OIG: Housing Placement Arrangement for Seniors Does Not Give Rise to Sanctions

by King & Spalding

The HHS Office of Inspector General (OIG) recently issued a favorable Advisory Opinion (No. 14-01) regarding a contractual arrangement under which a placement agency receives a per-resident fee for referring new residents to certain senior living communities.  OIG concluded that, while the arrangement could lead to prohibited remuneration under the anti-kickback statute under certain circumstances, it did not constitute grounds for imposing sanctions. 

According to the Advisory Opinion, the requestor (the “Parent Company”) is a nonprofit corporation that owns and controls eleven senior residential communities, two skilled nursing facilities, and a management company that negotiates contracts and provides other management services for the Parent Company.  The majority of the residents at the Parent Company’s residential communities, according to OIG, pay for rent and services themselves or receive coverage under private insurance.  OIG further noted that, outside of the small percentage of residents of the Parent Company’s residential communities who receive coverage for services under a specific state Medicaid waiver program, the company’s skilled nursing facilities are the only affiliated entities that provide services reimbursed under federal health care programs.

The arrangement at issue involves contracts between two of the Parent Company’s residential communities and an independent placement agency specializing in senior housing (the “Placement Agency”).  Under the arrangement, the Placement Agency “promote[s]” available housing at the two residential communities and coordinates the placement of new residents there.  For each new resident placed at one of the communities through the Placement Agency, the arrangement provides for the payment of a fee to the agency.  The fee is calculated based on a portion of each new resident’s charges during his or her initial stay, usually one or two months.  OIG noted that the fee does not take into account charges to federal health care programs, such as Medicare.  OIG also noted that the underlying contracts prohibit the Placement Agency from referring new residents to the participating residential communities “who are known to rely, in whole or in part, on Medicaid, Medicare, or other state or federal funding sources” and that the participating residential communities cannot accept such new residents from the Placement Agency.

Based on four factors, OIG concluded that the arrangement poses a low risk of improper payments for referrals under the anti-kickback statute, and, accordingly, does not constitute grounds for OIG sanctions.  First, the fee paid to the Placement Agency is not calculated on the basis of any charges to federal health care programs—rather, it includes only initial rent and services paid for by the referred resident.  Second, the underlying contracts prohibit the Placement Agency from referring, and the residential communities from accepting, residents who rely on funding from government health programs.  Third, the Placement Agency does not refer residents for housing or services payable by federal health programs (e.g., services provided by skilled nursing facility staff).  Fourth, the Parent Company certified that its affiliates—i.e., the residential communities, skilled nursing facilities, and management company—do not track referrals among them, nor do they place limits on a resident’s ability to choose a particular provider of health services.

A copy of OIG’s report is available here.

Reporter, Greg Sicilian, Atlanta, +1 404 572 2810, gsicilian@kslaw.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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