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OIG Approves Vendor/Hospital Arrangement to Reduce Hospital Readmissions [Ober|Kaler]

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This article appeared in the AHLA Fraud and Abuse Practice Group Newsletter on August 20, 2013.

Written by Julie Kass; reviewed by Holly Barker*

Copyright 2013 American Health Lawyers Association, Washington, DC
Reprint permission granted.

On August 9, the U.S. Department of Health & Human Services, Office of Inspector General (OIG) issued a favorable Advisory Opinion, 13-10 [PDF], concerning an arrangement whereby a vendor (Vendor) that is a subsidiary of a pharmaceutical manufacturer would enter into service arrangements with hospitals to provide patients with certain diagnoses services after hospital discharge in order to reduce hospital readmissions (Proposed Arrangement). OIG examined the arrangement under both the Anti-Kickback Statute and the civil money penalty (CMP) provision prohibiting inducements to beneficiaries and determined that it would not impose sanctions under either provision based on the specific facts presented.

The Vendor aims to create technological platforms to facilitate coordination of care, assist patients in adhering to discharge plans, and avoid otherwise-preventable hospital readmissions. Important to OIG's determination, the Vendor has certified that its operations (i.e., sales force, marketing team, and pricing strategy and approval committee) are distinct from those of its parent company. Further, its success is not contingent on the use of the parent company's pharmaceuticals by the hospital with which the Vendor secures contracts.

Under the Proposed Arrangement, the Vendor would sell a package of services to hospitals that promote patient adherence to the hospital care team's discharge plan, thereby helping to reduce hospital readmissions. The Vendor would contract either directly with the hospital or indirectly through group purchasing organizations with whom the hospital has arrangements. All agreements would be set out in writing and have a term of at least one year. The agreements would set forth all of the services to be provided and the method for calculating the associated fees. Initially, the services would be geared toward patients who have conditions that are part of the Medicare Hospital Readmissions Reduction Program (HRRP). Currently, these conditions are: acute myocardial infarction, congestive heart failure, and pneumonia. As the HRRP expands to additional conditions, the Proposed Arrangement anticipates that it will expand to those future conditions as well. Additionally, based on feedback, the Vendor may expand into other conditions that are not part of the HRRP. The Vendor certified to OIG that any expansion would be on the same terms and conditions described in the request.

The Proposed Arrangement allows hospitals to choose from a menu of services that include the following: providing patient liaisons (who do not necessarily have medical backgrounds) who follow up with patients within 48 hours of discharge; monitoring of patient adherence to the discharge plan through patient liaison follow-up calls, answering questions via the Internet or through a telephone interactive voice response system; access to a nurse hotline if needed by the patient or as determined by the patient liaison; scheduling of follow-up visits; assistance with obtaining transportation (at the patient's expense); providing unbranded educational materials; providing updates to caregivers and primary care providers; assistance in understanding the discharge plan; and adding new medications to a limited medical record and reminding patients to refill medication.

Upon discharge, it is expected that a hospital-employed discharge planning nurse would identify patients meeting certain criteria to offer them the services provided by the Vendor. If the patient agrees to the services, the hospital creates a limited medical record to share with the vendor and caregivers. The patient selects their primary care practitioner, specialists, and admitting hospital (which may not necessarily be the hospital from which the patient was discharged). If the patient liaison follow-up or patient responses to Internet and/or interactive voice response questions raise flags, a Vendor nurse is brought in to assist. The nurse is not permitted to refer the patient to any provider other than those the patient had designated in the Vendor's software, and neither the patient liaisons nor the nurses are compensated based on the sales of the parent company's products. Further, the patient information gathered by the Vendor would not be used by the parent company to market any of its products.

There are three different fees for the Proposed Arrangement. First, there is an initial flat fee (Initial Fee) that covers the cost of electronic health record data integration to coordinate the electronic transfer of the patient's discharge plan into the software platform associated with the Proposed Arrangement, any needed hardware, consultation, and co-creation of new hospital processes for eligible patient identification and enrollment, and initial training of hospital staff. The second fee is a per-patient annual fee (Annual Fee). The Annual Fee compensates the Vendor for technology and personnel costs, system maintenance and software upgrades, and user support services. It includes several components and changes depending on what services are needed for each individual patient. A projected fee based on the projected number of patients and the services expected to be provided is determined and a portion of this fee would be paid at the beginning of the contract. Annually, the Vendor and the hospital will reconcile the fee based on actual enrollment and actual services utilized. The upfront payment would not be reduced if enrollment or the use of services is less than expected. Under an alternative structure, hospitals would not have to pay for any patient who was readmitted within a certain amount of days if they did not comply with the discharge plan. The third fee would be for additional services and would be based on the hourly rate of the employee performing the extra services. The Vendor has certified that all of the fees would be fair market value (FMV) as determined through market research and confirmed by an independent third party.

OIG analyzed the arrangement under the Anti-Kickback Statute and determined that the Vendor could be a referral source to the hospital and the hospital could be a referral source to the Vendor. Notwithstanding that fact, OIG believes the Proposed Arrangement has a low risk of fraud and abuse. While a below-FMV price paid by the hospital to the Vendor could be construed as remuneration to refer to the parent pharmaceutical manufacturer or an above-FMV price could be seen as remuneration to the Vendor for referrals to the hospital, OIG believes that appropriate safeguards were in place to prevent fraud or abuse under the Proposed Arrangement:

  • The Proposed Arrangement is unlikely to lead to overutilization of federal healthcare program services. The services themselves are not reimbursable and while utilization could increase, it is most likely appropriate utilization. Further, overall the goal is to reduce hospital readmissions, which could reduced costs to the federal healthcare programs;
  • The Proposed Arrangement is unlikely to affect medical decision making. The services are only offered to patients who were already hospitalized with certain conditions and would not begin to provide services until the patient has been discharged from the hospital. The services are designed to ensure that the patient complies with the discharge plan and is not related to drug therapies sold by the parent company;
  • The Vendor certified that there were safeguards to ensure that the Vendor's business was not designed to increase sales to the parent company. The Vendor's services would promote all therapies, and the fees are not tied to purchases of the parent company's drugs; there are separate sales forces and neither would be compensated on the sales of the other's products; neither the patient liaisons or hotline nurses would promote the parent company's products or be compensated on their sale; and, finally, the Vendor certified that the fees paid for services would be FMV; and
  • The Proposed Arrangement would not cause inappropriate patient steering. First, the patients would have to have certain specified conditions to be eligible for the program and second, the nurses and patient liaisons could not refer patients to anyone other than those providers and suppliers specifically identified by the patient at the outset as part of the his or her extended care team.

Under the CMP for inducements to beneficiaries, OIG determined that while there was a value to the patients, it would not likely cause the beneficiaries to choose a particular provider, practitioner, or supplier:

  • The patients designate the providers, practitioners, and suppliers in the software platform when they agree to participate, and the nurses and patient liaisons can only refer to those individuals and entities. While OIG acknowledged that the hospital providing the services is likely on that list, because the patient had already chosen the hospital for those services, the Vendor's services are unlikely to influence that decision; and
  • The patient does not receive any reward or incentive for using the Vendor's program

* We would like to thank Advisory Opinion Task Force members Julie E. Kass, Esquire (Ober|Kaler, Baltimore, MD), and Holly Barker, Esquire (Morgan Lewis & Bockius LLP, Washington, DC), for respectively authoring and reviewing this summary.

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