AHLA W. Practical Compliance Measures for GPO Operations and Transactions Jay Kirkpatrick CEO, MidAmerica Region Healthtrust Purchasing Group LP Brentwood, TN Gregory M. Luce Skadden Arps Slate Meagher & Flom LLP Washington, DC David A. Weil, II Vice President, QHR Legal Services Community Health Systems Nashville, TN Health Care Transactions
American Health Lawyers Association Health Care Transactions Program Practical Compliance Measures for GPO Operations and Transactions David A. Weil Quorum Health Resources Jay Kirkpatrick HealthTrust Purchasing Group Gregory M. Luce Skadden Arps Practical Compliance Measures for GPO Operations and Transactions 1 The Anti-Kickback Statute Whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing or ordering any good, facility, service or item for which payment may be made in whole or in part under a federal health care program shall be guilty of a felony... In other words, no sweeteners are allowed in exchange for sales or referrals. Practical Compliance Measures for GPO Operations and Transactions 2 1
What is a GPO? A GPO is: an entity authorized to act as a purchasing agent for a group of individuals or entities, who are furnishing services for which payment may be made in whole or in part under Medicare, Medicaid, or other federal health programs, and who are neither wholly-owned by the GPO nor subsidiaries of a parent corporation that wholly owns the GPO (either directly or through another wholly owned entity). Practical Compliance Measures for GPO Operations and Transactions 3 Traditional GPO Mechanics GPO Members Discount Vendors Group purchasing arrangements invoke the protection of the GPO and Discount exemptions and safe harbors. Administrative fees paid by vendors to GPOs are protected under the applicable statutory exemption and regulatory safe harbor Discounts and rebates negotiated by a GPO and passed through to GPO members are protected under the Discounts authorities. Net revenue distributions from GPOs to members are also treated as discounts. Practical Compliance Measures for GPO Operations and Transactions 4 2
Statutory Exemptions to Anti-Kickback Statute The Anti-Kickback Statute ( AKS ) carves out a handful of arrangements from the Statute s general prohibition. Such statutory exemptions include: Group Purchasing Organization ( GPO ): Any amount paid by a vender of goods or services to a person authorized to act as a purchasing agent for a group of individuals or entities who are furnishing services reimbursed under a Federal health care program if The GPO has a written contract, with each such individual or entity, which specifies the amount to be paid the person, which may be a fixed amount or a fixed percentage of the value of the purchases made by each such individual or entity under the contract, AND, in the case of a provider of services, the GPO discloses the amount received from each such vendor with respect to purchases made on behalf of the entity. 42 U.S.C. 1320a-7b(b)(3)(C). Discounts: Any discount or other reduction in price obtained by a provider of services or other entity under a Federal health care program if the reduction in price is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or entity under a Federal health care program. 42 U.S.C. 1320a-7b(b)(1) Practical Compliance Measures for GPO Operations and Transactions 5 AKS Regulatory Safe Harbors - GPOs GPO Safe Harbor: The GPO safe harbor excludes from the definition of remuneration certain fees paid by vendors to GPOs. 42 C.F.R. 1001.952(j). A purchasing agent must have a written contract with participants specifying that it is authorized to act as a GPO. The contract between the GPO and Participant must state that the vendor will pay the GPO one of the following: Three percent (3%) or less of the purchase price of the products or services sold by the vendor; A specific fee (as a fixed sum or as a fixed percentage of the value of the purchases): or Where the amount of the fee is unknown, the maximum amount the vendor may pay the GPO The GPO must disclose the amount received from each vendor with respect to purchases made by or on behalf of each such GPO member in writing to the member on an annual basis Practical Compliance Measures for GPO Operations and Transactions 6 3
AKS Regulatory Safe Harbors - Discounts Discount Safe Harbor: The discount safe harbor excludes from the definition of remuneration a discount on an item or service for which payment may be made in whole or in part under a Federal health care program for a buyer, seller, or offeror, as long as the relevant entity complies with certain standards. 42 C.F.R. 1001.952(h). In addition to facilitating discounts/rebates, GPOs may distribute a portion of their revenue to GPO members sometimes referred to as net revenue distributions. These distributions are treated like discounts or rebates on the purchases, further reducing a provider s cost of purchases facilitated through the GPO. See CMS Provider reimbursement Manual, Part 1, Pub. No. 15-1, ch. 8 805. Practical Compliance Measures for GPO Operations and Transactions 7 Discounts and Rebates The term discount means a reduction in the amount a buyer (who buys either directly or through a wholesaler or a GPO) is charged for an item or service based on an arms-length transaction. A rebate is any discount the terms of which are fixed and disclosed in writing to the buyer at the time of the initial purchase to which the discount applies, which is not given at the time of sale. To qualify for the discount exception: The reduction in price must be fixed at the time of the initial sale, properly disclosed to the buyer at the time sale, and appropriately reflected in the costs claimed or charges made by the provider or entity. Practical Compliance Measures for GPO Operations and Transactions 8 4
Discounts and Rebates Discounts cannot: Be in the form of cash payments Be contingent on buying multiple goods or services (bundling) Apply to some payors but not those under Medicaid or Medicare programs Be a reduction in price offered to a beneficiary (i.e., a reduction or waiver of deductible amount owed by a program beneficiary) Be in the form of equity interests in a GPO Practical Compliance Measures for GPO Operations and Transactions 9 Disclosure Requirements for Discounts and Rebates GPOs, as offerors, may provide discounts to GPO members. However, where the buyer is a cost-reporting entity, such as a hospital, the GPO must inform the buyer of its obligations to report any discount and provide the necessary information upon request, and refrain from doing anything that would impede the buyer s ability to meet its disclosure obligations. Providers subject to cost reimbursement must accurately report the true cost of items on their cost reports. The discount must be earned in the same fiscal year as the purchase. The benefit of the discount must be claimed in either that year or the following year. Practical Compliance Measures for GPO Operations and Transactions 10 5
Purchasing Agents Serving Wholly-Owned Members As already noted, a purchasing agent for a group of wholly-owned entities (regardless of direct or indirect ownership) does not qualify under the regulations as a GPO. In March 2012, OIG took up the question of whether such an arrangement may otherwise comply with the AKS. In OIG Advisory Opinion No. 12-01, OIG finds that a proposed structure falls outside GPO safe harbor protection due to a parent entity's common ownership of the GPO and GPO participants. Despite this shortcoming, however, OIG concludes certain safeguards sufficiently minimize the risks of program abuse. Practical Compliance Measures for GPO Operations and Transactions 11 Purchasing Agents Serving Wholly-Owned Members OIG takes the unprecedented position that the arrangement presents an acceptably low level of risk due to the presence of certain identified safeguards. These include: the GPO will retain only the administrative fees necessary to offset its costs, the parent corporation is in a position to ensure compliance with Medicare cost reporting rules applicable to central purchasing activities and associated discounts or rebates, the GPO will disclose to the public and participants that administrative fees may be passed through to participants, GPO services would not be restricted to affiliated participants, and the parent corporation will continue to use multiple resources in order to provide the best value for affiliated entities and participants. Available at: https://oig.hhs.gov/fraud/docs/advisoryopinions/2012/advopn12-01.pdf Practical Compliance Measures for GPO Operations and Transactions 12 6
Equity Interests are Not Discounts OIG Advisory Opinion No. 13-09 Practical Compliance Measures for GPO Operations and Transactions 13 OIG Advisory Opinion No. 13-09 Available at: http://oig.hhs.gov/fraud/docs/advisoryopinions/2013/advopn13-09.pdf Practical Compliance Measures for GPO Operations and Transactions 14 7
Best Practices to Avoid AKS Violations Be mindful of the GPO distinction: As a general rule, administrative fees should be accepted only when acting as a GPO and all GPO requirements are met. Contracts should clearly address whether an entity is acting as a GPO, versus serving in another capacity such as a facilities manager or leasor. Be careful to avoid role confusion make sure that vendors are aware of whether and when an entity is acting as a GPO, versus acting in another capacity Avoid contracts with interdependent service offerings (e.g. management services and GPO services). Favorable contract terms associated with one service may be viewed as an inducement to purchase another service. Practical Compliance Measures for GPO Operations and Transactions 15 Best Practices to Avoid AKS Violations Be careful to accept only qualifying discounts and rebates. Discounts and rebates must be properly quantified and reported. Be wary of contracts that provide nonspecific discounts, such as: Discounts for future performance Discounts against future purchases Loyalty discounts Do not secure discounts in exchange for referrals Practical Compliance Measures for GPO Operations and Transactions 16 8
Case Study Health System has been making efforts to centralize and standardize operations across its member hospitals, but the process has been challenging and many hospitals are teetering on the edge of insolvency due to thin operating margins. Health System's Board of Directors believes that its newfound purchasing power will help it negotiate more favorable contracts with service providers and vendors. At the same time, the Board is skeptical that discounts alone will provide the needed relief. The Board tasks you with exploring additional ways to maximize Health System's revenue stream. Practical Compliance Measures for GPO Operations and Transactions 17 Case Study Consider these scenarios: Independent GPO marketing and operating considerations "Independent GPO" competes with other commercial GPOs and GPOs affiliated with or captives of provider organizations or hospital associations Additional rebates and discounts from suppliers of goods and services are afforded to members who refer new members Operator owned or affiliated GPO Hospital operator wants to create GPO for purchases for affiliated facilities and others Hospital operator offers management services to unaffiliated providers the fees for which are discounted if provider is also a member of Operator's GPO Joint venture GPO among service providers Unrelated hospitals form joint venture GPO State hospital association "sponsors" GPO in exchange for fees, and fees are computed, in part, based on number of hospitals joining GPO as members Practical Compliance Measures for GPO Operations and Transactions 18 9