The first is an advisory opinion addressing whether a company would be subject to exclusion from participating in federal health care programs if it submits claims for durable medical equipment ("DME") which are substantially in excess of its usual charges, meaning that it charges Medicare approximately up to 32% more than it charges retail customers. The company had determined that providing DME to Medicare beneficiaries will be much more costly than the services it provides to its cash customers as a result of documentation requirements, claims processing, delivery and distribution, and the surety bond requirement. The Social Security Act permits the OIG to exclude entities from participation in federal health care programs if it determines that the entity has submitted bills that are substantially in excess of the entity's usual charges. Regulations that implement this stature state that charges can be in excess of supplier's usual charges if thy are "due to unusual circumstances or medical complications requiring additional time, effort, expense or other good cause." In its advisory opinion, the OIG agreed that the additional costs the company would incur are solely attributable to complying with Medicare requirements and that this may constitute "good cause" for charging Medicare more than it charges its cash customers. The OIG cautions, however, that the higher Medicare charge "should bear a direct and reasonable relationship to the additional costs incurred by the supplier to comply with Medicare Program requirements, after subtracting any costs solely attributable to the [cash] business. These additional costs should be allocated to items provided to Medicare beneficiaries using a reasonable and generally accepted accounting methodology." The OIG suggests that one benchmark for determining whether the higher Medicare charges are appropriate would be to look at the profit margin on the Medicare as opposed to the cash business and to make sure that the Medicare profit margin is less than or equal to the cash business.
A second advisory opinion addresses that use of a sales commission to compensate an independent manufacturer's representative that markets disposable medical supplies, including adult diapers and underpants. The OIG points out that this payment relationship, even though it is to a sales representative and does not directly involve a Medicare provider, implicates that Antikickback Statute. In this advisory opinion, the OIG reiterates its long-standing concern with independent sales agency arrangements. The agency highlights certain characteristics that would make a non-safe harbor sales relationship suspect. These include:
- compensation based on a percentage of sales;
- direct billing of a federal health care program by the seller for the item or service sold by the sales agent;
- direct contact between the sales agent and physicians for services that are paid for by a federal health care program;
- direct contract between the sales agent and federal health care program beneficiaries;
- use of sales agents who are health care professions or otherwise in a position to exert undue influence on purchasers or patients: and
- marketing of items or services that are separately reimbursable by Medicare, rather than those that are bundled into a DRG payment.
The OIG notes that the more factors that are present, the greater the scrutiny that it ordinarily gives an arrangement. The OIG notes, as it always does, that the Antikickback Statute is not violated if the parties do not have the required intent to induce referrals. In this particular arrangement, where the items are being sold to hospitals for inpatient use when the hospitals are reimbursed on a DRG, or fixed-payment basis, the OIG believes that the risk of overutilization and excess costs are offset because the hospital cannot pass on those costs to Medicare. In fact, the hospital is motivated by the payment methodology to keep its costs low. Because of this and other factors, the OIG determined that, although the arrangement might technically fall within the scope of the Antikickback Statute if the required intent were present, it would not seek to impose sanctions, provided that the amount of compensations remains consistent with fair market value.
A final notable advisory opinion issued since our last newsletter addresses a joint venture between several orthopedic surgeons and anesthesiologists to establish and operate an ambulatory surgery center ("ASC"). Each of the physicians is going to make a substantial capital contribution to the ASC, but capital contributions are not based on expected volume of referrals. Voting and distribution rights will be proportional to the investment interests, and each physician-investor will personally guaranty payment under the lease for the ASC's premises. The physicians plan to utilize the ASC as their primary site for performing the procedures for which it is equipped. The ASC will be available for use by non-investors, but investors will be given scheduling priority and are expected to perform the vast majority of procedures in the ASC. The use of an ASC is an integral and major part of each of the physician-investor's medical practice.
The OIG reiterated its long-standing concern with the potential for abuse posed by health care joint ventures. It notes that there is a clear distinction between those that are legitimate and those that are suspect, and that joint ventures are suspect when physicians are both investors and referral sources. The OIG's main concern is that the joint venture is intended not so much to raise investment capital to start a business, but to improperly lock up the stream of referrals. Nonetheless, the OIG recognizes in the advisory opinion that some joint venture arrangements do not pose a risk of fraud and abuse under the Antikickback Statute and notes that it has promulgated two relevant safe harbors.
In the proposed arrangement, the OIG points out that the safe harbor is not met because all of the investors are referral sources to the ASC, whereas the safe harbor permits only 40% to be referral sources. Nonetheless, the OIG concludes that although the proposed arrangement may potentially violate the Antikickback Statute, it would not impose sanctions. The OIG reaches this conclusion for several reasons. First, it notes that HCFA has long encouraged the use of ASCs because of their cost-effectiveness and patient preference. Second, in the proposed arrangement, the OIG notes that all of the physician-investors are making substantial financial investments and assuming the financial risk. Further, the OIG notes that return on investment is proportional to ownership interest, not referrals, and that ownership interest is not based on potential for referrals. Finally, the OIG notes that the physicians will disclose their ownership interest to their patients. Based on these and other factors, the OIG concluded that it would not sanction the physician-investors even if the Antikickback Statute were violated.
One not of caution with regard to advisory opinions: they are all extremely fact-specific, and a slight change in any one of the assumptions used by the OIG in rendering its opinion could easily change the outcome. Consequently, providers and their advisors should be extremely cautious in their application of the advisory opinions to any activities that they might be considering for themselves.