals to prevent readmissions, the AO provides valuable guidance.

Purpose of Advisory Opinions
When a health care provider/supplier (“provider”) desires to enter into an arrangement that the provider believes may implicate the Medicare anti-kickback statute and the Civil Monetary Penalties (“CMP”) statute, then the provider can ask for an advisory opinion (“AO”) from the OIG. The provider will present the facts to the OIG and the OIG will, in turn, issue an opinion that will state that the OIG would likely bring, or would not bring, an enforcement action if the proposed arrangement is implemented. AOs can be found on the OIG website.

Current Environment – What Likely Precipitated AO No.13-10
Hospitals, like all other providers, are being squeezed by reimbursement cuts. Hospitals need to protect their revenue stream and cut costs. One way to accomplish this is to prevent readmissions for diseases covered by the Hospital Readmissions Reduction Program (“HRRP”). If a patient is readmitted after discharge within a certain period of time, for a particular disease, then the hospital can be subjected to future payment reductions from Medicare. And so hospitals are beginning to contract with other providers to monitor/work with discharged patients so that they are not readmitted soon after being discharged.

Summary of A0 No. 13-10
1) Facts – The Applicant (the company asking for the AO) is a subsidiary of a pharmaceutical manufacturer. The Applicant will sell to a hospital a package of services designed to help the hospital avoid the payment reductions associated with excess hospital readmissions set forth in the HRRP. The Applicant will offer a menu of services to the hospital. The Hospital will purchase the services on a patient-by-patient basis. The Applicant represents that fees paid by the hospital to the Applicant will be fair market value (“FMV”). The discharge nurse (at the hospital) will not be compensated based on the number of discharged patients that enroll in the program. The Applicant’s employees will not (i) promote the pharmaceutical manufacturer’s products, nor (ii) be compensated based on the sale of the pharmaceutical manufacturer’s products. Fees paid by the hospital to the Applicant are broken down as follows: (i) flat fee for implementation; (ii) per patient fee for technology and personnel; and (iii) hourly rate for additional services requested by the hospital. The Applicant represents that the FMV of the first two types of fees will be established by an independent third party; the FMV of the third type of fee will be established by the Applicant. According to the Applicant, the fees will not be tied to “customer formulary decisions or drug purchasing or prescribing patterns.”

2) Decision – The OIG stated that although the proposed arrangement could potentially generate prohibited remuneration under the anti-kickback statute (if the requisite intent is present), the OIG will not impose administrative sanctions and there are no grounds for civil monetary penalties.

3) OIG’s Reasoning – The arrangement is unlikely to lead to increased costs or overutilization of Federal reimbursement serves. The services could save money for the Federal government by decreasing readmissions. The services are not separately reimbursable by the Federal government. The arrangement is unlikely to interfere with clinical decision-making. Applicant will implement safeguards to prevent the arrangement from being used to increase drug sales by the manufacturer. The arrangement is unlikely to result in inappropriate patient steering. The hospital is compensating the Applicant for the services. The OIG acknowledges that the patients receive the services for no cost to them. However, the OIG then goes on to say: “[U]nder the particular facts present here, we do not believe that the Services would be likely to influence Participating Patients to order or receive a Federal payable item or service from a particular provider, practitioner or supplier.” The OIG recognizes that one of the fees is calculated on a per patient basis. The OIG states that normally a variable fee constitutes a problem under the Medicare anti-kickback statute because the fee “relate[s] to the volume or value of business potentially generated between parties.” However, in this situation, the OIG is comfortable with the variable fee because: (i) the hospital identifies the patients and pays the fees and (ii) the more patients the hospital identifies, the more the hospital has to pay. Given these circumstances, the OIG believes it is unlikely that the per patient fees will serve as remuneration to induce referrals.

Applicability to DME Suppliers
A DME supplier may want to affiliate with a pharmacy, home health agency, primary care physician group, and other providers (“Provider Group”). The Provider Group may then approach the local hospital and offer to work with discharged patients so that they are not readmitted soon after their discharge. The hospital will need to pay FMV fees to the Provider Group. The arrangement with the local hospital does not have to be as complicated as the arrangement set out in AO NO. 13-10. However, the principles set out in AO NO. 13-10 can guide the Provider Group and the local hospital.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies, and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or