chapter 10 long term care facilities ... - college...

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CHAPTER 10

LONG TERM CARE FACILITIES

INDUSTRY OVERVIEW

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NURSING HOME

I. WHAT IS A LONG TERM CARE FACILITIES? A. THE CENTER FOR MEDICARE & MEDICAID SERVICES DEFINITION INCLUDES:

1. Nursing Homes 2. ICF-DD’s 3. Inpatient Psychiatric Facilities (NOTE: A.L.F.’s are not considered long term care facilities at CMS)

B. THE D.E.A. DEFINITION OF A LONG TERM CARE FACILITY: “The term Long Term Care Facility (LTCF) means a nursing home, retirement care,

mental care or other facility or institution which provides extended health care to resident patients.”

( NOTE: The DEA definition is much broader than CMS)

“Skilled nursing facility” is defined as an institution (or a distinct part of an institution) which is primarily engaged in providing skilled nursing care and related services for residents who require medical or nursing care, or rehabilitation services for the rehabilitation of injured, disabled, or sick persons, and is not primarily for the care and treatment of mental diseases; has in effect a transfer agreement (meeting the requirements of §1861(1)) with one or more hospitals having agreements in effect under §1866; and meets the requirements for a SNF described in subsections (b), (c), and (d) of this section. “Nursing facility” is defined as an institution (or a distinct part of an institution) which is primarily engaged in providing skilled nursing care and related services for residents who require medical or nursing care, rehabilitation services for the rehabilitation of injured, disabled, or sick persons, or on a regular basis, health-related care and services to individuals who because of their mental or physical condition require care and services (above the level of room and board) which can be made available to them only through institutional facilities, and is not primarily for the care and treatment of mental diseases; has in effect a transfer agreement (meeting the requirements of §1861(1)) with one or more hospitals having agreements in effect under §1866; and meets the requirements for a NF described in subsections (b), (c), and (d) of this section. If a provider does not meet one of these definitions, it cannot be certified for participation in the Medicare and/or Medicaid programs.

II. NUMBER OF BEDS NATIONALLY

1. 1.668,123 Million nursing home beds (82, 621 beds in Florida) 2. 3.0 Million ALF beds (78, 348 beds in Florida) 3. 130,000 ICF-DD beds (3, 433 beds in Florida) 4. ?? Psychiatric Inpatient beds

III. CHARACTERISTICS OF NURSING HOMES NATIONALLY

1. 15, 681 nursing homes in the U.S. 2. 15,500 are certified for Medicare or Medicaid admissions 3. 36,000 A.L.F.’s in the US 4. 2/3 (67.7%) of all Nursing Homes in the country are For Profit facilities

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IV. PAYOR MIX IN THE NURSING HOME

1. Medicaid 68% 2. Medicare A 12% (this payor class represents 1/3 of all new admissions) (Must have stayed in a hospital for 3 days and can receive up to 100 days of Medicare coverage)

3. Private 17-18% 4. Managed Care 2-3% 5. “Dual Eligibles” (covered by Medicare and Medicaid) (1) 18% of all Medicare patients (2) 25% of all “dual eligibles” are in nursing homes

(3) the great majority of Medicaid patients in LTC are dual eligible

V. FACILITY CHARGES BY PAYOR TYPE 1. Medicaid – determined by state reimbursement, facility responsible for

OTC drugs used by these residents. (These patients drug costs moved to Medicare Part D on 1/1/2006.

2. Medicare – determined by a Federal coding system (RUG’s score) Facility is responsible for drug costs

3. Private – facility determines rate – patient or responsible party pays for drugs 4. Managed Care – facility negotiates rates with managed care organization.

Drugs may be the responsibility of the facility or the managed care organization depending on the M.C.O.

VI. MEDICARE ADMISSION DATA

MEDICARE ADMISSION DATA

COMPARISON FROM 1997 TO 2013 Year 1997 2008 2011 2013 Average Stay (in days) 28 28 28 28

Average Per Diem RUG's Reimbursement $264.00 $346.00 $378.00 $400 Average Drug Per Diem $13.28 $33.41 $35.40 $32 Routine Meds Per Month 6.70 7.40 7.6 7.7

Drug Cost as a % of the Facility's RUG reimbursement 5.03% 9.65% 9.37% 6 to 9%

VII. STAFFING CONSIDERATIONS IN THE NURSING HOME 2002 2008

5. Annual RN’s and LPN’s turnover is 49% 35.5% 6. Annual CNA’s turnover is 71% 42 % 7. Staff turnover has a major impact on training requirements and patient care 8. Non-profit homes spent 11% more on staffing than the for profit homes in 1999 (21% more LPN hours and 18% more CNA hours per day) McKnight Online 8/11/05

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VIII. FINANCIAL CONSIDERATIONS * 9. Occupancy Rates = 86.8% 10. Medicare Rates average $400/day or $144,000/year (2012 data) 11. Nursing Home Average Net Profit in 2012 = 0.99% 12. Average drug cost per day = $29 to $36 (medicare) 13. Average Medicare profit per day = $50 14. Average annual cost for private care = $55,000/year 15. Average profit per Medicaid Day = ($22.34) (2012 national average)

Florida ($14.42) Wisconsin ($40.11) New Jersey ($41.83) * Data taken from a Report on Shortfall in New York ($46.39) Medicaid Spending for Nursing Center New Hampshire ($57.28) Care (American Healthcare Association)

16. Average patient drug bill = $420 to $500/month 17. Average cash on hand = 30 days 18. Average accounts receivable = 43.4 days (the reason they pay slow) 19. 10. Average net operating revenue growth = 1.4% per year

IX. FACILITY PATIENT COSTS

Nursing Home Semi-Private Room $83,000/year Nursing Home Private Room $94,000/year ALF $41,000/year Adult Day Care $30,000/year

X. FACILITY CHALLENGES 20. Staff training of new CNA’s averages $250,000/year 21. Reimbursement rates constantly changing trending downward 22. Increased State and Federal quality initiatives are draining resources 23. Increased Liability costs 24. Medicare Part D program

XI. N.C.P.A. Cost to Dispense Study

In February 2013, The NCPA published the results of a Cost to Dispense study which found the average LTC pharmacy cost to dispense was $13.52. This compares to a retail pharmacy dispense rate of $12.19

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LTC Pharmacy Business Metrics May 17,2013

Ross Brickley, RPh, MBA, CGP

[email protected] Disclaimer: The long term care business metrics below represent the personal opinion of Ross Brickley based on 27 years of LTC operational experience. In no way do they represent the opinion of ASCP or Ross Brickley’s employer

Area of Business Metric

Consultant Pharmacist

50 patient charts/day (1,100 total patient charts per 22 days of work/month. There are consultants who use technicians to do med-cart and med-room audits which can allow them to focus on clinical/regulatory issues

Dispensing Pharmacist (PV1) 375-400 new Rx's per day

Dispensing Pharmacist Prescription Check (PV2) 1,500-2,000 prescriptions per day

Order entry technician (heads down, minimal phone call answering 320 (new & refill) Rx's per day

Medical record technician (monthly edits/printing) 1,300-1,500 patients per month

Filling technician (standard blister card system) 200-250 prescriptions per day

Purchasing/Inventory Technician one per 1,300 Rx's per day

New Admission/Intake Technician 25 patients per day

Triage/Clarification Technician 1,400 Rx's per day

Billing clerk one per 1,500 - 2,000 patients

Billing adjudicator/third party prior authorizations one per 1,500 patients

Collection clerk per $3,000,000 in monthly revenue

FINANCIAL VALUES Metric

Gross margin (ALF pharmacy) 26% (including rebates)

Gross margin (SNF pharmacy) 32% (including rebates)

Net profit (ALF pharmacy) 5% net profit

Net profit (SNF pharmacy) 8% net profit

Total payroll cost (with benefits) per prescription $8.00 per prescription (less is better)

Total delivery cost per prescription $1.50 per prescription (less is better)

Revenue per patient per month $420-$500 per month

Sales per prescription per month $42-$45 per prescription

Inventory turn >22 turns per year

* Printed with permission of the author

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NURSING HOME

NURSING HOME RESIDENTS'

RIGHTS

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(STATUTES)

Disclaimer: This is part of the year 2002 version of Florida Statutes and it is offered for general information purposes. Any changes made for 2003 (the Florida Legislature is currently still in session) will be unavailable until approximately May to July of 2003. The statutes on this site should not be relied on without reviewing your legal situation with an experienced medical malpractice lawyer and making sure you are using the appropriate version of the statute for your case. The provisions applicable to your potential claim may or may not be the version that was in effect at the time of the incident because some changes to statutes are retroactive and some changes are not. Other statutes and other case law interpreting or applying these statutes may also apply to your case.

(The information on this site applies to Florida only)

400.022 Residents' rights.--

(1) All licensees of nursing home facilities shall adopt and make public a statement of the rights and responsibilities of the residents of such facilities and shall treat such residents in accordance with the provisions of that statement. The statement shall assure each resident the following:

(a) The right to civil and religious liberties, including knowledge of available choices and the right to independent personal decision, which will not be infringed upon, and the right to encouragement and assistance from the staff of the facility in the fullest possible exercise of these rights.

(b) The right to private and uncensored communication, including, but not limited to, receiving and sending unopened correspondence, access to a telephone, visiting with any person of the resident's choice during visiting hours, and overnight visitation outside the facility with family and friends in accordance with facility policies, physician orders, and Title XVIII (Medicare) and Title XIX (Medicaid) of the Social Security Act regulations, without the resident's losing his or her bed. Facility visiting hours shall be flexible, taking into consideration special circumstances such as, but not limited to, out-of-town visitors and working relatives or friends. Unless otherwise indicated in the resident care plan, the licensee shall, with the consent of the resident and in accordance with policies approved by the agency, permit recognized volunteer groups, representatives of community-based legal, social, mental health, and leisure programs, and members of the clergy access to the facility during visiting hours for the purpose of visiting with and providing services to any resident.

(c) Any entity or individual that provides health, social, legal, or other services to a resident has the right to have reasonable access to the resident. The resident has the right to deny or withdraw consent to access at any time by any entity or individual. Notwithstanding the visiting policy of the facility, the following individuals must be permitted immediate access to the resident:

1. Any representative of the federal or state government, including, but not limited to, representatives of the Department of Children and Family Services, the Department of Health, the Agency for Health Care Administration, the Office of the Attorney General, and the Department of

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Elderly Affairs; any law enforcement officer; members of the state or local ombudsman council; and the resident's individual physician.

2. Subject to the resident's right to deny or withdraw consent, immediate family or other relatives of the resident. The facility must allow representatives of the State Long-Term Care Ombudsman Council to examine a resident's clinical records with the permission of the resident or the resident's legal representative and consistent with state law.

(d) The right to present grievances on behalf of himself or herself or others to the staff or administrator of the facility, to governmental officials, or to any other person; to recommend changes in policies and services to facility personnel; and to join with other residents or individuals within or outside the facility to work for improvements in resident care, free from restraint, interference, coercion, discrimination, or reprisal. This right includes access to ombudsmen and advocates and the right to be a member of, to be active in, and to associate with advocacy or special interest groups. The right also includes the right to prompt efforts by the facility to resolve resident grievances, including grievances with respect to the behavior of other residents.

(e) The right to organize and participate in resident groups in the facility and the right to have the resident's family meet in the facility with the families of other residents.

(f) The right to participate in social, religious, and community activities that do not interfere with the rights of other residents.

(g) The right to examine, upon reasonable request, the results of the most recent inspection of the facility conducted by a federal or state agency and any plan of correction in effect with respect to the facility.

(h) The right to manage his or her own financial affairs or to delegate such responsibility to the licensee, but only to the extent of the funds held in trust by the licensee for the resident. A quarterly accounting of any transactions made on behalf of the resident shall be furnished to the resident or the person responsible for the resident. The facility may not require a resident to deposit personal funds with the facility. However, upon written authorization of a resident, the facility must hold, safeguard, manage, and account for the personal funds of the resident deposited with the facility as follows:

1. The facility must establish and maintain a system that ensures a full, complete, and separate accounting, according to generally accepted accounting principles, of each resident's personal funds entrusted to the facility on the resident's behalf.

2. The accounting system established and maintained by the facility must preclude any commingling of resident funds with facility funds or with the funds of any person other than another resident.

3. A quarterly accounting of any transaction made on behalf of the resident shall be furnished to the resident or the person responsible for the resident.

4. Upon the death of a resident with personal funds deposited with the facility, the facility must convey within 30 days the resident's funds, including interest, and a final accounting of those funds, to the individual or probate jurisdiction administering the resident's estate, or, if a personal representative has not been appointed within 30 days, to the resident's spouse or adult next of kin named in the beneficiary designation form provided for in s. 400.162(6).

5. The facility may not impose a charge against the personal funds of a resident for any item or service for which payment is made under Title XVIII or Title XIX of the Social Security Act.

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(i) The right to be fully informed, in writing and orally, prior to or at the time of admission and during his or her stay, of services available in the facility and of related charges for such services, including any charges for services not covered under Title XVIII or Title XIX of the Social Security Act or not covered by the basic per diem rates and of bed reservation and refund policies of the facility.

(j) The right to be adequately informed of his or her medical condition and proposed treatment, unless the resident is determined to be unable to provide informed consent under Florida law, or the right to be fully informed in advance of any nonemergency changes in care or treatment that may affect the resident's well-being; and, except with respect to a resident adjudged incompetent, the right to participate in the planning of all medical treatment, including the right to refuse medication and treatment, unless otherwise indicated by the resident's physician; and to know the consequences of such actions.

(k) The right to refuse medication or treatment and to be informed of the consequences of such decisions, unless determined unable to provide informed consent under state law. When the resident refuses medication or treatment, the nursing home facility must notify the resident or the resident's legal representative of the consequences of such decision and must document the resident's decision in his or her medical record. The nursing home facility must continue to provide other services the resident agrees to in accordance with the resident's care plan.

(l) The right to receive adequate and appropriate health care and protective and support services, including social services; mental health services, if available; planned recreational activities; and therapeutic and rehabilitative services consistent with the resident care plan, with established and recognized practice standards within the community, and with rules as adopted by the agency.

(m) The right to have privacy in treatment and in caring for personal needs; to close room doors and to have facility personnel knock before entering the room, except in the case of an emergency or unless medically contraindicated; and to security in storing and using personal possessions. Privacy of the resident's body shall be maintained during, but not limited to, toileting, bathing, and other activities of personal hygiene, except as needed for resident safety or assistance. Residents' personal and medical records shall be confidential and exempt from the provisions of s. 119.07(1).

(n) The right to be treated courteously, fairly, and with the fullest measure of dignity and to receive a written statement and an oral explanation of the services provided by the licensee, including those required to be offered on an as-needed basis.

(o) The right to be free from mental and physical abuse, corporal punishment, extended involuntary seclusion, and from physical and chemical restraints, except those restraints authorized in writing by a physician for a specified and limited period of time or as are necessitated by an emergency. In case of an emergency, restraint may be applied only by a qualified licensed nurse who shall set forth in writing the circumstances requiring the use of restraint, and, in the case of use of a chemical restraint, a physician shall be consulted immediately thereafter. Restraints may not be used in lieu of staff supervision or merely for staff convenience, for punishment, or for reasons other than resident protection or safety.

(p) The right to be transferred or discharged only for medical reasons or for the welfare of other residents, and the right to be given reasonable advance notice of no less than 30 days of any involuntary transfer or discharge, except in the case of an emergency as determined by a licensed professional on the staff of the nursing home, or in the case of conflicting rules and regulations which govern Title XVIII or Title XIX of the Social Security Act. For nonpayment of a bill for care received, the resident shall be given 30 days' advance notice. A licensee certified to provide services under Title XIX of the Social Security Act may not transfer or discharge a resident solely because the source of payment for care changes. Admission to a nursing home facility operated by a licensee certified to provide services under Title XIX of the Social Security Act may not be conditioned upon a waiver of such right, and any document or provision in a

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document which purports to waive or preclude such right is void and unenforceable. Any licensee certified to provide services under Title XIX of the Social Security Act that obtains or attempts to obtain such a waiver from a resident or potential resident shall be construed to have violated the resident's rights as established herein and is subject to disciplinary action as provided in subsection (3). The resident and the family or representative of the resident shall be consulted in choosing another facility.

(q) The right to freedom of choice in selecting a personal physician; to obtain pharmaceutical supplies and services from a pharmacy of the resident's choice, at the resident's own expense or through Title XIX of the Social Security Act; and to obtain information about, and to participate in, community-based activities programs, unless medically contraindicated as documented by a physician in the resident's medical record. If a resident chooses to use a community pharmacy and the facility in which the resident resides uses a unit-dose system, the pharmacy selected by the resident shall be one that provides a compatible unit-dose system, provides service delivery, and stocks the drugs normally used by long-term care residents. If a resident chooses to use a community pharmacy and the facility in which the resident resides does not use a unit-dose system, the pharmacy selected by the resident shall be one that provides service delivery and stocks the drugs normally used by long-term care residents.

(r) The right to retain and use personal clothing and possessions as space permits, unless to do so would infringe upon the rights of other residents or unless medically contraindicated as documented in the resident's medical record by a physician. If clothing is provided to the resident by the licensee, it shall be of reasonable fit.

(s) The right to have copies of the rules and regulations of the facility and an explanation of the responsibility of the resident to obey all reasonable rules and regulations of the facility and to respect the personal rights and private property of the other residents.

(t) The right to receive notice before the room of the resident in the facility is changed.

(u) The right to be informed of the bed reservation policy for a hospitalization. The nursing home shall inform a private-pay resident and his or her responsible party that his or her bed will be reserved for any single hospitalization for a period up to 30 days provided the nursing home receives reimbursement. Any resident who is a recipient of assistance under Title XIX of the Social Security Act, or the resident's designee or legal representative, shall be informed by the licensee that his or her bed will be reserved for any single hospitalization for the length of time for which Title XIX reimbursement is available, up to 15 days; but that the bed will not be reserved if it is medically determined by the agency that the resident will not need it or will not be able to return to the nursing home, or if the agency determines that the nursing home's occupancy rate ensures the availability of a bed for the resident. Notice shall be provided within 24 hours of the hospitalization.

(v) For residents of Medicaid or Medicare certified facilities, the right to challenge a decision by the facility to discharge or transfer the resident, as required under Title 42 C.F.R. part 483.13.

(2) The licensee for each nursing home shall orally inform the resident of the resident's rights and provide a copy of the statement required by subsection (1) to each resident or the resident's legal representative at or before the resident's admission to a facility. The licensee shall provide a copy of the resident's rights to each staff member of the facility. Each such licensee shall prepare a written plan and provide appropriate staff training to implement the provisions of this section. The written statement of rights must include a statement that a resident may file a complaint with the agency or local ombudsman council. The statement must be in boldfaced type and shall include the name, address, and telephone numbers of the local ombudsman council and central abuse hotline where complaints may be lodged.

(3) Any violation of the resident's rights set forth in this section shall constitute grounds for action by the agency under the provisions of s. 400.102. In order to determine whether the licensee is adequately protecting residents' rights, the annual inspection of the facility shall include private

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informal conversations with a sample of residents to discuss residents' experiences within the facility with respect to rights specified in this section and general compliance with standards, and consultation with the ombudsman council in the local planning and service area of the Department of Elderly Affairs in which the nursing home is located.

(4) Any person who submits or reports a complaint concerning a suspected violation of the resident's rights or concerning services or conditions in a facility or who testifies in any administrative or judicial proceeding arising from such complaint shall have immunity from any criminal or civil liability therefore, unless that person has acted in bad faith, with malicious purpose, or if the court finds that there was a complete absence of a justiciable issue of either law or fact raised by the losing party.

History.--s. 8, ch. 76-201; s. 1, ch. 77-174; ss. 1, 9, ch. 79-268; ss. 2, 18, ch. 80-186; s. 2, ch. 81-318; ss. 11, 19, ch. 82-148; ss. 5, 79, 83, ch. 83-181; s. 1, ch. 84-144; s. 15, ch. 90-347; s. 30, ch. 93-177; ss. 3, 49, ch. 93-217; s. 764, ch. 95-148; s. 226, ch. 96-406; s. 118, ch. 99-8; s. 5, ch. 99-394; ss. 70, 137, ch. 2000-349; s. 57, ch. 2000-367; s. 33, ch. 2001-62.

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FEDERAL REGULATORY GROUPS FOR NURSING HOMES

TAG NUMBER SUBJECT

RESIDENT RIGHTS F150 Definition of SNF & NF F151 Exercise Rights/ Free of Coercion F152 Rights Exercised by Surrogate F153 Access/Ability to Purchase Records F154 Informed of Health Status/ Med Condition F155 Right to Refurse Treatment/Research F156 Inform of Services/Charges/Legal Rights etc F157 Inform of Accidents/Sig Changes/ Transfers etc F158 Resident Manage Own Financial Affairs F159 Facility Management of Resident Funds F160 Conveyance Upon Death F161 Surety Bond or Other Assurance F162 Limitation on Charges to Personal Funds F163 Free Choice of Personal Physician F164 Privacy and Confidentiality of Records F165 Voice Grievances without Reprisal F166 Facility Resolves Resident Grievances F167 Survey Results Readily Accessible F168 Receipt of Info/ Contact Client Advocates F169 Right to Work/ Refuse to work for Facility F170 Send or Receive Unopened Mail F171 Access to Stationery, Etc F172 Access and Visitation F173 Ombundsman Access to Examine Records F174 Access to Telephone with Privacy F175 Right to Share a room F176 Self-Administration of Drugs F177 Refusal of Certain Transfers

ADMISSION, TRANSFER AND DISCHARGE RIGHTS F201 Reasons for Transfer/Discharge F202 Documentation for Transfer/Discharge F203 Proper Notice Before Transfer or Discharge F204 Orientation for Transfer/Discharge F205 Notice of Bed-hold Policy Upon Transfer F206 Return of Resident After Bed-hold Days Expire F207 Facility Establishes Equal Access Policies F208 Admission Policies F221 Right to be Free from Physical Restraints F222 Right to be Free from Chemical Restraints F223 Right to be Free from Abuse F224 Facility Policies Prohibit Abuse, Neglect F225 Not Employ Persons Guilty of Abuse F226 Staff Treatment of Residents

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QUALITY OF LIFE F240 Facility Promotes/Enhances Quality of Life F241 Dignity F242 Self determination - Resident Makes Choices F243 Resident Participation in Risident/Family Groups F244 Facility Listens/Responds to Resident/Family Groups F245 Resident Participation in Activities F246 Accomodation of Needs & Preferences F247 Notice Before Room/Roommate Change F248 Activity Program Meets Individual Needs F249 Qualifications of Activity Director F250 Medically Related Social Services F251 Qualifications of Social Worker F252 Safe/Clean/Comfortable/Homelike Env F253 Housekeeping & Maintenance Services F254 Clean Linens in Good Condition F255 Private Closet Space in Each Room F256 Adequate & Comfortable Lighting Levels F257 Comfortable & Safe Temperature Levels F258 Comfortable Sound Levels

QUALITY OF CARE F309 Necessary Care for Highest Practical Well Being F310 ADLs Do Not Decline Unless Unavoidable F311 Resident Treatment to Improve or Maintain ADL's F312 ADL Care of Dependent Residents F313 Resident Treatment to Maintain Hearing & Vision F314 Treatment to Prevent/Heal Pressure Sores F315 Resident Not Catheterized Unless Avoidable F317 No Reduction in ROM Unless Unavoidable F318 Range of Motion Treatment & Services F319 Treatment for Mental/Psychological F320 No Development of Mental Problems F321 No Nasogastric Tube Unless Unavoidable F322 Proper Care & Services - Nasogastric Tube F323 Facility Free of Accident Hazards F324 Supervision/Devices to Prevent Accidents F325 Maintain Nutritional Status F326 Receives Therapeutic Diet When Required F327 Facility Provides Sufficient Fluid Intake F328 Treatment/Care for Special Care Needs F329 Free from Unnecessary Drugs F332 Medication Error Rates of 5% or More F333 Resident Free From Sig Medication Errors F334 Influenza and Pneumoccocal Immunizations

RESIDENT ASSESSMENT F271 Physician Orders at Addmission F272 Comprehensive Assessments F273 Assessment Frequency - no later than 14 days F274 Assessment After Sig Change

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F275 Assessment Every 12 Months F276 Quarterly Review of Assessments F278 Accuracy of Assess/Coordination with Professionals F279 Develop Comprehensive Care Plans F280 Develop/Prep/Review of Comp Care Plan F281 Services Provided Meet Professional Standards F282 Qualified Services in Accordance w Care Plan F283 Discharge Summary F284 Request for Post-discharge Plan of Care F285 PASRR Requirements for MI & MR F286 15 Months Assessments on Medical Record F287 Encoding Data

NURSING SERVICES F353 Sufficient Nursing Staff on 24 hour Basis F354 Use of Charge Nurse & Registeres Nurse F355 Nursing Waivers F356 Nurse Staffing

DIETARY SERVICES F360 Facility provides Resident with Appropriate Diet F361 Employment of Qualified Dietician F362 Sufficient Support Personnel F363 Menus Meet Needs & Followed F364 Food Properly Prepared, Palatable Etc F365 Food Prepared to Meet Individual Needs F366 Substitutes of Similar Nutritive Value F367 Therapeutic Diets Prescribed by Physician F368 Frequency if Intervals Between Meals F369 Special Eating Equipment/Utensils F370 Food Procured From Approved Sources F371 Sanitary Food Preparation/Distribution/Storage F372 Dispose Garbage & Refuse Properly

PHYSICIAN SERVICES F385 Resident's Care Supervised by Physician F386 Physician Responsibilities During Visits F387 Frequency/Timliness of Physician Visits F388 Visits by Physician/Physician Assistant Etc F389 Emergency Physician Services 24 Hr/Day F390 Physician Delegation of Tasks in SNF/NF

SPECIALIZED REHAB SERVICES F406 Facility Provides Specialized Rehab Services F407 Qualifications For Providing Rehab Services

DENTAL SERVICES F411 Dental Services in SNF's F412 Dental Services in NFS

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PHARMACY SERVICES F425 Facility Provides Drugs & Biologicals F428 Drug Regimen Reviewed Monthly F431 Proper Labeling of Drugs & Biologicals

INFECTION CONTROL F441 Facility Establishes Infection Control Program F442 Facility Isolates Resident When Appropriate F443 Employee with Communicable Diseas - No resident Contact F444 Wash Hands When Indicated F445 Handle Linens to Prevent Infection Spread

PHYSICAL ENVIRONMENT F454 Facility Designed To Protect Health & Safety F455 Facility Has Emergency Electrical Power F456 Essential Equipment in Safe Operation & Condition F457 Rooms No More than Four Residents F458 Rooms at Least 80 S.F. per Resident F459 Rooms have Direct Access to Exit Cooridor F460 Rooms Designed to Assure Visual Privacy F461 Rooms Have at Least One Window to Outside F462 Rooms Equiped w Near Toilet & Bath Facilities F463 Resident Call System F464 Requirements for Dining & Activities F465 Environment is Safe/Functional/Sanitary Comfort F466 Procedures to Ensure Water Availability F467 Facility Has Adequate Outside Ventilation F468 Corridors Have Firmly Secured Handrails F469 Mainatins Effective Pest Control Program

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ADMINISTRATION F490 Facility Administered Effectively F491 Licensure Under State/Local Laws F492 Fed/State/Local Laws/Professional Standards F493 Gov. Body Appoints Admin/Mgs Facility F494 Nurse Aide Training/Competency F495 Comp Nurse Aides Worked <4 Months F496 Nurse Aide Registry Verification F497 Regular Perf Rev/Inservice Education F498 Proficiency of Nurse Aides F499 Facility Employees Qualified Professional Staff F500 Use of Outside Professional Resources F501 Responsibilities of Medical Director F502 Facility Obtains & Provides Lab Services F503 Laboratory Services Provided by Facility F504 Laboratory Services Only When Needed F505 Physician Promptly Notified of Lab Results F506 Facility Assists Resident in Transport To Lab F507 Lab Reports Filed in Clinical Record F508 Facility Provides/Obtains Radiology Services F509 Radiology Services Meet Requirements F510 Radiology/Diag Svcs When Ordered F511 Promptly Notify Physician of Radiology/Other Findings F512 Assist Resident in Transport for Radiology F513 Reports of Xrays/Diag Services Filed in Record F514 Clinical Records Meet Professional Standards F515 Req for Maintaining Clinical Records F516 Facility Safeguards Clinical Records F517 Plans to Meet Emergencies/Disasters F518 Train Employees, Emergency Proc/Drills F519 Transfer Agreement with Hospital F520 Facility Maintains QA Committee F522 Disclosure of Ownership Requirements

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[We redact certain identifying information and certain potentially privileged, confidential, or proprietary information associated with the individual or entity, unless otherwise approved by the requestor.] Issued: November 30, 2012

Posted: December 7, 2012

[Name and address redacted] Re: OIG Advisory Opinion No. 12-19

Ladies and Gentlemen:

We are writing in response to your request for an advisory opinion regarding four proposed arrangements involving a pharmacy company’s provision of items and services to community homes in which its customers reside. The first and second proposed arrangements (“Proposed Arrangement A” and “Proposed Arrangement B,” respectively) would primarily involve the pharmacy company providing

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pre-populated medication administration records (“MARs”), physician order forms, and treatment sheets to community homes for free either in paper format or via a web-based software program. Under the third and fourth proposed arrangements (“Proposed Arrangement C” and “Proposed Arrangement D,” respectively) the pharmacy company would provide a sublicense for a different web-based software program to community homes that would allow the community homes to perform certain administrative functions and to maintain electronic medication administration records (“eMARs”). We refer to Proposed Arrangement A, Proposed Arrangement B, Proposed Arrangement C, and Proposed Arrangement D collectively as the “Proposed Arrangements.” Specifically, you have inquired whether the Proposed Arrangements would constitute grounds for the imposition of sanctions under the exclusion authority at section 1128(b)(7) of the Social Security Act (the “Act”), or the civil monetary penalty provision at section 1128A(a)(7) of the Act, as those sections relate to the commission of acts described in section 1128B(b) of the Act, the Federal anti-kickback statute.

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Page 2—OIG Advisory Opinion No. 12-19

You have certified that all of the information provided in your request, including all supplemental submissions, is true and correct and constitutes a complete description of the relevant facts and agreements among the parties.

In issuing this opinion, we have relied solely on the facts and information presented to us. We have not undertaken an independent investigation of such information. This opinion is limited to the facts presented. If material facts have not been disclosed or have been misrepresented, this opinion is without force and effect.

Based on the facts certified in your request for an advisory opinion and supplemental submissions, we conclude that, although Proposed Arrangement A, Proposed Arrangement B, and Proposed Arrangement C could potentially generate prohibited remuneration under the anti-kickback statute if the requisite intent to induce or reward referrals of Federal health care program business were present, the Office of Inspector General (“OIG”) would not impose administrative sanctions on [name redacted] under sections 1128(b)(7) or 1128A(a)(7) of the Act (as those sections relate to the commission of acts described in section 1128B(b) of the Act) in connection with Proposed Arrangement A, Proposed Arrangement B, or Proposed Arrangement C. However, we conclude that Proposed Arrangement D could potentially generate prohibited remuneration under the anti-kickback statute and that the OIG could potentially impose administrative sanctions on [name redacted] under sections 1128(b)(7) or 1128A(a)(7) of the Act (as those sections relate to the commission of acts described in section 1128B(b) of the Act) in connection with Proposed Arrangement D. Any definitive conclusion regarding the existence of an anti-kickback violation requires a determination of the parties’ intent, which determination is beyond the scope of the advisory opinion process.

This opinion is limited to the Proposed Arrangements and, therefore, we express no opinion about any ancillary agreements or arrangements disclosed or referenced in your request for an advisory opinion or supplemental submissions. This opinion may not be relied on by any persons other than [name redacted], the requestor of this opinion, and is further qualified as set out in Part IV below and in 42 C.F.R. Part 1008. I. FACTUAL BACKGROUND

A. Background

[Name redacted] (the “Requestor”) provides pharmacy services to more than 3400 individuals with intellectual and developmental disabilities who reside in community homes (“Community Homes”) located in [state name redacted] and [state name redacted] (the “States”). The Requestor enters into agreements with certain Community Homes to

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supply prescription medications to their residents. The Requestor certified that nothing in the Proposed Arrangements would require those agreements to be exclusive. The Requestor provides its services through its pharmacies. According to the Requestor, the Community Homes have the ability to select, or influence the selection of, the pharmacy serving their residents, some of whom are Federal health care program beneficiaries. The Requestor also certified that, although the residents (or the residents’ families) may choose an alternate pharmacy, and the Community Homes are obligated to respect their residents’ (and their families’) choice, that choice is not frequently exercised. The Requestor certified that the Community Homes can neither prescribe, nor influence or control the prescription of, medications and that the Community Homes neither control nor influence the decisions of prescribing physicians.1 The Requestor further certified that the Community Homes do not set formularies or otherwise limit or influence prescribing physicians’ selection of prescription medications.

Both States in which the Community Homes served by the Requestor operate require that the Community Homes maintain a MAR documenting certain information about the medications provided to their residents. According to the Requestor, the Community Homes are required to maintain the MARs as a condition of licensure in both States, and licensure is a condition of participation in Medicaid.

B. Proposed Arrangements

The Requestor proposes to enter into the Proposed Arrangements with various Community Homes located in the States. One of the Proposed Arrangements would be available to all Community Homes in the two States in which the Requestor does business, while the others would be available only to those Community Homes that have residents who obtain prescription medications from the Requestor. The Requestor certified that, except for the limitation referenced in the preceding sentence, each Proposed Arrangement would be available regardless of the volume or value of prescription medications a particular Community Home’s residents obtain from the Requestor. The Requestor further certified that no other remuneration would be offered or provided to any of the Community Homes in connection with the Proposed Arrangements. 1 According to the Requestor, residents and their families have the right to choose their own physicians. While some Community Homes employ or otherwise obtain the services of medical directors, we have not been asked to opine on, and we offer no opinion concerning, those relationships.

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1. Proposed Arrangement A

The Requestor would make Proposed Arrangement A available to Community Homes that have residents who obtain prescription medications from the Requestor. Under Proposed Arrangement A, the Requestor would provide these Community Homes with free computer-generated paper copies of pre-populated MARs2 for each resident who receives his or her prescription medications from the Requestor. The Community Homes would still be required to document the actual administration of each dose of medication, including the date, time, and the person administering the medication.

The Requestor would also provide free paper copies of a physician order form (the “Physician Order Form”) and a treatment sheet (“Treatment Sheet”). According to the Requestor, the Physician Order Form contains all of the information that the Requestor collects about an individual as part of its process for filling prescriptions, including allergies, medications, and diagnoses. The Community Homes may then present the Physician Order Forms to the prescribing physicians who review and sign the Physician Order Forms to reauthorize prescriptions. That reauthorization, in turn, permits the Requestor to dispense the medications. The Requestor certified that the Community Homes are required by state law to retain a copy of the signed Physician Order Forms for their records in order for their staffs to administer medications. According to the Requestor, the Treatment Sheets are a form of MAR that include medication administration information related to topical prescription medications. The States require that Community Homes maintain this medication administration information.3 As with the MARs, the Community Homes would still need to document the actual administration of each dose of topical prescription medication on the Treatment Sheets. The Requestor 2 The pre-populated information would include the resident’s name, address, and date of birth, the prescribing physician’s name, the name of the medication, the date the medication was started, the diagnosis/condition for which the medication was prescribed, the medication strength, dosage form, dose, route of administration, frequency of administration, prescribed administration times, duration of the prescription, and any special precautions. The Requestor obtains this information from prescribing physicians and other sources as part of its process for filling prescriptions.

3 While some Community Homes do not use Treatment Sheets, and instead maintain all required medication administration information in one MAR document, other Community Homes choose to separately maintain administration information regarding topical medications on a separate document, a Treatment Sheet, because topical prescription medications may be stored and handled differently than oral medications and may be administered by different staff members.

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would deliver the paper copies of the pre-populated MARs, Physician Order Forms, and Treatment Sheets once a month.

The Requestor acknowledges that, absent the Proposed Arrangements, the Community Homes would be required to prepare MARs, Physician Order Forms, and Treatment Sheets in order to meet their obligations under state law. According to the Requestor, the cost of providing the pre-populated materials would be nominal because the Requestor must gather the information contained in the materials to fill a prescription. Further, the Requestor states that providing the pre-populated materials could reduce medication errors resulting from the Community Homes’ staff manually transcribing prescription information from pill bottles or other prescription medication packaging on to blank forms.

2. Proposed Arrangement B

The Requestor would make Proposed Arrangement B available to Community Homes that have residents who obtain prescription medications from the Requestor. Under Proposed Arrangement B, the Requestor would offer these Community Homes free, limited access to [name redacted] (“Software Y”) in connection with each resident who receives his or her prescription medications from the Requestor. Software Y is a secure, web-based software program that allows users to re-order medications, print medical records, and communicate directly with the Requestor’s pharmacists. The Community Homes’ access to Software Y would be limited to the following functions: printing pre- populated MARs, Physician Order Forms, and Treatment Sheets; composing messages to, and reading messages from, the Requestor; reviewing the resident profile that is maintained by the Requestor; reordering and refilling prescriptions; checking on the status of the ordered prescriptions; and changing the user’s password. If the end-user is a nurse, then the following additional functions would also be available: changing resident demographics, adding and removing resident drug allergy information, and adding and removing resident medical condition information. The Requestor certified that it requires this updated information to ensure that it is safely dispensing the prescription medications. The Community Homes would have access to these limited Software Y functions 24 hours a day, 7 days a week. Thus, if information on one of the pre- populated materials changed in the middle of a month, the Community Homes’ staff would be able to access and print the updated materials. In the absence of this ability to access and print updated materials, the Community Homes’ staff would have to manually update the existing materials to reflect any changes.

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The licensor of Software Y charges a one-time fee based on the number of pharmacies using the software. For the Requestor, that one-time fee totaled [amount redacted] for all of its pharmacies. The Requestor would incur no additional costs to add users or to give the Community Homes access. Software Y is only available for purchase by pharmacies. The Requestor certified that Software Y is not “interoperable” within the meaning of 42 C.F.R. § 1001.952(y).

3. Proposed Arrangement C

The Requestor has entered into a licensing agreement with [name redacted] (the “Developer”) that grants the Requestor the exclusive right to sell sublicenses for [name redacted] (“Software Z”) to Community Homes in certain territories, including the States.4 Software Z is a web-based software program that offers a number of functions, including bundled products that facilitate scheduling and administration of medications, and provides an eMAR that complies with state regulatory requirements. Specifically, Software Z integrates pharmacies’ information and order fulfillment processes with software end-users’ medication administration work responsibilities (e.g., documenting medication administration, tracking vital signs, and storing medical observations). Software Z also offers a real-time prompting system that automatically transfers prescription information from a pharmacy to an end-user and prompts end-user staff to administer scheduled medications. That same function could be used by the end-user to schedule, and prompt staff to engage in, other tasks and events like providing patients and residents with other treatments or exercise, taking vital signs, and other calendar-based events. End-user nurses and management could be alerted when medication administration or other tasks and events are omitted or performed early or late. The Requestor certified that Software Z is not “interoperable” within the meaning of 42

C.F.R. § 1001.952(y). According to the Requestor, the data that an end-user would create and maintain in Software Z would not be readily transferable to another system, and losing access to Software Z would result in losing electronic access to the MAR documentation and other data stored in Software Z.

The Requestor would make Proposed Arrangement C available to any Community Home, regardless of whether its residents obtain prescription medications from the Requestor or another pharmacy. Under Proposed Arrangement C, these Community Homes would be able to purchase a sublicense for Software Z from the Requestor. The Requestor would

4The Requestor is the exclusive sublicensor of Software Z to Community Homes in both States. We have not been asked to opine on, and we express no opinion regarding, the arrangement between the Requestor and the Developer.

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offer sublicenses to all Community Home at the same price and under the same purchase terms. The Requestor would charge a one-time [amount redacted] setup fee5 in addition to a monthly per-resident fee. The Requestor certified that the fees it would charge Community Homes for Software Z access would be fair market value and would not vary based on whether the Community Homes’ residents receive prescription medications from the Requestor or another pharmacy, or the volume or value of resident prescriptions, if any. The monthly per-resident fee charged by the Requestor would be lower than the monthly per-resident fee the Developer normally charges Community Homes for Software Z, but would not be below the cost to the Requestor.

4. Proposed Arrangement D

The Requestor would make Proposed Arrangement D available to Community Homes that have residents who obtain prescription medications from the Requestor. Under Proposed Arrangement D, the Requestor would offer these Community Homes a free sublicense for Software Z for their own use in connection with each such resident. The Requestor certified that its cost to provide the free sublicenses would be significant and exceed its nominal cost of providing the pre-populated materials described in connection with Proposed Arrangement A.

II. LEGAL ANALYSIS

A. Law

The anti-kickback statute 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. See section 1128B(b) of the Act. Where remuneration is paid purposefully to induce or reward referrals of items or services payable by a Federal health care program, the anti-kickback statute is violated. By its terms, the statute ascribes criminal liability to parties on both sides of an impermissible “kickback” transaction. For purposes of the anti-kickback statute, “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind. The statute has been interpreted to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals. See, e.g., United States v. Borrasi, 639 F.3d 774 (7th Cir. 2011); United States

5 The setup fee would be charged per agency that operates the Community Homes, rather than per Community Home. According to the Requestor, a single agency may operate multiple Community Homes.

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v. McClatchey, 217 F.3d 823 (10th Cir. 2000); United States v. Davis, 132 F.3d 1092 (5th Cir. 1998); United States v. Kats, 871 F.2d 105 (9th Cir. 1989); United States v. Greber, 760 F.2d 68 (3d Cir. 1985), cert. denied, 474 U.S. 988 (1985). Violation of the statute constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to five years, or both. Conviction will also lead to automatic exclusion from Federal health care programs, including Medicare and Medicaid. Where a party commits an act described in section 1128B(b) of the Act, the OIG may initiate administrative proceedings to impose civil monetary penalties on such party under section 1128A(a)(7) of the Act. The OIG may also initiate administrative proceedings to exclude such party from the Federal health care programs under section 1128(b)(7) of the Act. The Department of Health and Human Services has promulgated safe harbor regulations that define practices that are not subject to the anti-kickback statute because such practices would be unlikely to result in fraud or abuse. See 42 C.F.R. § 1001.952. The safe harbors set forth specific conditions that, if met, assure entities involved of not being prosecuted or sanctioned for the arrangement qualifying for the safe harbor. However, safe harbor protection is afforded only to those arrangements that precisely meet all of the conditions set forth in the safe harbor. The safe harbor related to electronic health records, 42 C.F.R. § 1001.952(y), is potentially applicable to Proposed Arrangement B, Proposed Arrangement C, and Proposed Arrangement D.

B. Analysis

The Proposed Arrangements implicate the anti-kickback statute because, under each of the Proposed Arrangements and as explained more fully below, the Requestor potentially would provide remuneration to Community Homes that have the ability to select, or influence the selection of, the pharmacy serving their residents, some of whom are Federal health care program beneficiaries.

Although the electronic health records safe harbor potentially applies to Proposed Arrangement B, Proposed Arrangement C, and Proposed Arrangement D, each fails to meet the conditions of the safe harbor because, among other reasons, neither Software Y nor Software Z is interoperable within the meaning of the safe harbor regulation. However, the absence of safe harbor protection is not fatal. Instead, these Proposed Arrangements must be subject to case-by-case evaluation.

As a preliminary matter, we note that our position on the provision of free or below- market items or services to actual or potential referral sources is longstanding and clear: such arrangements are suspect and may violate the anti-kickback statute, depending on the circumstances. It is in this context that we consider each of the Proposed Arrangements in turn.

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1. Proposed Arrangement A

Under Proposed Arrangement A, the Requestor would provide Community Homes that have residents who obtain prescription medications from the Requestor with free paper copies of pre-populated MARs, Physician Order Forms, and Treatment Sheets once a month for each resident receiving his or her prescription medications from the Requestor. In doing so, the Requestor would relieve the Community Homes of the need to prepare the materials in order to meet their obligations under state law. Accordingly, under Proposed Arrangement A, the Community Homes could avoid incurring certain administrative costs associated with their staff having to collect and transfer information from prescription medication packaging (e.g., pill bottles) and other sources to create and pre-populate the materials. Such a benefit would have clear independent value to the Community Homes, so we must consider the extent to which Proposed Arrangement A presents a risk of any of the harms typically associated with kickbacks—namely, distorted medical decision making, overutilization, increased Federal health care program costs, and unfair competition.

Community Homes can neither prescribe, nor influence or control the prescription of, any medication. They do not control or influence the decisions of prescribing physicians, and do not set formularies or otherwise limit or influence prescribing physicians’ selection of prescription medications. This means that, under these particular facts, the Community Homes are unlikely to be able to increase the number or type of their residents’ prescriptions. Accordingly, the risk of distorted medical decision making, overutilization, and increased Federal health care program costs is reduced under Proposed Arrangement A and, in fact, under all the Proposed Arrangements.

The fact that the Community Homes are able to select, or influence the selection of, the pharmacy serving their residents does, however, present a risk of unfair competition. This risk of unfair competition is mitigated under Proposed Arrangement A. For example, the Requestor certified that its cost of providing the pre-populated materials would be nominal and that it already gathers the information that would be contained in the materials to fill a prescription. Further, the Requestor’s competitors likely would be able to offer a similar benefit at a nominal cost. While the cost of providing in-kind remuneration and the ability of competitors to provide similar remuneration are not normally factors in determining whether an anti-kickback violation exists, we find them relevant to our consideration of whether Proposed Arrangement A presents more than a minimal risk of unfair competition, and we conclude that it does not.

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Our conclusion regarding the fraud and abuse risks posed by Proposed Arrangement A derives from the particular facts presented; we would likely reach a different conclusion were we to consider, for example, a similar arrangement wherein any of the underlying risks was more than minimal. Our analysis of Proposed Arrangement D, below, is instructive on this point in that the particular facts of Proposed Arrangement D would not sufficiently mitigate the risk of unfair competition, and we reach a different conclusion.

We also note that Proposed Arrangement A would likely enhance patient safety and quality of care. By providing the pre-populated materials directly from the Requestor’s pharmacies’ computer system, Proposed Arrangement A allows the Community Homes’ staff to skip the step of transferring prescription information from the medication packaging to the form, thereby removing one of the opportunities for transcription errors in the medication administration process. Thus, Proposed Arrangement A gives rise to an additional benefit to patient safety and quality that would not be available but for the existence of this Proposed Arrangement. It is distinguishable, however, from situations where parties merely shift costs associated with meeting an obligation, without creating or providing an additional benefit to patients. In those situations—such as when a pharmacy provides free or below-market consulting pharmacist services to a nursing facility that is required to obtain or provide such services for its residents—the patient benefit results from meeting the underlying obligation and would inure to the patient even in the absence of the cost-shifting arrangement.

In the particular circumstances presented here, Proposed Arrangement A would present a minimal risk of the harms typically associated with kickbacks, while potentially providing a significant patient benefit. Accordingly, we conclude that Proposed Arrangement A would be unlikely to result in fraud or abuse under the anti-kickback statute, and we would not seek to impose administrative sanctions.

2. Proposed Arrangement B

Under Proposed Arrangement B, the Requestor would provide the Community Homes that have residents who obtain prescription medications from the Requestor with free, limited access to Software Y for each resident receiving his or her prescription medications from the Requestor. The Software Y functions available to the Community Homes under Proposed Arrangement B would fall into two primary categories: (1) functions related to printing pre-populated MARs, Physician Order Forms, and Treatment Sheets; and (2) communication and other functions related to the services the Requestor provides. With respect to the first category, our analysis is the same as described in connection with Proposed Arrangement A; the only meaningful distinctions between

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Proposed Arrangement A and the first category of functions under Proposed Arrangement B are the frequency with which the Community Homes may obtain updated materials (monthly versus on-demand) and the method of receiving those materials (delivery of a hard copy versus via Software Y). Under Proposed Arrangement A, if the information included on the pre-populated materials changed after the Requestor had sent them to a Community Home for a particular month—for example a change in drug administration frequency—then the Community Home staff would have to manually modify the applicable materials to reflect that change. Under Proposed Arrangement B, the Community Home would be able to access and print the updated materials reflecting that change, thus relieving the Community Homes of the administrative costs associated with manually making the change. While relieving the Community Homes of this administrative burden would increase the benefit offered by the Requestor to the Community Homes, we do not believe that this additional benefit would appreciably increase the risk posed by the first category of functions under Proposed Arrangement B over Proposed Arrangement A. Further, with respect to the pre-populated materials, Software Y serves as nothing more than a mechanism for delivery.6 In this particular situation, we do not believe that delivering the pre-populated materials via an electronic medium, rather than as a hardcopy, raises any additional risks of fraud or abuse.

Next, we turn to the second category of functions. While it remains the OIG’s position, as mentioned above, that free or below-market items and services are suspect, the OIG has distinguished between situations in which a provider offers free items and services that are integrally related to that provider’s services, and those that are not. 56 Fed. Reg. 35,952, 35,978 (July 29, 1991) (preamble to the 1991 safe harbor regulations). When the item or service offered can be used only as part of the underlying service being provided, it appears that the free items or services have no independent value apart from the underlying service. Id. Upon review of the additional functions within the second category, we conclude that they would be integrally related to the Requestor’s services, such that they would have no independent value to the Community Homes apart from the services the Requestor provides.

For all of the above-stated reasons, we conclude that, in the particular circumstances presented here, Proposed Arrangement B would be unlikely to result in fraud or abuse 6 The functions related to accessing and printing the pre-populated materials do not involve the creation or storage of data in Software Y by the Community Homes and, therefore, the lack of interoperability of these functions does not raise the same risk of data lock-in that often arises in situations involving the offer of non-interoperable technology.

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under the anti-kickback statute, and we would not seek to impose administrative sanctions.

3. Proposed Arrangement C

Under Proposed Arrangement C, the Requestor would offer to sell sublicenses for Software Z to Community Homes at a price below the price that the Developer normally would charge the Community Homes. The Requestor would offer the same price and purchase terms across-the-board to all Community Homes, regardless of whether their residents received prescription medications from the Requestor or another pharmacy. The Requestor’s pricing structure appears to involve a general across-the-board price reduction, as opposed to a discount offered only to customer Community Homes. Further, Proposed Arrangement C would have safeguards built into it, including the fact that the Requestor’s sales price would reflect fair market value and that the reduced fee would not be below the Requestor’s cost. Accordingly, we conclude that, in the particular circumstances presented here, Proposed Arrangement C would be unlikely to result in fraud or abuse under the anti-kickback statute, and we would not seek to impose administrative sanctions.

4. Proposed Arrangement D

Under Proposed Arrangement D, the Requestor would provide Community Homes that have residents who obtain prescription medications from the Requestor with a free sublicense for Software Z for use in connection with such residents. As a threshold matter, we believe that free sublicenses for Software Z would have clear independent value to the Community Homes, as they would acquire the right to use Software Z for their own use without incurring the corresponding costs of obtaining that right. While the inability of the Community Homes to influence the number and type of residents’ prescriptions results in a low risk of distorted medical decision making, overutilization, and increased Federal health care program costs, Proposed Arrangement D presents an increased risk of unfair competition for a number of reasons.

First, the Requestor certified that its cost to provide the free sublicenses would be significant, and would exceed the nominal cost of the pre-populated materials it would provide under Proposed Arrangement A. Further, we believe that the cost to competitor pharmacies to provide access to software with similar functionalities would be significant, without any apparent nominal cost alternatives to providing a similar benefit. Accordingly, providing a Software Z sublicense for free potentially would give the Requestor a significant advantage over its competitors, who may not be in a position to offer a similar benefit but whose direct services to patients may be better.

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Second, Software Z is not interoperable. Data that a Community Home would create and store in Software Z, including MAR documentation, would not be readily transferable to other systems, resulting in Community Home data lock-in and, thereby, referral lock-in.7

Losing access to Software Z would result in the Community Homes losing electronic access to their data stored in Software Z, including the MAR documentation that they are required to maintain. Thus, if a Community Home resident began receiving medications from the Requestor and later decided to receive medications from another pharmacy, then the Community Home could face having to either transition that resident’s data to another system or assume the full payment for a Software Z sublicense. This situation could give rise to a significant incentive for the Community Homes to steer patients to the Requestor rather than one of its competitor.

Given these risks, and the Requestor’s acknowledgement that the Community Homes are in a position to select, or influence the selection of, the pharmacy serving their residents, in the particular circumstances presented here, Proposed Arrangement D would present a significant risk of unfair competition, which could lead to the selection of a pharmacy that offers the best benefit to the Community Home, rather than the best direct services to patients. Notwithstanding some similarities between Proposed Arrangement A and Proposed Arrangement D, including the patient safety benefit derived from removing one of the possible opportunities for transcription errors, the significant risk of unfair competition under Proposed Arrangement D distinguishes the two proposals in a meaningful way and leads us to reach different conclusions. Therefore, we conclude that Proposed Arrangement D could result in fraud and abuse under the anti-kickback statute and we could potentially seek to impose administrative sanctions.

III. CONCLUSION

Based on the facts certified in your request for an advisory opinion and supplemental submissions, we conclude that, although Proposed Arrangement A, Proposed Arrangement B, and Proposed Arrangement C could potentially generate prohibited remuneration under the anti-kickback statute if the requisite intent to induce or reward referrals of Federal health care program business were present, the OIG would not impose administrative sanctions on [name redacted] under sections 1128(b)(7) or 1128A(a)(7) of the Act (as those sections relate to the commission of acts described in section 1128B(b) of the Act) in connection with Proposed Arrangement A, Proposed Arrangement B, or Proposed Arrangement C.

7 We note that Proposed Arrangement B may involve a Community Home entering data into Software Y when the end user is a nurse. However, that data, which is necessary for the Requestor to safely dispense the prescription medications, is distinguishable from the data that the Community Homes would enter and maintain in Software Z for their own use. The former situation would not raise the same risks related to locking in the Community Homes’ data that are presented in the latter situation.

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However, we conclude that Proposed Arrangement D could potentially generate prohibited remuneration under the anti-kickback statute and that the OIG could potentially impose administrative sanctions on [name redacted] under sections 1128(b)(7) or 1128A(a)(7) of the Act (as those sections relate to the commission of acts described in section 1128B(b) of the Act) in connection with Proposed Arrangement D. Any definitive conclusion regarding the existence of an anti-kickback violation requires a determination of the parties’ intent, which determination is beyond the scope of the advisory opinion process.

This opinion is limited to the Proposed Arrangements and, therefore, we express no opinion about any ancillary agreements or arrangements disclosed or referenced in your request for an advisory opinion or supplemental submissions. IV. LIMITATIONS The limitations applicable to this opinion include the following:

� This advisory opinion is issued only to [name redacted], the requestor of this opinion. This advisory opinion has no application to, and cannot be relied upon by, any other individual or entity. � This advisory opinion may not be introduced into evidence by a person or entity other than [name redacted] to prove that the person or entity did not violate the provisions of sections 1128, 1128A, or 1128B of the Act or any other law. � This advisory opinion is applicable only to the statutory provisions

specifically noted above. No opinion is expressed or implied herein with respect to the application of any other Federal, state, or local statute, rule, regulation, ordinance, or other law that may be applicable to the Proposed Arrangements, including, without limitation, the physician self-referral law, section 1877 of the Act (or that provision’s application to the Medicaid program at section 1903(s) of the Act).

� This advisory opinion will not bind or obligate any agency other than the

U.S. Department of Health and Human Services. � This advisory opinion is limited in scope to the specific arrangement

described in this letter and has no applicability to other arrangements, even those which appear similar in nature or scope.

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� No opinion is expressed herein regarding the liability of any party under the False Claims Act or other legal authorities for any improper billing, claims submission, cost reporting, or related conduct.

This opinion is also subject to any additional limitations set forth at 42 C.F.R. Part 1008. The OIG will not proceed against [name redacted] with respect to any action that is part of Proposed Arrangement A, Proposed Arrangement B, or Proposed Arrangement C taken in good faith reliance upon this advisory opinion, as long as all of the material facts have been fully, completely, and accurately presented, and Proposed Arrangement A, Proposed Arrangement B, and Proposed Arrangement C in practice comport with the information provided. The OIG reserves the right to reconsider the questions and issues raised in this advisory opinion and, where the public interest requires, to rescind, modify, or terminate this opinion. In the event that this advisory opinion is modified or terminated, the OIG will not proceed against [name redacted] with respect to any action that is part of the Proposed Arrangement A, Proposed Arrangement B, or Proposed Arrangement C taken in good faith reliance upon this advisory opinion, where all of the relevant facts were fully, completely, and accurately presented and where such action was promptly discontinued upon notification of the modification or termination of this advisory opinion. An advisory opinion may be rescinded only if the relevant and material facts have not been fully, completely, and accurately disclosed to the OIG.

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