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OIG Keeps Short Leash on Patient Referral Services

Legal Services
06.02.11

The Office of Inspector General of the Department of Health and Human Services (the "OIG") recently issued Advisory Opinion 11-06, which examined the fraud and abuse risks associated with post-acute care referral services. The advisory opinion indicates that when it comes to patient referral services, the OIG will not stray far from the requirements of the referral service safe harbor.

In the advisory opinion, a company that provided discharge planning software, online tools, and other related support services to hospitals developed an Internet referral service that those hospitals could use to identify and select post-acute care providers – such as skilled nursing facilities, home health agencies, and assisted living facilities. The referral service primarily consisted of an online, nationwide database of licensed post-acute care providers that was based on state licensure records. The hospitals participating in the service would use the list to identify the post-acute care providers that were best suited to meet their patients' needs. Once a provider or providers had been identified, the hospital would send the patient’s name, medical records, and other relevant information to the referral service which would, in turn, forward the information to the provider(s) that had been selected. Although it varied, most hospitals made their post-acute care referrals on a first-come, first-served basis.

As originally structured, participating hospitals paid the company a fee to utilize its post-acute care referral service. The company certified that the fees it collected from the hospitals were fair market value for the services being provided and were not tied, directly or indirectly, to the volume of referrals or other business generated between the parties. The company added, however, that the fees collected did exceed the costs associated with the operation of the service. While the company did not currently charge post-acute care providers to be part of the referral service, under the terms of the proposed arrangement, the company would require those providers to pay a one-time implementation fee and a monthly service fee if they wanted to fully participate in the referral service on a going-forward basis. Providers that elected not to pay the fees would still be included in the referral service's database but would only be able to receive and respond to requests for referrals via facsimile. While the company certified that the fees that would be charged to the post-acute care providers would not vary based on the volume or value of referrals, it also certified that it would be more expensive for the company to fax requests for referrals to non-paying providers than it would be to send those requests electronically.

The OIG began its analysis by reviewing the requirements of the anti-kickback statute safe harbor for referral services. The OIG noted that, among other things, the referral service safe harbor requires that if a referral service charges its participants any fees, the fees (i) must be assessed equally against and collected equally from all participants in the referral service and (ii) may only be based on the cost of operating the referral service and not on the volume or value of patient referrals. Because the participation fees would not be assessed equally against or collected equally from all of the participating providers, the OIG quickly determined that the company's proposed arrangement would not qualify for safe harbor protection.

In addition to finding that the proposed arrangement would not qualify for safe harbor protection, however, the OIG also determined that the arrangement would present more than a minimal risk under the anti-kickback statute. First, the OIG noted that because referrals were typically made on a first-come, first-served basis, post-acute care providers that did not pay the participation fee would be forced to receive and respond to requests for referrals via facsimile and would be at a significant competitive disadvantage. Second, the OIG indicated that because it would cost the company more to fax requests for referrals to non-paying providers than it would for the company to send those requests electronically, it appeared that the difference in delivery methods was primarily intended to penalize providers that chose not to pay the participation fee. Finally, the OIG observed that a number of post-acute care providers had indicated that they could not afford to pay the fees that were going to be charged but believed that they would lose a significant amount of business if they could not find a way to do so. As a result, the OIG stated that these (and all) providers could face pressure to recoup the fees for the referral service through overutilization, upcoding, extended patient stays, and the provision of unnecessary services. Therefore, the OIG declined to protect the proposed arrangement.

Given the facts and circumstances, it is not surprising that the OIG refused to approve this proposed arrangement. The advisory opinion reinforces the government's position that while there may be a number of benefits from streamlining and coordinating hospital and post-hospital care, efforts to integrate those services must still comply with the anti-kickback statute.

For more information, please contact Brandon Schirg, Nora Liggett or any member of Waller Lansden's Healthcare Department at 800-487-6380.

The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations. As always, readers should consult a qualified attorney for specific legal guidance.

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