Advisory Opinion No. 12-09 Issued by OIG

On July 23, 2012, the Office of the Inspector General, Department of Health and Human Services, issued OIG Advisory Opinion No. 12-09. This Opinion provided limited advice on the propriety of specific reduced-rate fee arrangements for the provision of therapy services at certain State-run Veterans’ Homes. Specifically, these arrangements were for third party contractors to provide physical therapy, occupational therapy, and speech pathology services to residents of the Veterans’ Homes. The contractors were solicited collectively by the State via a Request for Proposal (“RFP”). The RFP contained, among other things, a provision that the hospital board would be solely responsible to pay therapy charges for certain categories of residents (generally, those with a singular or combined service-connected rating of 70% or more, or a rating of100% disability, among others), while not being responsible to pay any therapy charges for others. The Board ultimately awarded the contracts to two bidders, both of whom intended to bill according to the Medicare Fee Schedule for most patients, but to charge rates below the Medicare Fee Schedule for certain categories of residents for which the board would be responsible. The OIG noted that this arrangement implicated the anti-kickback statute, in that it could be perceived that the board was giving these contractors access to certain residents in exchange for discounted rates for which the board is directly responsible to pay. This was referred to as a potential “swapping” arrangement.

Despite this concern, the Opinion of the OIG, limited to the facts presented, was that this specific “swapping” arrangement did not give rise to an inference of improper nexus under the anti-kickback statute. The OIG also opined that there was not a sufficiently large risk of fraud and abuse in connection with the anti-kickback statute to award sanctions. The OIG cited the following factors: (1) that the arrangements flowed from an open, competitive RFP process conducted within the framework of those state statutes governing the hospital board; (2) that the physicians themselves controlled the ordering of the specific therapies, and that the physicians were not found to have any outside financial relationships with the contractors performing the services; (3) that the contractors otherwise met all terms of the RFP and were found to be able to fully and reliably render the services requested; (4) that the contractors awarded the bids were the lowest responsive and responsible contractors, and;(5) that the state receives the full benefit of the discounted therapies, without personal financial gain to any of the individual participants.

While the OIG advisory opinion is limited only to the specific fact scenario presented, it provides some guidance in assessing bids subject to a competitive RFP process.