The Department of Health and Human Services Office of Inspector General (OIG) recently published supplemental compliance program guidance (CPG) for nursing facilities. This supplemental CPG provides voluntary guidelines to assist nursing facilities in identifying significant risk areas and in evaluating and refining ongoing compliance efforts. In addition, this supplemental CPG responds to developments in the nursing facility industry, evolving business practices and changes in the federal enforcement environment, and reflects OIG’s continued focus on quality of care in nursing facilities.

As discussed more fully below, the supplemental CPG highlights five fraud and abuse risk areas that nursing facilities should consider when refining their compliance programs: (i) quality of care; (ii) submission of accurate claims; (iii) the Federal Anti-Kickback Statute; (iv) HIPAA privacy and security rules; and (v) other miscellaneous risk areas. The supplemental CPG concludes with a discussion of other compliance considerations and self-reporting, as discussed below.

Risk Areas

Quality of Care

With regard to quality of care risks, the supplemental CPG focuses on five areas that are currently of concern to the enforcement community.

  • Sufficient Staffing: Federal law requires sufficient staffing necessary to attain or maintain the highest practicable physical, mental and psychosocial well-being of its residents. Nursing facilities are strongly encouraged to assess their staffing patterns regularly to evaluate whether they have a sufficient number of staff members who are competent to care for the acuity levels of their residents.
  • Comprehensive Resident Care Plans: Medicare and Medicaid regulations require nursing facilities to develop a comprehensive care plan for each resident that addresses his or her medical, nursing, mental and psychosocial needs and includes reasonable objectives and timetables. Insufficient plans jeopardize residents’ well-being and pose the risk of providing inadequate care or medically unnecessary or inappropriate care services. Nursing facilities should design measures to ensure an interdisciplinary and comprehensive approach to developing care plans.
  • Medication Management: Nursing facilities must provide pharmaceutical services to meet the needs of each resident. Facilities should employ or obtain the services of a licensed pharmacist to provide consultation on all aspects of the provision of pharmacy services in the facilities. Proper medication management processes should be in place to advance patient safety, minimize adverse drug interactions and ensure that irregularities in a resident’s drug regimen are promptly discovered and addressed.
  • Appropriate Use of Psychotropic Medications: Federal law prohibits facilities from using any medication not required to treat a resident’s medical symptoms as a means of chemical restraint for purposes of discipline or convenience. Nursing facilities should ensure that there is an adequate indication for the use of each medication provided to a resident and should carefully monitor, document and review the use of psychotropic drugs for each resident.
  • Resident Safety: Nursing facility residents have a legal right to be free from abuse and neglect. Federal regulations mandate that nursing facilities develop and implement policies and procedures to prohibit mistreatment, neglect and abuse of residents. An effective compliance program will include policies, procedures and practices to prevent, investigate and respond to instances of potential resident abuse, neglect or mistreatment. A key component of an effective resident safety program is confidential reporting. To fulfill its obligation of ensuring that it has a workforce that will maintain the safety of its residents, each facility should conduct a comprehensive examination of a prospective employee’s criminal, educational, licensing and training records in all states in which the person has worked or resided.

Submission of Accurate Claims

The supplemental CPG addresses four risk areas related to claims submission in which nursing facilities should be vigilant.

  • Proper Reporting of Resident Case-Mix: Classifying a resident into the correct resource utilization group requires accurate and comprehensive reporting about the resident’s conditions and needs. Inaccurate reporting of data could result in the misrepresentation of the resident’s status, the submission of false claims and potential enforcement actions. An effective compliance program will include training of responsible staff to ensure that persons collecting the data and those charged with analyzing and responding to the data are knowledgeable about the purpose and utility of the data.
  • Therapy Services: Unnecessary therapy services may result in the submission of false claims. Such services may also place residents at risk for physical injury and may obscure a resident’s true condition. To prevent this, nursing facilities should develop policies, procedures and measures to ensure that residents are receiving medically appropriate therapy services.
  • Screening for Excluded Individuals and Entities: No federal health care program payment may be made for items or services furnished by an excluded individual or entity. To prevent hiring or contracting with an excluded person, OIG strongly advises nursing facilities to screen all prospective owners, officers, directors, employees, contractors and agents against both OIG’s List of Excluded Individuals/Entities and the U.S. General Services Administration’s Excluded Parties List System. This screening should be done prior to engaging their services and periodically thereafter to ensure that they have not been excluded since the initial screening.
  • Restorative and Personal Care Services: Nursing facilities must ensure that residents receive appropriate restorative and personal care services to allow residents to attain and maintain their highest practicable level of functioning. Facilities are strongly encouraged to have comprehensive procedures in place to ensure that services are of an appropriate quality and level, and that those services are in fact delivered to the residents.

The Federal Anti-Kickback Statute

The OIG identified five areas of potential risk that should be closely monitored by nursing facilities to prevent a violation of the Federal Anti-Kickback Statute.

  • Free Goods and Services: The provision of goods or services without charge that have independent value to the recipient or that the recipient would otherwise have to provide at his/her own expense confers a benefit on the recipient. This benefit may constitute prohibited remuneration under the Federal Anti-Kickback Statute if one purpose of the provision of free goods or services is to generate referrals of federal health care program business. Nursing facilities should reevaluate any arrangements in which they give or receive goods or services without charge.
  • Service Contracts: Contractual relationships must be scrutinized closely to ensure that they are not vehicles to disguise kickbacks. Nursing facilities should periodically review their arrangements with contractors, staff and physicians to ensure that: (i) there is a legitimate need for the services or supplies provided under the contract; (ii) the services or supplies are actually provided and adequately documented; (iii) the compensation is at fair market value in an armslength transaction; and (iv) the arrangement is not related in any manner to the volume or value of federal health care program business.
  • Discounts: Nursing facilities should ensure that all discounts, including rebates, are properly disclosed and accurately reflected on their cost reports and in any claims filed with a federal program. Facilities should ensure that there is no direct or indirect connection between a price offered by a supplier or provider to a nursing facility for items or services that the facility pays for out-of-pocket and referrals of business for which the supplier or provider can bill a federal health care program.
  • Relationships with Hospices: Nursing facilities should be mindful that requesting or accepting remuneration from a hospice may subject the nursing facility and the hospice to liability under the Federal Anti-Kickback Statute if the remuneration might influence the nursing facility’s decision to do business with the hospice.
  • Reserved Bed Payments: Reserved bed arrangements between hospitals and nursing facilities could be problematic under the Federal Anti-Kickback Statute if one purpose of the hospital’s remuneration to the nursing facility is to induce referrals of federal health care program business from the nursing facility to the hospital. These arrangements should be entered into only when there is a bona fide need for a hospital to secure beds at a facility.

HIPAA Privacy and Security Rules

Each nursing facility should ensure that it is compliant with all applicable provisions of the HIPAA Privacy Rule, including standards for the use and disclosure of protected health information (PHI) with and without patient authorization, and the provisions pertaining to permitted and required disclosures.

Nursing facilities that are covered entities were required to be compliant with the HIPAA Security Rule by April 20, 2005. The Security Rule specifies a series of administrative, technical and physical security safeguards to ensure the confidentiality of electronic PHI.

Other Risk Areas

The OIG discussed three other risk areas that nursing facilities should consider:

  • Physician Self-Referrals: Nursing facilities should review all financial relationships with physicians who refer patients to receive designated health services, such as lab and therapy services, to ensure compliance with the Stark Law.
  • Anti-Supplementation: A nursing facility must accept the applicable Medicare or Medicaid payment for covered items and services as the complete payment. The facility may not charge a Medicare or Medicaid beneficiary, or any other person in lieu of the beneficiary, any amount in addition to that which may otherwise be required to be paid under Medicare or Medicaid.
  • Medicare Part D: Nursing facilities are encouraged to provide objective information and education to residents on all available Medicare Part D plans. Facilities must be particularly careful not to act in ways that would limit a beneficiary’s freedom of choice in choosing a Part D plan.

Other Compliance Considerations

Nursing facilities are encouraged to adopt a code of conduct that details the fundamental principles, values and framework for action within the organization and that articulates the organization’s commitment to compliance. Each facility should develop a mechanism to communicate appropriate compliance and performance-related information to the facility’s senior officers and its board of directors, which will assist them in fulfilling their management and oversight responsibilities. Overall, facilities should endeavor to develop a culture that values compliance from the top down and fosters compliance from the bottom up.


If the compliance officer, compliance committee or a member of senior management discovers credible evidence of misconduct and, after a reasonable inquiry believes that the misconduct may violate criminal, civil or administrative law, the nursing facility should report promptly the existence of the misconduct to the appropriate federal and state authorities. The reporting should occur within a reasonable period, but not longer than 60 days, after determining that there is credible evidence of a violation. Prompt voluntary reporting will demonstrate the nursing facility’s good faith and willingness to work with the appropriate authorities to remedy the problem and will be considered a mitigating factor by OIG in determining administrative sanctions if the reporting facility becomes the subject of an OIG investigation. All self-reports should be made in accordance with OIG’s Provider Self-Disclosure Protocol.

Drinker Biddle’s Recommendations

As noted by the OIG, in today’s environment of increased scrutiny of corporate conduct and increasingly large expenditures for health care, it is imperative for a nursing facility to establish and maintain an effective compliance program and to foster a culture of compliance and a commitment to delivery of quality health care throughout the organization. To meet these goals, a nursing facility should:

  • Review its compliance program and ensure that the basic elements of OIG’s original CPG (released in 2000) have been implemented, including designation of a compliance officer and compliance committee; development of compliance policies and procedures; development of open lines of communication; appropriate training and teaching; internal monitoring and auditing; responding to detected deficiencies; and enforcement of disciplinary standards.
  • Ensure that the facility’s compliance committee reviews the supplemental CPG and assesses the facility’s risks with respect to the risk areas identified by the OIG and implements steps to address such risks as appropriate. Involve senior management and members of the board of directors in compliance oversight by educating them regarding the facility’s compliance activities.
  • Use the release of OIG’s supplemental CPG to re-energize and re-emphasize compliance activities at the facility.