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OIG Issued Advisory Opinions on Sleep Disorder Clinics in Hospitals

by E. Dale Burrus, JD, LLM on November 4th, 2010

The Office of Inspector General (OIG) has today issued two Advisory Opinions related to arrangements between sleep disorder clinics and hospitals in an area the OIG stated was suspect for overutilization and potentially violative of the anti-kickback and civil monetary provisions of Medicare and Medicaid. See Advisory Opinion No. 10-23 and Advisory Opinion No. 10-24. The OIG through these two opinions has reiterated its stance that “per-click” type fees that appear to induce additional referrals generally are prohibited. Conversely, the OIG found acceptable arrangements in which fees were fixed and set in advance, even in the area of marketing.

The arrangements at focus in both opinions were decidedly similar: a sleep disorder clinic (Clinic) and a hospital entered into an arrangement in which the Clinic provided equipment, technology, supplies and staff to operate a sleep testing facility within the hospital. The hospital in exchange would provide the space, utilities, housekeeping, communications, pharmacy and other support services.

In Opinion No. 10-24, the Clinic would provide full-time marketing and education services that would inform the medical staff and patients regarding the services and also would market at health fairs and community health education events. Physicians would refer patients to the sleep testing facility and the hospital would screen and pre-authorize patients.

The arrangement was memorialized by a written agreement for a term of at least one year with all services and equipment identified being provided during the term of the contract. The contract incorporated three fees: an annual fixed fee for the use of the Clinic’s equipment, a fixed fee for marketing service and a fee for services and equipment used on an as needed basis. All fees were set in advance, did not take into account the volume or value of the business generated and were consistent with fair market value.

In Opinion No. 10-23, the contract was similar to Opinion No. 10-24’s contract in that it was for a term of at least one year with all services and equipment identified. However, this arrangement included a per-test fee for all items and services furnished, including the part-time marketing services.

In Opinion 10-24, the OIG determined that many safeguards contained in the equipment lease and personal services and management contract safe harbors were contained in the written agreement between the Clinic and the hospital. The OIG further explained that the only “suspect” aspect of the arrangement related to its marketing in that it could potentially encourage overutilization. However, because this was a fixed fee set in advance, the risk of encouraging referrals was small.

The OIG took a much harsher view of the relationship found in Opinion No. 10-23. The OIG’s criticism focused primarily on the per-test fee included within the contract. The OIG reiterated its long standing dislike for “per-click” type contracts. The OIG focused on the fact that marketing was paid on a per-test fee thereby creating an incentive to recommend and encourage the use of the center. Despite the Clinic’s proposal of similar safeguards found in the arrangement in 10-24, the OIG concluded that the arrangement probably presented prohibited activity.

Of interest, the OIG, in Opinion No. 10-24 also laid out four factors that reduced the risk that this would effectively create an unacceptable joint venture: (1) physicians would order the test with no financial interest of the Clinic, (2) payment would be fair market value without regard to value or volume of referral, (3) the hospital would bear business risk and would contribute substantially to the services, and (4) the Clinic’s fees would be set in advance.

If a hospital is contemplating contracting with a provider to provide a sleep disorder clinic, review of these two opinions will greatly assist in avoiding a potential investigation under the civil monetary penalty and anti-kickback provisions.

Advisory Opinion 10-23:

Advisory Opinion 10-24:

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From → Health Law