Advisory Opinion regarding Placement Agency Fees

On January 13, 2014, the Department of Health and Human Services (“HHS”), Office of Inspector General (“OIG), issued an advisory opinion regarding contracts under which a placement agency is paid for referring new residents to senior residential communities, and whether such contracts would result in sanctions or civil monetary penalties due to the imposition of the Federal anti-kickback statute. (“AKS”).

The Parent Company, that requested the advisory opinion, owns and controls the following subsidiaries: (1) eleven senior residential communities (“Communities”), (2) two skilled nursing facilities (“SNFs”), and (3) a management company (referred to collectively as “Affiliated Entities”).  The Communities provide nursing services, medication assistance,  and daily living services to their residents.   Patients at the Communities pay the costs of services received with personal resources or private payors.  The State Medicaid program (Elderly Waiver Program) pays for the services of only a small percentage of the residents in three of the Communities.   Except for the Elderly Waiver Program, the SNFs are the only Affiliated Entities that provide Federal funded health care services. 

The Placement Agency at issue in this advisory opinion, is an independent placement agency for senior housing that provides information and advice about housing and care options to seniors and their families and caregivers.    The Placement Agency contracts with two of the Communities to promote their available housing and places new residents with them.   When the Placement Agency places a new resident in a Community, the Placement Agency receives a fee calculated as a percentage of the new resident’s charges for the resident’s first or first two months (“Placement Fee”).  

The AKS makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal health care program.[1]  When the AKS is violated, criminal liability can be attributed to both parties to the transaction, involving fines, penalties, imprisonment, and/or exclusion.  The OIG determined that the Placement Fee is remuneration that implicates the AKS, as the residents may in the future receive Federally reimbursed services from one of the Affiliated Entities.  However, the core issue is whether the remuneration is likely to be an improper payment to generate Federal health care program business for the Parent Company or its Affiliated Entities.  The OIG points out that percentage compensation arrangements, such as the Placement Fee at issue, are inherently problematic under AKS, as they relate to the volume and value of business generated between the parties.   However, the OIG concludes that the facts and circumstances of this arrangement adequately reduce the risk that the remuneration provided could be an improper payment for referrals or the generation of Federal health care program business, as follows:

1.     The Placement Fee takes into account only the initial rent and services provided by the Community and paid by the new resident. The Fee does not include any charges to Federal health care programs.

2.     The Placement Agency Contracts prohibit placement and acceptance of potential residents who are known to rely, in whole or in part, on state of Federal funding sources.

3.     The Placement Agency refers potential residents for housing and services that are not payable by Federal health care programs.  Residents of the Communities do not have access to services provided by the SNF staffs and no participants in the Elderly Waiver Program were referred by the Placement Agency.  Whether a resident originally placed by the Placement Agency will receive Federally payable services provided by an Affiliated Entity at some point in the future, due to a change in circumstances, is substantially speculative and outside the control of the Placement Agency.

4.     The Parent Company certified that Affiliated Entities do not track referrals or common residents among the Affiliated Entities.

Based on these factors, the OIG concluded the risk is minimal that one purpose of the arrangement is to generate Federal health care program business.  In addition, although the arrangement could potentially generate prohibited remuneration under AKS if the requisite intent to induce or reward referrals of Federal health care program business were present, the OIG will not impose administrative sanctions in connection with the arrangement.

[1] Social Security Act §1128B(b).