Regulatory Developments

On April 10, 2003, the Office of the Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS) issued OIG Advisory Opinion No. 03-8, in which the agency concluded that the proposed arrangement could generate prohibited remuneration in violation of the federal Anti-kickback Statute, and that the OIG could seek administrative sanctions against the requestor if the proposed arrangement was implemented. Because the agency reached a negative conclusion, it makes sense to briefly outline why the agency was concerned enough about the proposal that it felt there were insufficient protections available to protect federal health care benefit programs from being harmed if the proposal was permitted.

The requesting company develops and manages inpatient rehabilitation units for hospitals. Under the proposal, the requestor would develop, then manage acute inpatient rehabilitation units within general acute care hospitals pursuant to a 3-year management agreement. Under this agreement, the requestor would provide a leadership team (program director, medical director, and a community outreach coordinator) and the medical directors provided as part of the leadership team would meet the requirements of the safe harbor for personal services and management contracts. See 42 C.F.R. ' 1001.952(d). The team would also meet the requirements for the personal service arrangements exception to Stark law (since payments would be consistent with fair-market value in arms-length transactions). The hospital, in turn, would pay the company a monthly management fee calculated on a per-patient/per-day basis (multiplying a fixed amount per patient/per day by the aggregate number of patient days for those inpatients during each month). Moreover, the requestor indicated that the management fee would also be set at fair market value.

The OIG found that the proposed arrangement did not fall within a safe harbor since the aggregate compensation paid by the hospital to the requestor under the management services agreement wasn't set in advance. See 42 U.S.C. ' 1001.952(d). When the agency examined the overall structure of the proposal, it didn't find that the risks of fraud and abuse were sufficiently low because the arrangement could promote over-utilization of health care services provided to federal program beneficiaries.

Alert: Misuse of OIG's Words, Symbols, and Emblems

On April 8, 2003, the OIG issued a “reminder” that federal law is violated when individuals or organizations misuse HHS symbols, and so forth, while marketing their services. The OIG's alert was triggered because of what it described as “particularly egregious violations … by U.S. Seminar Corporation of La Mesa, CA.” The agency issued a demand letter on April 3, 2003 to that company and three of its executives for the payment of over $1 million in civil monetary penalties for having misused the word “Medicare” in its marketing practices, which involved over 362,000 mailings. As the OIG explained, “U.S. Seminar offers Medicare reimbursement and coding seminars to health care providers and practitioners nationwide.” The agency was concerned with these mailings since the company appeared to have used the words and letters of the Medicare program and HHS in “a manner that reasonably could be construed as conveying the false impression that its seminars are approved, endorsed, or authorized by Medicare.” Moreover, the OIG noted that some U.S. Seminar employees had misidentified themselves to providers as Medicare representatives, that the company had engaged in its conduct for over 6 years, despite being notified by cease-and-desist letters that such marketing efforts violate federal law, and that the solicitations had generated complaints in almost every state. See 42 U.S.C. ' 1320b-10 and 42 C.F.R. ' 1003.102(b)(7) (providing penalties up to $5000 per violation related to print media, and penalties up to $25,000 for misuse in broadcast or televised media).

Nursing Home Deficiency Trends Cited by OIG

During March 2003, the Office of Evaluation and Inspections (OEI) within HHS/OIG issued a lengthy report titled Nursing Home Deficiency Trends and Survey and Certification Process Consistency (OEI-02-01-00600) to describe various nursing-home deficiencies, and to assess how consistently states are implementing the Medicare survey and certification process.

As explained in the OIG's report, Medicare- and Medicaid-participating nursing facilities must periodically be certified as meeting certain federal requirements, and this process is accomplished through contracts that the Centers for Medicare and Medicaid Services (CMS) executes with states. These surveys, which typically occur within 9- to 15-month intervals, are performed by survey teams who use data from seven different sources:

• National data from the Online Survey and Certification Reporting (OSCAR) system;
• A mail questionnaire of all 51 state survey and certification directors;
• Telephone interviews with staff from all ten regional CMS offices;
• Observations of nursing-home surveys in a purposive sample of six states;
• A review of 310 survey reports from the same six states;
• Telephone interviews with a purposive sample of 32 surveyors from eight states; and
• Telephone interviews with a purposive sample of 32 nursing home administrators from the same eight states. Executive Summary, at i.

Among its many findings, the OIG noted that:

• Nursing home deficiencies have risen since 1998, with most nursing homes (89%) surveyed during 2001 having at least one deficiency, as compared with a slightly lower level 3 years earlier in 1998 (81%);
• The total number of deficiencies has similarly risen, from 64,608 (in 1998) to 94,131 (in 2001);
• Nursing homes receiving deficiencies in one of the three categories related to “substandard quality of care” also increased, from 70% (in 1998) to 78% (in 2001). Id., at ii.

The OIG concluded by identifying four factors that contributed to the variability in reported deficiencies among the various states: 1) an incomplete survey focus; 2) unclear guidelines; 3) the lack of a common review process for draft survey reports; and 4) high surveyor staff turnover. Because of these issues, the OIG felt it wasn't able to conclude whether the described trends in deficiencies were due to deteriorating care, increased enforcement, or variations in the survey process. Therefore, the agency recommended that CMS continue trying to improve the guidance provided to state surveyors.

In April 2003, the OIG and AHLA issued A short education publication titled Corporate Responsibility and Corporate Compliance: A Resource for Health Care Boards of Directors was issue in April 2003 by the OIG and the American Health Lawyers Association (AHLA).

The impetus for this publication, as acknowledged in its introduction, is the increased public attention given to corporate responsibilities, and the heightened duties of corporate directors, which was underscored in last year's passage of the landmark Sarbanes-Oxley Act of 2002, Pub. L. 107-204. For more detail about the Sarbanes-Oxley legislation and its mandates, see Michael E. Clark, Doing Business After Sarbanes-Oxley: The Heightened Importance of Effective Corporate Compliance for Publicly Traded Companies; Health Care Fraud & Abuse Volume 6 No. 2 (March 2003).

The OIG and AHLA's publication spells out, in a straightforward manner, the fiduciary duties that directors of publicly traded health care entities must adhere to, and the document is designed to assist them with understanding how they can fulfill their responsibilities. All professionals who work within such structures would be well served by taking the short time to review this excellent document.

GAO Targets TRICARE's Provider Network for Military

On March 27, 2003, Marjorie Kanof, Director, Health Care – Clinical and Military Health Care Issues for the U.S. Government Accounting Office (GAO), provided testimony to the House Armed Services Committee, Subcommittee on Personnel, about problems described by beneficiary groups with access to care from TRICARE's providers. In turn, providers described problems they have experienced with low reimbursement rates and the administrative burdens involved with serving TRICARE beneficiaries. See Oversight of the Adequacy of TRICARE's Civilian Provider Network Has Weaknesses (GAO-03-592T) TRICARE, the health care system for the Department of Defense (DOD), provides care for over 8.7 million active duty military personnel and their dependents, as well as military retirees, through Military Treatment Facilities (MTFs) and through its provider network. As Kanof explained, “TRICARE's civilian provider network … is designed to complement the availability of care offered by MTFs [which] supply most of the health care services TRICARE beneficiaries receive. Report Highlights, at 2. TRICARE offers three options to its beneficiaries:

• TRICARE Prime (a managed care network similar to an HMO);
• TRICARE Extra (a preferred providers network); and
• TRICARE Standard (a fee-for-service program).

The GAO found weaknesses with the DOD's civilian provider network due to: “1) flaws in its required provider-to-beneficiary ratios, 2) incomplete reporting on beneficiaries' access to providers, and 3) the absence of a systematic assessment of complaints … ” Id. at 7. In particular, the GAO exp- lained, the provider-to-beneficiary ratios tend to underestimate the number of providers needed in a given area (particularly as to specialists). Moreover, the GAO found that due to problems with the ability of DOD's contractors to access data, the contractors were not able to adequately assess the extent and respond to beneficiary's complaints.

OIG Rejects Management Fee Arrangement for Inpatient Rehabilitation Units

On April 10, 2003, the Office of the Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS) issued OIG Advisory Opinion No. 03-8, in which the agency concluded that the proposed arrangement could generate prohibited remuneration in violation of the federal Anti-kickback Statute, and that the OIG could seek administrative sanctions against the requestor if the proposed arrangement was implemented. Because the agency reached a negative conclusion, it makes sense to briefly outline why the agency was concerned enough about the proposal that it felt there were insufficient protections available to protect federal health care benefit programs from being harmed if the proposal was permitted.

The requesting company develops and manages inpatient rehabilitation units for hospitals. Under the proposal, the requestor would develop, then manage acute inpatient rehabilitation units within general acute care hospitals pursuant to a 3-year management agreement. Under this agreement, the requestor would provide a leadership team (program director, medical director, and a community outreach coordinator) and the medical directors provided as part of the leadership team would meet the requirements of the safe harbor for personal services and management contracts. See 42 C.F.R. ' 1001.952(d). The team would also meet the requirements for the personal service arrangements exception to Stark law (since payments would be consistent with fair-market value in arms-length transactions). The hospital, in turn, would pay the company a monthly management fee calculated on a per-patient/per-day basis (multiplying a fixed amount per patient/per day by the aggregate number of patient days for those inpatients during each month). Moreover, the requestor indicated that the management fee would also be set at fair market value.

The OIG found that the proposed arrangement did not fall within a safe harbor since the aggregate compensation paid by the hospital to the requestor under the management services agreement wasn't set in advance. See 42 U.S.C. ' 1001.952(d). When the agency examined the overall structure of the proposal, it didn't find that the risks of fraud and abuse were sufficiently low because the arrangement could promote over-utilization of health care services provided to federal program beneficiaries.

Alert: Misuse of OIG's Words, Symbols, and Emblems

On April 8, 2003, the OIG issued a “reminder” that federal law is violated when individuals or organizations misuse HHS symbols, and so forth, while marketing their services. The OIG's alert was triggered because of what it described as “particularly egregious violations … by U.S. Seminar Corporation of La Mesa, CA.” The agency issued a demand letter on April 3, 2003 to that company and three of its executives for the payment of over $1 million in civil monetary penalties for having misused the word “Medicare” in its marketing practices, which involved over 362,000 mailings. As the OIG explained, “U.S. Seminar offers Medicare reimbursement and coding seminars to health care providers and practitioners nationwide.” The agency was concerned with these mailings since the company appeared to have used the words and letters of the Medicare program and HHS in “a manner that reasonably could be construed as conveying the false impression that its seminars are approved, endorsed, or authorized by Medicare.” Moreover, the OIG noted that some U.S. Seminar employees had misidentified themselves to providers as Medicare representatives, that the company had engaged in its conduct for over 6 years, despite being notified by cease-and-desist letters that such marketing efforts violate federal law, and that the solicitations had generated complaints in almost every state. See 42 U.S.C. ' 1320b-10 and 42 C.F.R. ' 1003.102(b)(7) (providing penalties up to $5000 per violation related to print media, and penalties up to $25,000 for misuse in broadcast or televised media).

Nursing Home Deficiency Trends Cited by OIG

During March 2003, the Office of Evaluation and Inspections (OEI) within HHS/OIG issued a lengthy report titled Nursing Home Deficiency Trends and Survey and Certification Process Consistency (OEI-02-01-00600) to describe various nursing-home deficiencies, and to assess how consistently states are implementing the Medicare survey and certification process.

As explained in the OIG's report, Medicare- and Medicaid-participating nursing facilities must periodically be certified as meeting certain federal requirements, and this process is accomplished through contracts that the Centers for Medicare and Medicaid Services (CMS) executes with states. These surveys, which typically occur within 9- to 15-month intervals, are performed by survey teams who use data from seven different sources:

• National data from the Online Survey and Certification Reporting (OSCAR) system;
• A mail questionnaire of all 51 state survey and certification directors;
• Telephone interviews with staff from all ten regional CMS offices;
• Observations of nursing-home surveys in a purposive sample of six states;
• A review of 310 survey reports from the same six states;
• Telephone interviews with a purposive sample of 32 surveyors from eight states; and
• Telephone interviews with a purposive sample of 32 nursing home administrators from the same eight states. Executive Summary, at i.

Among its many findings, the OIG noted that:

• Nursing home deficiencies have risen since 1998, with most nursing homes (89%) surveyed during 2001 having at least one deficiency, as compared with a slightly lower level 3 years earlier in 1998 (81%);
• The total number of deficiencies has similarly risen, from 64,608 (in 1998) to 94,131 (in 2001);
• Nursing homes receiving deficiencies in one of the three categories related to “substandard quality of care” also increased, from 70% (in 1998) to 78% (in 2001). Id., at ii.

The OIG concluded by identifying four factors that contributed to the variability in reported deficiencies among the various states: 1) an incomplete survey focus; 2) unclear guidelines; 3) the lack of a common review process for draft survey reports; and 4) high surveyor staff turnover. Because of these issues, the OIG felt it wasn't able to conclude whether the described trends in deficiencies were due to deteriorating care, increased enforcement, or variations in the survey process. Therefore, the agency recommended that CMS continue trying to improve the guidance provided to state surveyors.

In April 2003, the OIG and AHLA issued A short education publication titled Corporate Responsibility and Corporate Compliance: A Resource for Health Care Boards of Directors was issue in April 2003 by the OIG and the American Health Lawyers Association (AHLA).

The impetus for this publication, as acknowledged in its introduction, is the increased public attention given to corporate responsibilities, and the heightened duties of corporate directors, which was underscored in last year's passage of the landmark Sarbanes-Oxley Act of 2002, Pub. L. 107-204. For more detail about the Sarbanes-Oxley legislation and its mandates, see Michael E. Clark, Doing Business After Sarbanes-Oxley: The Heightened Importance of Effective Corporate Compliance for Publicly Traded Companies; Health Care Fraud & Abuse Volume 6 No. 2 (March 2003).

The OIG and AHLA's publication spells out, in a straightforward manner, the fiduciary duties that directors of publicly traded health care entities must adhere to, and the document is designed to assist them with understanding how they can fulfill their responsibilities. All professionals who work within such structures would be well served by taking the short time to review this excellent document.