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Key Takeaways from the OIG’s New Compliance Program Guidance for Skilled Nursing Facilities

As part of its Modernization Initiative, the Department of Health and Human Services’ Office of Inspector General (OIG) recently published its first industry-segment specific Compliance Program Guidance, which focuses on skilled nursing facilities (SNFs) (SNF ICPG). Since 1998, the OIG has issued voluntary compliance program guidance documents, each tailored to a specific segment of the health care industry and providing important insights on specific risk areas and tips for implementing an effective compliance program.  In April 2023, the OIG announced a long overdue modernization of these compliance program guidance documents and rolled out its General Compliance Program Guidance the following November.  

The SNF ICPG follows the release of the Department of Justice’s Annual Report to Congress on Department of Justice Activities to Combat Elder Fraud and Abuse (Report). The Report described DOJ’s National Nursing Home Initiative – an effort targeting nursing homes that provide grossly substandard care to their residents. The areas DOJ describes it targets as part of this initiative closely mirror the risk areas OIG outlines in the SNF ICPG; that is, DOJ targets nursing homes that consistently fail to provide adequate numbers of nursing staff or staff at the necessary skill level to care for their residents, or inappropriately use physical or chemical restraints to restrain or otherwise sedate their residents.

OIG Senior Counsel Laura Morgan and Deputy Branch Chief Felicia Heimer announced the SNF ICPG at the Health Care Compliance Association conference on November 20, 2024.  The OIG had previously issued compliance program guidance for SNFs in 2000 and 2008 but the agency acknowledged that since that time, there have been significant changes in the SNF industry including the way SNFs are reimbursed by Medicare. Of note, SNFs are required to operate a compliance program that meets certain regulatory requirements in order to participate in Medicare but the SNF ICPG  is a voluntary, non-binding guidance.  The SNF ICPG includes four key risk areas – (i) quality of care and quality of life, (ii) Medicare and Medicaid billing requirements, (iii) federal anti-kickback statute, and (iv) other risk areas – along with practical considerations to address these risk areas. Below are three key takeaways from the SNF ICPG. 

Medicare and Medicaid Billing Requirements.  A major focus of the SNF ICPG  is compliance with Medicare and Medicaid reimbursement requirements, and the OIG even includes a supplement that gives an overview of reimbursement for SNFs. Since OIG issued its 2008 compliance guidance for SNFs, new risks have emerged, including a transition from the Resource Utilization Group, Version IV (RUG-IV) to the Patient Driven Payment Model (PDPM), which went into effect in October 2019.  Under the PDPM, CMS adjusts the per diem rate for each SNF resident using data variables for each resident including diagnoses, treatments, and evaluation of the resident’s functional status, which are collected via resident assessments. In order to promote compliance with the PDPM’s requirements, the OIG recommends adequate training for clinical and billing staff and policies and procedures that incorporate the following areas of heightened importance under the PDPM: 

  • Resident assessments; 
  • Care planning;
  • Tracking of resident progress and outcomes; 
  • proper documentation of the services provided; and 
  • Appropriate coding of resident characteristics. 

The OIG also flagged Medicare health plan enrollment for SNF residents as a potential risk area. SNFs often educate residents regarding Medicare health plans and assist with enrollment decisions, but they should be mindful that these efforts do not lead to inappropriate steering to a particular health plan or enrollment decision. The SNF ICPG recommends that SNFs implement processes to ensure that residents receive complete and objective information that is neutral regarding plans available to residents; refrain from accepting any remuneration to influence a resident to select a particular plan; and comply with health plan policies and Medicare regulations related to marketing and enrollment activities.  The Nursing Facility ICPG also references a October 2021 CMS Memo to Long Term Care Facilities on Medicare Health Plan Enrollment, which outlines specific steps SNFs should take when assisting residents with changing their Medicare health plan coverage.

Anti-Kickback Statute Compliance. While most of the Nursing Facility ICPG’s section on AKS compliance merely reiterated longstanding guidance, the SNF ICPG  did raise two risk areas unique to SNFs.  Noting that SNFs and hospitals frequently refer to each other, the Nursing Facility ICPG emphasizes that SNFs should carefully monitor their relationships with hospitals and specifically highlights reserve bed arrangements where a hospital makes payments to SNFs to receive guaranteed or priority placement for discharged patients. While these arrangements are fairly common and permissible, they must comply with requirements put forth by the Centers for Medicare & Medicaid Services.  Moreover, these arrangements can present risk under the AKS if the hospital’s payments result in double-dipping by the SNF, are for more beds than the hospital legitimately needs, or exceed the SNF’s actual costs of holding the bed or the actual revenues the SNF stands to forfeit by holding the bed given its occupancy rate and patient acuity mix. 

Tunneling.  Perhaps the most noteworthy development presented in the SNF ICPG is the OIG’s discussion on “tunneling” in the context of related-party transactions. Put simply, “tunneling” refers to nursing facilities increasing their costs in reporting to Medicaid based on above fair market value rates the SNF pays to a related party.

CMS requires SNFs to identify related parties and report all payments made to those related parties on their cost reports. The cost of services, facilities, and supplies furnished by related parties may be included in the cost; however, the cost must not exceed the price of comparable services, facilities, and/or supplies that could be purchased elsewhere. OIG described the risk of “tunneling” as misrepresenting or hiding profitability by overstating payments for operation expenses that are funneled to related parties. Tunneling in the nursing facility industry may present in:

  1. real estate transactions where the nursing facility sells its assets to a related party then leases them back at a rate higher than fair market value, or
  2. outsourcing transactions where the nursing facility pays higher than fair market rates to a related party for outsourced administrative or management services.

OIG emphasized that SNFs should routinely audit its related-party cost reporting to ensure compliance with federal regulations and ensure related-party transactions are at fair market value, equal to or greater in quality that competing services offered by non-related parties, and chosen based on resident wellbeing rather than profitability. 

 

We will continue to monitor OIG's Modernization Initiative developments, including updates to the Compliance Program Guidances. Of note, the OIG previously announced that its first two industry-segment Compliance Program Guidances will address SNFs and Medicare Advantage, and so we expect an industry-segment compliance program guidance for Medicare Advantage to be forthcoming.

 

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Authors

Rachel Yount is a Mintz attorney who focuses her practice on health care industry transactions. Her clients include hospitals, health systems and plans, physician organizations, and pharmacy benefit managers.
Jane Haviland's practice focuses primarily on health care enforcement defense. Jane defends laboratories, physicians, and other clients facing government investigations and whistleblower complaints regarding alleged violations of the federal False Claims Act, the federal anti-kickback statute, the Stark law, and similar state laws.