On August 16, 2005, the Office of Inspector General (OIG) of the Department of Health and Human Services posted OIG Advisory Opinion No. 05-11, its third advisory opinion to analyze the propriety of grants and donations between components of an academic medical center (AMC) under the Federal Anti-Kickback Law. While similar in many respects to the two prior opinions, Advisory Opinion No. 05-11 provides new insights into the OIG’s approach in this area.

By way of background, non-fair market value transfers among teaching hospitals, medical schools and their affiliated faculty practice plans are common. Teaching hospitals have traditionally provided financial support of the academic medical center’s missions of teaching, research and community service/clinical care. Such support may implicate the Federal Anti-Kickback Law, however, because the faculty physicians employed by the medical school or faculty practice plan represent a key source of referrals to the teaching hospital.

The Centers for Medicare and Medicaid Services (CMS) has promulgated a special academic medical center exception to the Stark Law in recognition of the unique and often complex financial relationships among the components of the AMC. However, there is no corresponding safe harbor to the Federal Anti-Kickback Law, so the three advisory opinions constitute the primary source of guidance from the OIG.

In Advisory Opinion No. 00-6, the OIG addressed a proposal by a nonprofit hospital to donate its ownership interest in a portion of a medical office building to an agency of the state for use by a state-owned medical school. The proposed donation was conditioned on the donated space being used exclusively for medical academic purposes. The OIG approved the arrangement, basing its analysis on three elements:

  • First, the OIG recognized that the transaction was between components of an academic medical center that historically shared a common mission.
  • The OIG also noted that the medical school had taken a number of steps to insulate physician judgment. The school agreed to not require or encourage the faculty physicians to refer patients to the hospital, to not track those referrals and to compensate the faculty physicians in a manner unrelated to the volume or value of referrals to the hospital.
  • Finally, the OIG stressed the proposed donation would confer a community benefit.

The OIG reaffirmed its analysis of academic medical center arrangements in Advisory Opinion No. 02-11. That opinion addressed a grant of $1.6 million from a state-owned hospital to support education and research at an affiliated medical school. The hospital and medical school had been closely integrated for almost a century, and the medical school had owned and operated the hospital until four years earlier. The medical school certified that it would not require or encourage faculty physicians to refer patients to the hospital, would not track referrals made by any faculty physician to the hospital, would not pay compensation related to the volume or value of referrals by faculty physicians to the hospital and would structure such compensation consistent with the requirements of the AMC exception to the Stark Law. The OIG approved the proposed grant, noting it was consistent with state legislation requiring the hospital to support education, research and public service activities.

In the new opinion, Advisory Opinion No. 05-11, a for-profit hospital proposed to donate a medical office building on the hospital’s campus to its affiliated medical school for use as a family medicine clinic that would primarily serve Medicaid and uninsured patients. The hospital’s prior (nonprofit) owner and the medical school had been affiliated for 30 years and had shared a common vision of consolidating and relocating the existing family medicine clinic sites to a new building on the hospital’s campus. The OIG approved the arrangement, basing its analysis on the same basic three elements as in the prior two advisory opinions:

  • First, the OIG recognized the transaction would further a shared common mission of training physicians and providing medical care to the state’s residents.
  • The school certified it would not require or encourage the faculty physicians to refer patients to the hospital or track those referrals and would compensate the physicians in a manner unrelated to the volume or value of referrals to the hospital.
  • The OIG noted that the proposed donation would confer a community benefit to a medically underserved population and would also improve residency training.

The opinion has a number of interesting features. First, it is the first time the OIG approved such an arrangement with a for-profit hospital. Previous opinions had suggested that the nonprofit status of the hospital might be relevant to the OIG’s analysis. Second, the hospital had been recently sold. The OIG appeared to take some comfort from the fact that the prior nonprofit owner had shared a vision with the medical school to consolidate the family medicine clinic in a new building on the hospital campus. Third, the OIG noted that the hospital would have no ongoing involvement in decisions relating to the clinic, including the nature of services to be offered there.

Finally, the OIG approved the arrangement even though other teaching hospitals affiliated with the medical school could be competitively disadvantaged by the donation. Family medicine faculty would necessarily be relocated to the new building on the hospital’s campus, making referrals to the hospital "more convenient. " The OIG concluded, however, that a "significant" increase in referrals was unlikely, and any such increase "may be offset, at least in part, by the Clinic’s commitment" to uninsured and Medicaid patients.

From a Stark perspective, it is of note that the medical school did not certify that it would compensate its physicians consistent with the requirements of the Stark AMC exception, unlike the medical school in Advisory Opinion No. 02-11. The school—and the OIG—may have recognized that the AMC exception is unnecessarily restrictive. Compliance with the AMC exception would preclude a faculty practice plan from providing faculty physicians a share of practice plan DHS profits, but such compensation would be permissible under (a) an indirect compensation analysis to protect the referrals by the faculty physicians to the hospital and (b) the in-office ancillary services exception to protect the DHS referrals by the faculty physicians to the practice plan.

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