The OIG’s Anti-Kickback Concerns on Contracts Between Senior Communities and Placement Agencies

The Office of Inspector General (OIG) of the Department of Health & Human Services (HHS) has issued an advisory opinion about whether senior communities that paid a placement agency for referring new residents violated the federal anti-kickback statute. OIG Advisory Opinion No. 14-01. Although the OIG did not impose sanctions, the opinion highlights the risks inherent in these types of arrangements.

A nonprofit organization that owns subsidiaries involved in senior housing and geriatric care, including senior residential communities and skilled nursing facilities, requested an advisory opinion about the relationship between two residential communities and a placement agency.  The placement agency contracted with the two communities to promote their available housing and place new residents with them.  Under the agreement the placement agency receives a fee for every new resident it places at one of the communities.  The fee is based on a percentage of a new resident’s initial charges and does not include any charges billed to federal health care programs.  In addition, the contracts prohibited the placement agency from referring new residents who rely on state or federal health care money and do not allow the communities to accept any referrals of residents who receive state or federal health care money.

The communities did not provide services reimbursed by Medicare, no residents who were referred received services provided under a Medicaid waiver program, and none of the residents received therapy from skilled nursing facility staff.  Although none of the residents who were referred by the placement agency received federally payable services at the time of the referral, it was possible that the residents could receive federally payable services by an affiliated entity in the future.

Although the OIG found that there was remuneration that implicated the anti-kickback statute, it concluded that the facts and circumstances of the arrangement adequately reduced the risk that the payment provided under the contract could be an improper payment for referrals or the generation of federal health care program business.  The placement fee does not include any charges to the federal health care programs.  In addition, the contract prohibits the placement agency from referring and the communities from accepting any residents who rely on state or federal health care programs.  The placement agency does not refer residents for services and housing that are paid by federal health care programs, nor does it limit a resident’s choice of provider.  Finally, the parent company certified that its affiliated entities do not track referrals or common residents or providers.

The OIG’s opinion highlights the risks of referral-based payment arrangements.  By paying the placement fee, the communities paid remuneration that implicates the anti-kickback statute because the residents may later receive care reimbursed by federal health care programs.  Percentage compensation arrangements are problematic under the anti-kickback statute because they relate to the volume and value of the business between the parties.  However, due to the unique circumstances of this matter — including that the entities certified they did not track referrals to determine which residents eventually received Medicare and Medicaid services — the OIG found that the remuneration was not likely to be an improper payment to generate federal health care program business.

Of note, the OIG’s advisory opinion did not extend to a community that at one time had residents who had access to federally payable on-site therapy services provided by staff from a skilled nursing facility.  Health care providers that enter volume- and value-based contracts should proceed with caution: The OIG’s advisory opinion is tied to a specific and narrow set of facts