On October 28, 2010, the Department of Health and Human Services Office of Inspector General (OIG) issued two Advisory Opinions, Nos. 10-23 and 10-24, discussing whether certain sleep lab arrangements would result in sanctions under the federal anti-kickback statute. The OIG concluded that both proposed arrangements implicate the anti-kickback statute, but that only the arrangement in Advisory Opinion 10-23 presented risk.

Unfavorable Advisory Opinion 10-23. In Advisory Opinion 10-23, a hospital owns and maintains space for a sleep center and provides all of the support services, including housekeeping, communications, pharmacy and similar services. A sleep test provider ("Facility") provides the equipment, technology, supplies and staff, staff training and educational services to operate the sleep testing facility at the hospital. Significantly, the Facility provides a part-time marketing manager to market the sleep center to physicians, to follow up on patient satisfaction issues, and promote the sleep center at community events.

The Facility charges the hospital a per-test (“per-click”) fee that covers all of these sleep testing services, including the marketing services, and the hospital bills for the sleep studies performed on Medicare patients as “under arrangement” services, as permitted by Medicare. The OIG analyzed whether the arrangement would satisfy the safe harbors for personal services contracts and equipment lease arrangements, but concluded that the arrangement did not satisfy either safe harbor because the arrangement involved a per-click fee structure that cannot meet the safe harbor requirement that aggregate compensation is set in advance. The OIG cautioned that per-click arrangements are “inherently reflective of the volume or value of services ordered and provided.” The OIG also found problematic that the arrangement involved marketing by a person with a direct stake in the success of the promotional efforts.

In addition, the OIG noted that even if a provider complies with relevant coverage and payment rules (such as the Medicare “under arrangements” requirements), an arrangement may nevertheless run afoul of the anti-kickback statute. For example, an “under arrangements” transaction could implicate the anti-kickback statute if:

  • The hospital pays above-market rates for the arranged-for services to influence referrals, particularly where an “under arrangements” entity may influence referrals, such as by providing marketing services, or if it is owned by a referral source such as physicians
  • The “under arrangements” entity agrees to accept below-market rates to secure referrals from a hospital to the “under arrangements” entity, its direct or indirect owners, or its affiliates, including affiliated providers and suppliers
  • The hospital owns an interest in the “under arrangements” entity and receives remuneration in the form of returns on its ownership investment in exchange for referrals to the “under arrangements” entity or to an affiliate of the “under arrangements” entity (such as an affiliate that furnishes ancillary services or equipment)
  • A referral source for the hospital, such as a physician or physician group, owns an interest in the “under arrangements” entity where the referral source may have an incentive to condition referrals to the hospital on the hospital’s use of its “under arrangements” services
  • The “under arrangements” transaction includes the furnishing of items and services ancillary or additional to the services being furnished “under arrangements” or includes, directly or indirectly, the furnishing of items and services to patients who are not hospital inpatients or outpatients (e.g., patients who have been discharged from the hospital).

The OIG concluded that the arrangement potentially generates prohibited remuneration under the anti-kickback statute and that it could potentially impose administrative sanctions. The OIG explained that although the arrangement lacked many of the suspect characteristics indicated above, the arrangement warranted scrutiny because it involved marketing services in addition to the sleep testing services furnished “under arrangements”. In particular, the OIG did not protect the arrangement because the Facility receives a fee for successful marketing efforts and also is in a position to generate referrals for the hospital’s sleep services . The problem, in the OIG's view, is that the Facility's per-test fees increase each time it's marketing efforts succeed in referrals to the sleep center. Likewise, safeguards in the arrangement are insufficient to outweigh the risk of fraud and abuse presented by the marketing arrangement involving success-based compensation.

Favorable Advisory Opinion 10-24. Advisory Opinion 10-24 involves a sleep test provider arrangement similar to the arrangement in Advisory Opinion 10-23, discussed above. However, the arrangement incorporates three fees for services and equipment: (1) a fixed, annual fee for use of the Requestor's equipment, consistent with fair market value; (2) an aggregate, annual, set-in-advance, fixed fee for marketing services; and (3) an aggregate, annual, set-in-advance, fixed fee for other services and supplies specified in the agreement to be provided on an as-needed basis.

Each of these payments does not take into account the volume or value of referrals or other business generated between the parties, and is consistent with fair market value in an arm’s-length transaction. Nevertheless, the OIG found that the propose arrangement in Advisory Opinion 10-24 did not qualify for safe harbor protection because the Facility proposes to provide equipment and technician services on an "as needed" basis. As a result, the schedule of intervals, precise interval length and interval charges are not (and likely cannot be) identified with respect to the “as-needed” services component of the agreement. However, the absence of safe harbor protection was not fatal to the proposed arrangement due to several key safeguards in the equipment lease and personal services and management contracts safe harbors, including the use of aggregate, fixed fees that are consistent with fair market value in arm’s-length transactions and that do not take into account the volume or value of federal health care program business. Likewise, the “as-needed” services were not separately billable by the hospital and were reasonably necessary for an “under arrangements” sleep center, would be integral to the agreement having a one year term, and fees for the “as-needed” services would not reflect referral patterns.

The OIG also highlighted that the arrangement lacked characteristics typical of a suspect “under arrangements” transaction, such as above-market or below-market compensation to influence or secure referrals, or hospital or physician ownership in the “under arrangements” provider. Specifically, in concluding that the proposed arrangement poses an acceptably low risk of improperly influencing or rewarding referrals, the OIG noted certain characteristics that reduced the risks associated with the structure, including:

  • The sleep testing services are ordered and interpreted by physicians without a direct or indirect financial interest in the Facility
  • Fees under the proposed agreement are consistent with fair market value in an arm’s-length transaction; and the fees are not determined in a way that would take into account the value or volume of referrals or other business generated between the parties
  • The hospital assumes business risk and contributes substantially to furnishing the sleep testing services for which it bills, including providing necessary space, equipment, a medical director and administrative services
  • The fees the Facility charges for equipment, marketing, and other services and supplies are set in advance.

Final Thoughts. These differing Advisory Opinions should be carefully considered by health care providers entering into sleep center contracts or other services provided "under arrangements," particularly if they include marketing services. Although, the OIG has not in these Opinions declared which types of arrangements are legal and which are not, providers should in the future review arrangements involving management services carefully. Specifically, providers should consider whether marketing services will be provided, whether marketing fees are bundled with other fees or are clearly identifiable, and whether a "per-click" fee structure is being used for marketing services which could be perceived as incentivizing referrals to the hospital in order to increase fees.