May 8, 2006Client Alert

OIG Rejects Preoperative Home Safety Assessment and DME Home Placement Programs as Possible Violations of Fraud and Abuse Laws

In two recently published advisory opinions, the U.S. Department of Health and Human Services' Office of Inspector General ("OIG") discusses whether a home health agency operator's practice of providing a free preoperative home safety assessment and a durable medical equipment manufacturer's home product placement program are permissible under Federal fraud and abuse laws. In each case the OIG concludes that the programs under consideration may violate those laws.

OIG Advisory Opinion Number 06-01 (March 20, 2006)

Background Information

OIG Advisory Opinion Number 06-01, issued on March 20, 2006, involves a home health agency operator's ("Agency") practice of providing a free preoperative home safety assessment ("Assessment") for patients who are scheduled to undergo orthopedic surgery. The purpose of this Assessment is to ensure that the layout of the patient's home will facilitate a safe post-operative recovery. After a patient is referred to the Agency by the patient's physician or a surgery scheduler, an Agency physical therapist conducts an in-person interview with the patient. During the interview, the physical therapist compiles information about the patient's condition and the home

setting, and offers limited suggestions about basic home safety improvements (e.g., the removal of throw rugs, the placement of telephones, etc.). The therapist does not provide skilled care, significant education or other therapeutic instruction. In addition, as part of the assessment, the therapist is required to inform the patient that other home health care providers are available, and the patient is under no obligation to purchase any home health services from the Agency. Written materials to this effect are provided to the patient.

As a threshold matter, the OIG notes that, although the Assessments themselves are not covered under the Medicare or Medicaid programs, their provision to Medicare or Medicaid beneficiaries implicates the civil monetary penalties law, 42 U.S.C. § 1320a-7a (the "CMP") and the Medicare Anti-kickback statute, 42 U.S.C. § 1320a-7b (the "Anti-kickback Statute"). This is a result of the fact that many of the post-operative home care items and services provided by the Agency are covered under Medicare and Medicaid.

By way of background, the CMP makes it illegal for a person or entity to offer or provide remuneration to a Medicare or Medicaid beneficiary that the person or entity should know is likely to influence the beneficiary to obtain from a particular health care provider, any product or service that may be paid for by Medicare or Medicaid. 42 U.S.C. § 1320a-7a(a)(5). Similarly, under the Anti-kickback Statute, it is illegal for a person to knowingly and willfully offer or provide any remuneration to induce the recipient to purchase a product or service for which payment may be made under Medicare or Medicaid. 42 U.S.C. § 1320a-7b(b)(2). Accordingly, the OIG states that the Agency's Assessments may violate the CMP and the Anti-kickback Statute if: (1) the Assessments constitute remuneration; (2) the Assessments may influence a Medicare or Medicaid beneficiary to obtain any other product or service from the Agency; and (3) the Agency knows or should know that the assessments may so influence a beneficiary.

The OIG's Analysis

First, the OIG finds that an Assessment performed in a beneficiary's home has value and could be considered remuneration. The OIG bases this decision, at least in part, on the fact that insurance companies may pay an Agency $85 to $100 for such an assessment. The OIG dismisses the Agency's argument that telephonic pre-operative Assessments could not constitute remuneration because the Agency can provide such Assessments for less than ten dollars. The OIG argues that whether a given service can constitute remuneration depends, not on the cost of the service to the supplier, but on the value of the service to the beneficiary. Because the telephonic Assessment here is recommended by a beneficiary's physician and/or surgery scheduler, and is conducted by a licensed physical therapist, the beneficiary might reasonably believe the Assessment has substantial value and could contribute to a successful surgical outcome and recovery. Consequently, the OIG concludes that the Assessments may constitute remuneration.

Next, the OIG considers whether the Assessments are likely to influence Medicare or Medicaid beneficiaries to use the Agency if they require home health care. The OIG notes that a recommendation from a physician or surgery scheduler that a beneficiary contact a specific Agency for a preoperative Assessment might reasonably be perceived by a beneficiary as a recommendation of the Agency's postoperative services. In addition, by providing free Assessments an Agency obtains the opportunity to develop a relationship with a beneficiary before the beneficiary needs to choose a provider postoperative home care. Therefore the Agency's Assessments make it more likely that a given beneficiary will choose the Agency to provide his or her postoperative care.

Finally, the OIG considers whether the Agency knows or should know that its provision of free pre-operative Assessments is likely to influence beneficiaries when they select the provider for their postoperative care. Because the Assessments are provided free of charge, are recommended by beneficiaries' physicians or surgery schedulers, are performed by physical therapists, and are provided only to patients who are scheduled for surgery, the OIG states that the structure and operation of the arrangement "appear[s] calculated to generate postoperative business for the [Agency]." As a result, the OIG concludes that the Agency knows or should know that the arrangement will generate business that is payable by Medicare or Medicaid.

Because the Agency's practice of providing free Assessments may satisfy each of the elements required to establish violations of the CMP and the Anti-kickback Statute, the OIG concluded that the practice may subject the Agency to civil monetary penalties under the CMP, and may generate prohibited remuneration under the Anti-kickback Statute.

OIG Advisory Opinion Number 06-02 (March 21, 2006)

In OIG Advisory Opinion Number 06-02, issued on March 21, 2006, the OIG considers two alternative programs proposed by a durable medical equipment and orthotics ("DME") manufacturer (the "Company") to manage the delivery of DME. Under the first program, physician practices would become DME suppliers for items and services furnished to patients who are not beneficiaries of any Federal health program. The Company would sell DME to a physician practice, and the physician practice would then furnish the DME to patients and bill the patients directly. The physician practice would also lease "continuous passive motion" devices ("Devices") from the Company, and would rent the Devices to patients. In addition, the Company would lease the services of a trained technician to the physician practice, to fit DME to patients, set DME up in patients' homes, train patients on use of DME, monitor patients' progress, obtain pre-certification from patients' insurers as needed, and manage the practice's DME inventory. Finally, the Company would perform coding, billing and collection for the physician practice. The physician practice would pay for DME and CPM in accordance with a pre-determined fee schedule and would pay fixed monthly fees for the technician and billing services. Under the first program, no DME or CPM would be provided to patients who are beneficiaries of Medicare or Medicaid.

The OIG characterizes the first proposed program as essentially a "contractual joint venture" for private pay business. The OIG points out that the only significant difference between this program and similar arrangements described in an April 30, 2003 OIG Special Advisory Bulletin is the fact that the proposed program would not involve Federal health care program business.1 The OIG states that the fact that some programs "carve out" Federal business is not dispositive with regard to an individual program's validity. Instead, such arrangements may violate the Anti-kickback Statute because they merely disguise remuneration for Federal referrals through the payment of amounts purportedly related to non-Federal business. Accordingly, because, the OIG cannot conclude that the remuneration under this program would be unrelated to the value of referrals for DME the remuneration could violate Anti-kickback statutes.

Under the second program the Company would consign DME to a physician practice, and would rent space from the office to store the consigned DME for a fixed monthly fee. Title for the DME would remain with the Company until sold or rented to patients. The physician practice would perform inventory management and certain other services related to the DME consignment arrangement. In return, when the practice sells or rents DME to a patient who is not a Medicare or Medicaid beneficiary, the Company would pay the physician practice a percentage of the resulting revenue. As in the first proposed program, the Company would lease the services of a trained technician to the physician practice in return for a fixed monthly fee.

Regarding this second program, the OIG first concludes that the inventory management services to be provided by the physician practice would not qualify for safe harbor protection because the resulting compensation is not specified in advance. Instead, the compensation is determined based on the percentage of DME sold to patients who are not Medicare or Medicaid beneficiaries. Although the compensation is based on revenues from patients and private insurers, as opposed to revenues from Medicare or Medicaid, the OIG states that the compensation could easily be manipulated to reward a physician practice for referrals of Medicare/Medicaid beneficiaries by inflating the amounts paid for the non-Medicare/Medicaid revenues.

The OIG then concludes that the Company's lease of technicians to physician practices and its rental of space to store the consigned DME are also problematic under the Anti-kickback Statute. Regarding the leased technicians, the OIG notes that the duties of these technicians appear to overlap with the duties to be fulfilled by the physician practices. For example, both the physician practices and the leased technicians are responsible for "inventory management." The OIG also voices concerns that the rental amount for the storage space may exceed fair market value, and may be merely a disguise for illegal remuneration for referrals.

Finally, the OIG expresses general concern that a manufacturer's or supplier's provision of management services to a physician practice may violate fraud and abuse laws, because the only apparent business rationale for the manufacturer or supplier to enter into such arrangements is to generate additional business. Consequently, the OIG concludes that both of the proposed programs could generate remuneration prohibited by the Anti-kickback Statute.

1 The April 30, 2003 OIG Special Advisory Bulletin focused on contractual arrangements where a health care provider in one line of business ("Owner") expands into a related health care business by contracting with a provider ("Manager") of a related item or service. Together, the Owner and Manager provide a new item or service to the Owner's existing patient population which includes Federal health care program patients. The Owner then contracts the entire operation of the new business to the Manager in return for profits generated by the Owner's Federal program referrals.

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