OIG Issues “˜Swapping’ Opinion

Decision addresses bundled payment schemes

On Dec, 28, the Office of Inspector General (OIG) of the Department of Health & Human Services issued an important advisory opinion addressing the difficult topic of discounted rates provided to nursing homes (and, by implication, hospitals) for transports for which the facility has financial responsibility. The opinion, No. 10—26, reiterates prior OIG pronouncements that ambulance providers and health facilities risk violating the federal anti-kickback statute (the AKS) when they enter into agreements for discounted rates that are lower than the ambulance provider’s “total costs” of rendering the transports.

 

The decision also covers an issue not previously addressed by the OIG: whether this principle applies to transports covered by a governmental bundled payment method-ology, wherein the facility itself has been paid an amount that is less than the cost of rendering the transport. This situation may arise, for example, when Medicaid programs bundle some or all of the ambulance transports provided to their beneficiaries into a per diem or similar payment made to facilities, which was the scenario addressed in the Opinion. The Opinion indicates that discounting a provider’s rates below cost may be unlawful even in this situation, if done with an intent to induce referrals.

Background

The Opinion was issued in response to a request from a nonprofit Medicaid-certified ambulance supplier (the requestor). Although the state of the requestor (the state) is redacted in the version of the opinion posted on the OIG’s website, the facts indicate that the requestor apparently operates in Ohio.

 

The OIG notes that, under a recently passed law, the State’s Medicaid program reimburses nursing facilities a per-resident, per-day rate for ancillary and support costs, which includes payment for Medicaid transport services. In other words, the state Medicaid program bundles payments for Medicaid ambulance services into the per diem rate paid the facility. The facility is then responsible for reimbursing ambulance providers a rate negotiated by the parties when they transport Medicaid patients, including skilled nursing facility (SNF) residents who are covered by both Medicare and Medicaid (dually covered residents). For dually covered residents, the SNF is responsible for paying the Medicare co-payment and deductible amount.

 

The Requestor asked the OIG to opine on the legality of two alternative types of payment plans that it proposed to offer the facilities for their Medicaid transports. Under Payment Plan 1, the requestor would offer the SNFs a capitated rate per resident day that would be based on the number of Medicaid resident days, regardless of whether

 

Medicaid transports were actually provided to the resident. The capitation amount would pay for the SNF’s liability for all Medicaid transports, including both Medicaid-only and dually covered residents.

 

For the latter, the requestor would continue to bill Medicare as the primary payer, and the capitated rate payment would discharge the SNF’s responsibility for the

 

Medicaid-covered co-payment and deductible amounts. The Opinion notes that if all of the transports covered by this arrangement were for Medicaid-only residents, then the aggregate capitation amount paid to the Requestor would be less than its total cost of providing the services. However, because some of the residents would be dually covered residents, the aggregate capitation amount, plus revenues from the Medicare payment for the dually covered residents, would be greater than the total cost of providing the transports.

 

Under Payment Plan 2, the requestor would offer the SNFs a contract under which they would pay on a fee-for-service basis for any Medicaid transports ordered for their Medicaid-only residents. This fee-for-service amount would be below the requestor’s total cost of providing the services. These rates would not apply, however, to transports for dually covered residents. For those transports, the requestor would bill Medicare as the primary payer, and the SNF would be responsible for the full co-payment and deductible based on the Medicare allowable amount.

 

In addition to Medicaid-only residents and dually covered residents, the requestor noted that facilities offered these two alternative arrangements would also typically have patients requiring ambulance services that would be reimbursable only by Medicare or by other payers. The requestor indicated that, especially under Payment Plan 1, the SNFs would be likely to refer to such business to the requestor.

The OIG’s Analysis

Before analyzing the proposed arrangements, the OIG provided a brief overview of the anti-kickback statute and its application to discount arrangements. It noted that the AKS makes it a criminal offense to knowingly and willfully to offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services of the AKS. “Remuneration” includes the transfer of anything of value, directly or indirectly, in cash or in kind. It has been interpreted to cover any arrangement where even “one purpose” of the remuneration was to induce the referral of services.

 

The OIG then reiterated its prior pronouncements regarding discounted rates provided to health facilities for ambulance services, including its 2003 Compliance Program Guidance for Ambulance Suppliers and its 2008 Supplemental Compliance Program Guidance for Nursing Homes.

 

In both documents, the OIG stated that if any direct or indirect link exists between a price offered by an ambulance company to a nursing facility for items or services that the facility pays for out-of-pocket and referrals of federal business for which the supplier or provider can bill a federal health care program, the AKS is implicated. The OIG refers to this practice as “swapping.” Though not noted in the Opinion, the OIG made similar statements in its Supplemental Compliance Program Guidance for Hospitals, which was issued in 2005.

 

After providing the foregoing background, the OIG applied these principles to the two payment plans proposed by the requestor. The OIG noted that, under Payment Plan 1, the Requestor would charge the SNFs a capitated amount that would be below the requestor’s total costs of providing Medicaid transports if all the residents were Medicaid-only residents. Under Payment Plan 2, the requestor would charge the SNF a flat, below-cost rate for transports for Medicaid-only residents. The OIG analyzed the arrangements as follows:

The circumstances surrounding both plans “¦ suggest that a nexus may exist between the below-cost payment rates offered to the SNFs for Medicaid Transport Services for Medicaid-only residents and referrals of other Federal health care program business. First, the SNFs are in a position to direct business to the Requestor that is not covered by the Payment Plans under the Proposed Arrangement “¦ Second, both parties have obvious motives for agreeing to trade below-cost payment rates for Medicaid Transport Services for Medicaid-only residents for referrals of other federal health care program business: the SNFs to minimize risk of losses and/or maximize gains under the Medicaid per resident per day rate for ancillary and support costs, and the Requestor to secure business in a highly competitive market.

The OIG noted that, in determining whether an improper nexus exists between the rates offered for services and referrals of Federal business in a particular arrangement, the OIG looks for indicia that the rate is not commercially reasonable in the absence of other, non-discounted business. The OIG stated that rates offered to the SNF that are below the ambulance company’s total costs of providing services, as was the case here, “give rise to an inference that the supplier and the SNF may be “˜swapping’ the below-cost rates on business for which the SNF bears the business risk in exchange for other profitable non-discounted federal business, from which the supplier can recoup losses incurred on the below-cost business, potentially through overutilization or abusive billing practices.”

 

Under the facts presented by the Requestor, the OIG stated it was unable to exclude the possibility that the Requestor might be offering improper discounts to the SNFs for their Medicaid transports with the intent of inducing referrals of more lucrative federal business. The OIG indicated that the following facilities were also at risk:

Nor are we able to exclude the possibility that the SNFs may be soliciting improper discounts on business for which they bear risk in exchange for referrals of business for which they bear no risk.” Indeed, the Proposed Arrangement poses a substantial risk of such improper “˜swapping’ of business that may run afoul of the anti-kickback statute.

Significance of the Opinion

Although the Opinion applies principles previously established in Advisory Opinion 99-2 and the Compliance Program Guidance documents noted above, it goes beyond these prior pronouncements in one important respect: it applies the “swapping” doctrine to bundled Medicaid payments even though, in the State in question, the part of the Medicaid bundled payment attributable to ambulance services is probably below the cost of providing those services.

 

Although the OIG does not expressly say so in the Opinion, it is widely believed that the aggregate amount Ohio Medicaid includes for ambulance services in the bundled payment it makes to SNFs is less than the cost to ambulance providers of providing the services.

 

It might be argued that the SNFs should be permitted to pass this inadequate compensation on to the ambulance companies (e.g., by paying them the Medicaid fee for service rate) since, in the absence of the bundled payment methodology, the companies would be stuck with below cost Medicaid fee for service payments. In failing to even address this potential justification for below cost rates, however, the OIG implicitly rejects it. Thus, it does not appear that a health facility that is paid below its costs by Medicaid can safely force its ambulance contractor to “share the pain.”

 

The Opinion is also significant because it comes in advance of the development of alternative bundled rate payment methodologies that are to be implemented by the Medicare program under the Patient Protection Act. That Act specifically provides for a pilot program using increased bundled payments as a means of achieving greater efficiencies in the Medicare program.

 

To the extent that these bundled payments shift financial responsibility for additional ambulance services to health facilities or other parties that also control Medicare Part B referrals, those parties will need to pay fair market value for transports covered by the bundled payment, even if the bundled payment is inadequate to support such rates.

 

Finally, the Opinion raises the question of whether ambulance providers and their health facility customers might have potential liability under the AKS if an ambulance provider prices its services to a health facility at the Medicare-allowable amount, if such amount is below the provider’s cost, as could be the case in certain areas where the cost of doing business is especially high.

 

Taken to its logical extreme, the Opinion suggests that such pricing could violate the AKS. This would be illogical, however, since the OIG’s rationale for finding “swapping” unlawful is that the ambulance provider is rendering services at an unreasonably low rate at an inducement to secure business at the more lucrative Medicare allowable rate. If the contract rate were the same as the Medicare rate, the logical underpinnings of a “swapping” violation would appear not to exist.

 

Nevertheless, ambulance providers wishing to exercise an abundance of caution can protect themselves from “swapping” violations when they price at the Medicare-allowable rate through compliance with the so-called “discount safe harbor” under the AKS. The discount safe harbor is one of several safe harbors established by a regulation, which provides that, if a particular arrangement meets all the conditions of a particular safe harbor, it will not be subject to challenge under the AKS.

 

The discount safe harbor is applicable to discounts rendered by a seller (in this case, the ambulance service) to a buyer (in this case, a health facility) if certain conditions are met. These conditions include the following:

  • The discount must be accurately reflected on invoices rendered to the buyer (this simply means the discounted rate must be shown on the invoice);
  • If required by law, the buyer must fully and accurately report the discount on its cost report to Medicare, Medicaid or other government programs;
  • The buyer must provide, on request of the Secretary of Health & Human Services (the “Secretary”) or a state agency, information regarding the discount; and
  • The seller must inform the buyer, in a manner that is reasonably calculated to give notice to the buyer, of its obligations to report the discount and to provide information upon request of the Secretary, as indicated above.

In addition to the foregoing requirements, to fall within the discount safe harbor, a reduction in price given to one payer must also be given to Medicare and any applicable state health care program. Therefore, the discount safe harbor will not apply when a health facility is provided with a rate that is less than the rate charged to Medicare. Thus, if the ambulance provider charges the facility the Medicare-allowable amount, and the other conditions specified above are met, the discount safe harbor will apply.

 

As a practical matter, this simply requires including language in the agreement between the parties that informs the facility regarding its obligations under the safe harbor; limiting the amount of the discount to the Medicare rate; showing the Medicare rate on the invoices to the facility; and using the Medicare rate, rather than the provider’s full charges, on Medicare claims. Although it is generally not be necessary for an ambulance company to rely on the discount safe harbor if it charges a health facility the Medicare rate, doing so will make any such discount 100% bullet proof, even if the provider’s Medicare rate is below its costs.

Conclusion

Advisory Opinion 10-26 is a reminder that discounts in contracts between health facilities and ambulance companies must be carefully structured to avoid possible “swapping” violations of the AKS. The Opinion indicates that the OIG will apparently not excuse below cost discounts on the grounds that the facility has itself been underpaid by Medicaid or any other payor.

 

Finally, providers should be aware that there are at least two active federal investigations focusing on the swapping issue in California. Therefore, this is an issue to be taken seriously.

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