On July 28 the Office of Inspector General (OIG) of Health & Human Services gave its blessing to a health system’s lease of employees to a related psychiatric system.  Under the arrangement the system would also provide management services.  In return, the hospital would pay the system its “fully loaded” costs (i.e., salary, plus benefits, plus overhead) for the employees and services, with no mark-up or administrative fee.  That price could be below the fair market value of the services.

The OIG noted that the arrangement implicates the Anti-Kickback Statute because the hospital is a source of referrals to the system.  And the safe harbor for personal services and management contracts is unavailable because (1) the price may be below fair market value and (2) the aggregate price isn’t set in advance.

Nevertheless, the OIG ruled that it would not impose administrative sanctions, based on three factors: (1) the arrangement is consistent with Medicare related-party rules, which wouldn’t reimburse the system for any payments above its costs; (2) the arrangement would achieve cost efficiencies and thereby reduce Medicare costs; and (3) the system and hospital already have an incentive to refer to each other, and there’s no evidence that the arrangement would increase that incentive.

The opinion is Advisory Opinion No. 15-10, released July 28, 2015.