August 3, 2006Client Alert

OIG Approves a Proposal to Use Tax Revenue as Payment for Cost–Sharing Amounts Owed by Residents to a County-Operated Ambulance Service

In a recent advisory opinion, the U.S. Department of Health and Human Services' Office of Inspector General ("OIG") discusses whether a municipality ("County") may use tax revenue to cover cost-sharing amounts owed by County residents for County owned and operated ambulance services under the Federal Anti-Kickback Statute ("AKS").1 The OIG concludes that while there may be a technical violation of the Federal Anti-Kickback Statute, the OIG will not impose administrative sanctions upon the County.

OIG Advisory Opinion Number 06-07 (June 26, 2006)

Background Information

OIG Advisory Opinion Number 06-07, issued on June 26, 2006, involves a County's proposal to use tax revenue to fund County residents' cost-sharing obligations incurred as a result of utilizing the County owned and operated ambulance service. Currently, the County provides residents and non-residents with emergency medical services through an ambulance service owned and operated by the County. After a patient utilizes the ambulance service, the patient's insurance is billed for the cost of the ambulance service and, in turn, the patient is billed for any copayment, deductible or other cost-sharing amount not covered by a third party payor, including Federal health care programs. The County proposes to use tax revenue to pay for the cost-sharing amount incurred by County residents, so that only third party insurers will be billed ("Arrangement"). This "insurance only billing" Arrangement would not apply to non-residents (and their insurers), who would be billed in full for any cost-sharing amount they owed.

The OIG's Analysis

The OIG finds that the Arrangement may constitute a violation of the AKS. The AKS is violated when remuneration is purposefully paid to induce referrals for items or services which may be reimbursable by a Federal health care program. Remuneration includes anything of value given directly or indirectly, overtly or covertly, in cash or in kind. The Federal government is concerned that referrals will be made which are not based on medical necessity, but rather on the remuneration which is exchanged. The AKS is a criminal statute, which requires the government to prove, beyond a reasonable doubt, that the parties knowingly and intentionally violated the statute. While this hurdle places a substantial burden on the government, courts have interpreted the AKS rather broadly. Where one purpose of the remuneration is to induce federally reimbursable referrals, the statute is violated.2 An arrangement may include many appropriate purposes (e.g., lower costs, superior medical service, or geographical convenience for the patient) but may be impermissible if only one purpose was to induce referrals.3

According to the OIG, "insurance only billing" may implicate the AKS because it constitutes a waiver of Federal health care programs' cost-sharing requirements. Cost-sharing waivers may encourage overutilization of services for which Medicaid or another Federal health care program may be billed. Such waivers may constitute remuneration to induce referrals, and providers who routinely waive such amounts without appropriate reasons (i.e., an individual's financial status) may be liable under the AKS. While the Arrangement may create a technical violation of the AKS, the OIG has determined that the Arrangement is unlikely to result in health care fraud and abuse. Accordingly, the OIG will not seek administrative sanctions against the County.

In justifying its decision not to impose sanctions, the OIG cited a special rule which applies to health care entities that are owned and operated by a municipality. The Centers for Medicare & Medicaid Services ("CMS") Medicare Benefit Policy Manual provides that [a state or local government] facility which reduces or waives its charges for patients unable to pay, or charges patients only to the extent of their Medicare or other health insurance coverage, is not viewed as furnishing free services and may therefore receive program payment.4

The OIG also stated that CMS has confirmed that the above provision would apply to state or municipal ambulance companies, assuming that the company is a Medicare Part B supplier and that the waiver only applies to a designated service area.

Due to CMS's position, the OIG decided that it would not impose sanctions under the AKS. The decision is largely based on the Arrangement's limited beneficiaries - only bona fide residents of the County would receive the waiver. In addition, if the County contracts with an outside ambulance supplier, it cannot require the outside ambulance supplier to waive the cost-sharing amounts unless the County pays the cost-sharing amounts.5

1 42 U.S.C. § 1320a-7b.

2 See U.S. v. Greber, 760 F.2d 68 (3d Cir. 1985), See, e.g., U.S. v. McClatchey, 217 F.3d 823 (10th Cir.), cert. denied, 531 U.S. 1015, 121 S. Ct. 574 (2000); U.S. v. Bay State Ambulance & Hosp. Rental Serv., 874 F.2d 20 (1st Cir. 1989); U.S. v. Kats, 871 F.2d 105 (9th Cir. 1989).

3 Id.

4 Pub. 100-2 Medicare Benefit Policy Manual Chap. 16, § 50.3.1.

5 See, e.g., OIG Advisory Opinion No. 01-12 (July 20, 2001).

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