Health systems fear ruling on nursing homes

The Office of the Inspector General’s concern with preventing nursing home kickbacks may have thrust a stake into the heart of the nursing home prospective payment system (PPS). Some hospital systems that run nursing homes are now scrutinizing the arrangements made by their skilled nursing facilities (SNFs), after a new OIG anti-kickback advisory opinion that frowns on ambulance discounts offered to nursing homes.

In light of the new information, Alice Guttler, general counsel for Centrastate Healthcare System in Freehold, NJ, says she will be reviewing the contracts of Centrastate’s nursing home to make sure they don’t raise red flags at OIG.

What’s prompted this fuss is Advisory Opinion 99-2, which concerns ambulance transport for SNF patients. SNF reimbursement for ambulance service is now included in the fixed per-diem PPS payment system, which Congress mandated in the Balanced Budget Act of 1997 as a way of encouraging nursing homes to cut their costs.

In this case, a nursing home proposed a deal that would seem to meet the government’s desire. It would slash its expenses by entering into an agreement with an ambulance company, which would offer discounts of up to 50% of the Medicare reasonable charge for basic and advanced life support.

While the nursing home would pare its transport costs, the ambulance company would enjoy some savings because it could present a single, consolidated bill to the SNF.

OIG didn’t buy it. The regulators concluded that the deal might constitute a kickback if there was an intent to induce referrals. What the agency homed in on was the possibility that a nursing home that offered steep discounts for transport of PPS patients might be bribed into referring other business to an ambulance company.

"We are unable to exclude the possibility that Ambulance Company X may be offering improper discounts to the Nursing Home and other SNFs for their PPS-covered Part A business with the intent to induce referrals of more lucrative Part B business," notes the OIG opinion.

As the agency sees it, this deal raises the specter that a nursing home is seeking discounts on PPS patients, for whom it bears all of the financial risk under a fixed-price system, in return for referring to the ambulance company its Part B patients, for whom Medicare picks up reasonable costs.

Even a SNF that doesn’t purposely steer patients to a single contractor might end up doing so accidentally, OIG concludes. "SNF personnel may not always know which patients or transports will be covered by PPS when the services are ordered," notes the advisory opinion. "In these latter circumstances, the simplest way for a SNF to ensure that it is using its contracted provider for its PPS patients — and therefore securing the Part A discounts — is for the SNF to refer most patients to that provider."

OIG also dashed any hopes that the deal would be protected by a discount safe harbor in the anti-kickback statute, on the grounds that Medicare and Medicaid as well as the SNF must receive the discounts from the ambulance company.

The agency’s analysis has experts scratching their heads. If the purpose of the prospective payment system for SNFs is to encourage them to cut costs, isn’t it natural that they will seek discounts from contractors? "The consequence of this opinion will be that there will be a uniform pricing for nursing homes," says Bill Sarraille, an attorney in Washington, DC.

Nursing homes that enter contracts will have to take extra care, such as hiring consultants, to ensure that prices are at fair-market value. Guttler believes nursing homes will end up soliciting sealed bids to preclude any suspicion of kickbacks.