OIG Issues Favorable Advisory Opinion on Critical Access Hospital’s Warranty-Like Arrangement for Certain Joint Replacement Procedures

King & Spalding

On September 15, 2021, OIG posted Advisory Opinion 21-12, regarding a proposed arrangement involving a program to offer certain free items and services to patients who experience specific complications after undergoing certain joint replacement procedures. The requestor, a not-for-profit critical access hospital, proposed to offer an arrangement similar to a warranty for specific joint replacement procedures performed by employed orthopedic surgeons. Specifically, for qualified patients, the requestor would not bill the patient or the patient’s insurer, including federal healthcare programs, for certain items and services provided to treat complications that occur within 90 days of the procedure. OIG determined it would not impose administrative sanctions in connection with the Anti-Kickback Statute or the Beneficiary Inducements Civil Monetary Penalty (CMP) provision.

The proposed arrangement would only apply to patients who (1) received certain types of surgical procedures (such as a primary total knee, total hip, or partial knee arthroplasty) from one of the critical access hospital’s two employed orthopedic surgeons; (2) experienced complications associated with 60 specific diagnosis codes (such as peri-prosthetic infections or peri-prosthetic fractures) within 90 days of the surgery; and (3) met certain clinical criteria (such as a body mass index within a certain range and adherence to post-surgical follow-up appointment schedules). For qualifying patients, the requestor would furnish items and services worth up to $50,000 in total charges to treat the covered complications without billing either the patient or the insurer. These items and services would include, for example, a revision surgery, a replacement prosthesis, anesthesia and associated services, drugs, operating room fees, supplies, an inpatient stay, physical therapy, and occupational therapy.

The requestor would not shift the burden of financial losses stemming from the proposed arrangement to payors and patients. To ensure this, the requestor would allocate the costs of the covered items and services as a separate line item under non-allowable costs on federal and state cost reports. The requestor certified it would take similar actions related to commercial payors. The requestor would also submit no-pay claims for the covered items and services for patients who are federal healthcare program beneficiaries. Additionally, the employed surgeons would be compensated for performing the covered items and services the same way they are paid for other services provided at the facility.

OIG noted that the proposed arrangement would not be protected under the warranties safe harbor, 42 C.F.R. § 1001.952(g), because that safe harbor protects remuneration provided by manufacturers and suppliers, whereas the proposed arrangement involved remuneration provided by a healthcare provider. Overall, however OIG concluded the proposed arrangement would present a minimal risk of fraud and abuse under the federal Anti-Kickback Statute and OIG, in its discretion, would not impose sanctions under the Beneficiary Inducements CMP.

OIG found several safeguards in the arrangement that supported this decision, including that:

  • the proposed arrangement seemed designed to promote quality of care and better outcomes by incentivizing the critical access hospital to reduce its financial exposure by attempting to prevent complications;

  • the surgeons, due to their compensation structure as salaried employees, would not have a direct financial stake in the program, would not be negatively impacted by the provision of free covered items and services, and thus would not be incentivized to “cherry pick” or “lemon drop” patients;

  • the critical access hospital would implement oversight mechanisms such as evidence-based protocols, a quality improvement program, and review of joint replacement procedures by an interdisciplinary team, that reduced the likelihood of diminished quality of care;

  • although the program would be advertised to prospective surgical patients, patients would only be eligible for surgery based on the surgeon’s independent medical judgment; and

  • the potential for steering potential orthopedic surgical patients to the requestor was reduced because the requestor was a critical access hospital located in a rural area more than 40 miles from the nearest hospital.

OIG Advisory Opinion 12-21 is available here.

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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