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OIG Addresses CPAP Set-Up Service Arrangements between a DME Supplier and a Sleep Test Provider under the Federal Anti-Kickback Law

On June 21, 2011, the Office of Inspector General of the U.S. Department of Health and Human Services (“OIG”) posted Advisory Opinion No. 11-08. This Opinion addresses possible federal Anti-Kickback Statute sanctions for payments made by a Medicare DME Supplier to a Medicare sleep test provider for storing the Supplier’s PAP equipment and supplies and setting up the Supplier’s patients on PAP billed in the Supplier’s name.

The OIG concluded that, depending on the parties’ intent to generate referrals, the arrangements potentially generate prohibited remuneration under the federal Anti-Kickback Statute. Depending on the parties’ intent, the OIG said it could potentially impose administrative sanctions in connection with the arrangements – even on an arrangement involving “commercial-only” patients.

A. The Arrangements. The OIG considered two arrangements. One involves commercial-only patients and the other involves both Medicare and commercial patients. A Medicare-enrolled DME Supplier who requested the opinion (the “Requestor”) described the two arrangements as follows.

1. Commercial-Only Arrangement. From time to time the Requestor has entered into contracts with IDTF sleep labs. In some cases physicians who refer PAP to the Requestor have a financial interest in the IDTF sleep lab.

Under the commercial-only arrangement, the Requestor DME Supplier consigns PAP equipment and supplies to the IDTF sleep lab. The IDTF staff may stock PAP from suppliers other than the Requestor as well.

The non-government patient will interact with the IDTF’s staff during the performance of the sleep test. The patient may also interact with the physician who refers the PAP for the patient’s obstructive sleep apnea if OSA is present.

If the non-government patient needs PAP therapy, then the IDTF staff will provide the patient with a so-called “freedom of choice” form. The freedom of choice form may or may not include a direct or tacit endorsement of the Requestor’s products and services.

If the patient selects the Requestor to provide the PAP therapy, then IDTF staff will pull PAP from the Requestor’s inventory stored at the IDTF and set the patient up on the PAP at the IDTF sleep lab or some other mutually agreed location. The Requestor represents that the individual IDTF staff members who perform the PAP set-up services are properly licensed under state law. The Requestor also represents that the Requestor’s services are compliant with accreditation, quality assurance processes, Medicare Quality Standards and local laws.

In consideration for providing the storage and set-up services, Requestor pays the IDTF (or an IDTF staff member directly) a fair-market rate service fee on a per-patient basis. It appears that the Requestor and the IDTF sleep labs have been operating the commercial-only arrangement for some time.

2. Proposed Arrangement with Medicare Patients. The second arrangement described by Requestor is identical to the existing arrangement above except that it would be expanded to include federal health care program patients and the service fee would be paid on a flat rate rather than a “per-click” basis. In addition, the Requestor would have the option to terminate the contract if the Requestor was not satisfied with the number of patients receiving PAP services (ie, CPAP set-up’s) from the IDTF staff. Finally, the Requestor could not certify that the fees to be paid to the IDTF would reflect the fair market value of the services provided.

B. The OIG’s Analysis. In reaching its conclusions, the OIG looked at (i) the Requestor’s existing commercial-only arrangement, (ii) applicable Anti-Kickback Safe Harbors, (iii) the lack of sufficient safeguards for abusive activity, and (iv) the lack of rental payments for PAP storage in the two arrangements.

1. Commercial-Only Carve Out. The OIG has often expressed concern that “commercial-only” carve out arrangements may implicate or even violate the Anti-Kickback Statute if the payments made to the referral sources for their commercial work influence or drive referrals of government services. In other words, if the Requestor here made PAP service payments to the IDTF for commercial patients, and if the ITDF or IDTF staff referred wheelchairs, blood monitoring equipment, PAP or other DME equipment reimbursed by a federal health care program to Requestor, then the “commercial-only” service payments would impact the Anti-Kickback law. Thus, these commercial-only payments would need to fit within an applicable Anti-Kickback Safe Harbor or otherwise include sufficient safeguards to minimize the risk of fraudulent or abusive activity.

2. Safe Harbor Protection. The OIG Opinion found that the service fees payable or to be payable by the Requestor to the IDTF under the arrangements would not fit under any Anti-Kickback Safe Harbor. That is because the payments do not and would not meet the Personal Services Safe Harbor condition that the contracts provide the exact times, length and charge for the periodic, sporadic, and part-time services contemplated by the arrangements.

3. Safeguards Against Fraud and Abuse. Failure to obtain Anti-Kickback Safe Harbor protection does not mean that the arrangement is per se illegal. A determination of the parties’ intent to violate the statute and induce referrals is required for that step.

In these situations the OIG will assess the risk that the arrangement promotes or mitigates the kind of behavior made illegal by the Anti-Kickback Statute. Here the OIG concluded that the arrangements may promote aggressive marketing by DME suppliers by involving the IDTF’s licensed health care professionals. That is because the IDTF staff and physicians may, by personal contact, tacitly or directly influence the patient’s selection of Requestor as the DME provider of choice in light of the trust that patients place in health care professionals.

Thus, the OIG said the Requestor’s payments to the IDTF might be characterized as payments to obtain in-person contacts between the IDTF staff and its patients before the patient selects his or her DME supplier. Such contacts could increase the risk that IDTF staff and, in some instances, physicians with financial interests in the IDTF, could inappropriately influence a beneficiary’s selection of the Requestor as his or her DME supplier.

4. Lack of Rental Payments for Consignment Storage. The OIG noted with some concern that the arrangements failed to make reference to rental payments for the consignment arrangements. The OIG reasoned that at least some of the service fee payments would presumably be allocated to the consignment component because the consignment component is part of the total package of services provided by the IDTF to the Requestor. Along these lines the OIG notes that consignment arrangements can pose fraud and abuse risks in some instances. Note, however, that CMS has not completely outlawed DME consignment closet arrangements, even though they should comply with the Anti-Kickback Law if used.

C. Conclusion. In the end, the OIG said that the arrangements potentially generate, or could potentially generate, prohibited remuneration under the Anti-Kickback Law. Any definitive conclusion regarding the violation of the Act would require a determination of the parties’ intent. Thus, the OIG could not say that the arrangements are or could be immune from prosecution under the Anti-Kickback Law.

Note that Opinion No. 11-08 does not examine any aspect of the arrangements under the federal Stark self-referral law. Also, Opinion 11-08 is issued only to the Requestor and has no application to, and cannot be relied upon by, any person or entity other than the Requestor.

Please feel free to contact Daniel B. Brown, Esq. at (770) 804-6475 if you have any questions or comments on this Advisory Opinion, or visit the HLP website.

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