On May 13, 2011, the Department of Health and Human Services Office of Inspector General issued Advisory Opinion No. 11-06.  The opinion indicated the OIG will not afford leeway to hospital-based patient referral services under safe-harbor protections to the anti-kickback statute.  The proposal rejected by the OIG was issued by a company providing an online discharge referral system to hospitals.  The internet referral service provided access to a nationwide listing of all licensed post- acute care providers.  These post-acute care providers include skilled nursing facilities, home health agencies and assisted living facilities which were found by reviewing state licensure databases.   The hospitals were to use this system to select providers best suited to meet the needs of patients who were ready to be discharged.  Once an appropriate provider had been identified, the hospital would send the patient’s name, medical records and other pertinent information to the referral service who would forward the information to the selected provider.  Under the terms of the proposed arrangement the company would require post-acute care providers to pay a one time implementation fee and a monthly service fee.  The fee would allow post-acute care providers to electronically receive and respond to hospital’s referral requests.  Those who did not pay the fee would still be listed in the system, however they would receive requests via facsimile and in turn would be forced to respond by fax or phone, a much more cumbersome, and slow process. 

The OIG began its legal analysis by referring to the anti-kickback statute which makes it a criminal offense to knowingly and willfully offer, pay, solicit or receive any compensation to induce referrals reimbursable by a Federal health care program.  The opinion pointed to recent court opinions interpreting the statute to cover any arrangement where even one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals.  The OIG found the proposed computerized referral arrangement would implicate the anti-kickback statute because the online referral service would be soliciting and accepting referrals and the acute-care providers would be paying for referrals.  The OIG then explained why the referral service would not fit under the safe harbor protection for referral services. The safe harbor regulations define practices not subject to the anti-kickback statute because they are unlikely to result in fraud or abuse. The proposed system failed to satisfy several of the referral service safe harbor requirements, including that the participant’s fees were not assessed uniformly against all participants and were not based only on the cost of operating the referral service.

Lacking protection from the safe harbor provision, the court also found the proposal presented more then a minimal risk under the anti-kickback statute and thus could not be afforded protection.  Many factors were considered in coming to this conclusion.  For starters, hospitals discharge patients on first-come first-served basis which means post-acute providers with the ability to electronically receive and respond to requests through the system would have a significant competitive advantage, an advantage which they received because they paid for the opportunity.  Additionally, the costs incurred to fax requests are greater than costs from electronic transmissions.  Thus, the denial of electronic submission served only to penalize non-paying providers.  Lastly, the pressure put upon providers who are required to pay fees they cannot afford could increase incentives to upcode, prolong patient stays, and provide unnecessary services all of which could result in increased costs to the Federal health care program. The opinion concluded in a finding that the proposal could potentially generate prohibited remuneration under the anti-kickback statute resulting in administrative sanctions.

The opinion showcases the government’s view that the benefits that arise from streamlining post-operative care—normally a desirable outcome in line with recent health reform legislation—must still comply with the anti-kickback statute. It is important to note the opinion is only binding on the requestor and is not necessarily applicable to other referral services.  It should, however, serve as a red flag for providers that are presented with similar opportunities.

For more information regarding this important decision please contact your Taft Health and Life Sciences attorney.