On November 6, 2018, the Department of Health and Human Services Office of Inspector General (OIG) issued Advisory Opinion No. 18-13, which concluded that proposed donations from a trust to a medical research institute would not violate the Anti-Kickback Statute despite the trustees’ ownership and financial interests in long-term care facilities. The long-term care facilities, which provide federally reimbursable items and services, have ongoing business relationships with the health care system that is the private partner of the public-private partnership that created the medical research institute.

Although HHS OIG redacted many of the specifics from the Advisory Opinion issued last week, the key facts of the proposed arrangement are as follows. In 1989, a charitable trust (the Trust) was established and funded by grantor primarily out of his estate interests. The Trust was to be distributed to support:  (a) institutions of higher learning, such as the university (the University) in the community (the “Community”); and (b) local charitable endeavors in and around the Community. The health care system based in the Community (the Health Care System) is a comprehensive network of hospitals and physician practices. In 2008, the University and the Health Care System entered into a public-private partnership to create a medical research institute (the Research Institute).

The Research Institute’s mission is to:

• Make transformative scientific advances in understanding and addressing the fundamental processes of human health and disease;
• Train the next generation of leading biomedical scientists;
• Facilitate discovery-based medical education; and
• Sustain and strengthen the University-Health Care System partnership in order to develop one of the nation’s premier biomedical research environments in the Community.

Under the proposed arrangement, the Trust would make a $42-50 million donation to the Research Institute that would be earmarked for the purposes of promoting and conducting biomedical research. In addition to the transfer by the Trust, one of the Trustees (the Individual Trustee Donor) would make a separate donation to the Research Institute for the same purpose as the donation by the Trust. The Individual Trustee Donor would contribute any amount necessary to bring the total aggregate donation up to $50 million.

The Trust is directed by certain members of grantor’s family (the Trustees), each of whom have ownership and financial interests in long-term care facilities. The long-term care facilities also have long-standing, ongoing business relationships with the Health Care System, including transfer agreements, agreements for medical director services, professional medical and dental services, educational services, laboratory services, hospice services, transportation services, and clinical research. The Research Institute is not enrolled in Medicare or Medicaid and does not provide items or services reimbursable by Federal health care programs, but the long-term care facilities do. The question before OIG was whether the proposed donations would violate the Anti-Kickback Statute.

OIG determined that the risk of fraud and abuse posed by the proposed arrangement was sufficiently low, and thus, OIG would not take action under the Anti-Kickback Statute. First, OIG reasoned that the proposed donations would not be conditioned on referrals to the Trustees’ long-term care facilities, nor would they be subject to any restrictions other than using the funds as earmarked. Second, the separation between the Research Institute and the Health Care System allows the Research Institute to independently make decisions about the proper use of funds, thereby reducing the risk of improper ties between the long-term care facilities and the Health Care System. Third, OIG stated that the outside business relationships between entities affiliated with donors and a recipient does not automatically make a donation suspect under the Anti-Kickback Statute. Finally, OIG concluded that the proposed donations appeared to be for bona fide charitable purposes and were distinguishable from donations motivated to provide improper payments for referrals.

HHS OIG Advisory Opinion is available here.