On June 21, 2011, the Office of the Inspector General (OIG) released Advisory Opinion 11-08 (AO 11-08), finding that an Existing Arrangement and a Proposed Arrangement where the employees of an independent diagnostic testing facility (IDTF) specializing in sleep studies provided services for a durable medical equipment (DME) company potentially generated prohibited remuneration in violation of the anti-kickback statute.

In the Existing Arrangement, a written agreement between multiple IDTFs and the DME company provided that when a non-federally insured beneficiary selected the DME company, an employee of the IDTF would provide the services for setting up the continuous positive airway pressure (CPAP) machine and educating patients on its use. The IDTF employees also were responsible for the display, inventory, care and maintenance of the CPAP machines consigned to the IDTF. Patients were provided with a list of alternate DME providers by each IDTF that may include an endorsement of the DME company. The DME company paid the IDTF a per patient fee that was certified to be consistent with fair market value.

Although very similar to the Existing Arrangement, the Proposed Arrangement had a few substantive differences. First, the Proposed Arrangement would apply to all patients, including beneficiaries of federal healthcare programs. Second, the fee would be a flat fee rather than a per patient fee. Also, while the fee would not be altered, the DME company would be permitted to terminate the arrangement if it was not satisfied with the number of patients receiving services. Finally, the parties were unable to certify that the fixed fee was consistent with fair market value.

Not surprisingly, the OIG found that both arrangements could generate prohibited remuneration and that neither arrangement satisfied a safe harbor. Consistent with past criticisms of certain DME supplier arrangements, the OIG found that those described in AO 11-08 contained "hallmarks" of potentially problematic arrangements. These include direct payments that closely tied the DME company with the IDTF and, in turn, the IDTF's patients, and the consignment aspects of the arrangements. The OIG also was concerned because some of the IDTFs had physician ownership so that the close tie between the IDTF and the DME company could lead to the physician or other IDTF health professional marketing the DME company's products.

While AO 11-08 did not necessarily cover new ground, especially given the somewhat obvious facts of the arrangement, it should cause providers to again closely examine relationships with home health agencies, DME companies and other similarly situated providers. While providing a list of alternate providers is important and often required, a list will not serve to protect what may otherwise be questionable activity.