On September 6, 2022, the Office of Inspector General (OIG) published Advisory Opinion 22-17 (Advisory Opinion), in which it declined to impose sanctions against a regional 501(c)(3) not-for-profit health care system that operates four hospitals (Health System) and a clinic that provide services to geographic areas that have been designated as medically-underserved areas and health professional shortage areas (together, the Requestors).  The Health System had supported the establishment of the clinic, which is registered as a Free Clinic and been designated as a Federally Qualified Health Center (FQHC) Look-Alike (Clinic), (but is neither a FQHC nor does it receive funds under Section 330 of the Public Health Service Act). The arrangement involves the forgiveness of a credit line note entered into by the Health System with the Clinic. The OIG concluded that although the arrangement would constitute prohibited remuneration under the federal anti-kickback statute (AKS) if the requisite intent were present, the arrangement and the safeguards in place did not warrant the imposition of sanctions.

Background

Since the Clinic was formed, the Requestors “have collaborated in their shared mission to achieve certain goals and objectives through the Clinic, including: (i) expanding access to health care services for low-income residents, (ii) improving the overall health of patients served, and (iii) reducing financial, environmental, process, and cultural barriers in accessing quality health care services.” In support of these shared goals, the Health System has provided financial support to the Clinic since its initial development.

The Requestors sought an opinion regarding restructuring three existing agreements between the Health System and the Clinic.  The first agreement is a credit line note entered into by the Health System with the Clinic in June of 2018 (Note).  While the payment terms of the Note required monthly payments as well as various penalties for non-payment, the Clinic made only two payments towards the Note balance.

The second existing agreement is a lease between the Clinic and the Health System (Lease). The Health System purchased property and built a medical office building that the Clinic has leased from the Health System since 2017, to use as one of the Clinic’s primary locations. The Requestors entered into a written agreement that covers use of the premises and provides for fair-market-value rent.  However, the Clinic has not made any payments to the Health System as required by the terms of the Lease and payments have been charged against the Note.

Lastly, the Requestors entered into a master services agreement (MSA) in 2019, under which the Health System Provides the Clinic with certain administrative and medical services. Under the MSA, the clinic is required to pay a fair-market-value payment rate. However, with the exception of two partial payments for two months, the Clinic has not made any payments to the Health System as required by the terms of the MSA, and these payments have also been charged against the Note.

Since entering the Note in 2018, the Health System has approved several increases to the Note. The Note now includes all amounts owed to the Health System by the Clinic under the Lease and the MSA. The Health System and the Clinic have certified that the several increases on the Note were necessary because the Clinic lacked sufficient revenue required to continue its operations without extending the Note. The Requestors also certified that the financial burden from the obligations created under the Note, the Lease, and the MSA prevent the Clinic from achieving financial stability.

Proposed Arrangement

The Health System proposes to forgive the entire outstanding amount owed by the Clinic on the Note through a donation to the Clinic. After forgiveness, the Requestors would also enter into a new lease agreement and a new MSA. Under the terms of the new lease, the Health System would permit the Clinic to use the premises covered by the Lease free of charge. The terms of the new MSA would require the Clinic to pay the Health System fair market value for the services the Health System provides to the Clinic.

OIG Analysis

According to the OIG, the proposed arrangement implicates the AKS because it would involve remuneration from the Health System to the Clinic that would constitute prohibited remuneration under the statute if the requisite intent were present. The OIG analyzed the AKS implications as follows:

• The arrangement would not qualify for protection under the FQHC Safe Harbor because that safe harbor only protects remuneration to an FQHC, and the Clinic is an FQHC Look-Alike; however, the Requestors’ certifications indicate that the proposed arrangement would be structured and operated in a manner that aligns with all requirements of the FQHC Safe Harbor and that the Clinic is subject to other government oversight due to other Federal grant funds it receives, so the risk of fraud and abuse is low because of the government oversight;

• The Requestors certified that the Health System would not restrict the Clinic’s ability to refer patients to other providers and therefore avoid inappropriate risks of patient steering;

• The Clinic has determined that the remuneration under the New Agreement would contribute meaningfully to the Clinic’s ability to maintain or increase the availability, or enhance the quality, of services provided to a medically-underserved population in the service area (the Clinic also agrees to re-evaluate this determination at least annually over the course of the arrangement);

• The Requestors certified that the goods, items, services, donations, or loans the Health System would provide to the Clinic pursuant to the new agreements would be medical or clinical in nature or otherwise relate directly to the services the Clinic provides to its patients;

• While the Requestors certified that the Health System and the Clinic refer patients to one another on a regular basis when it is in the patient’s best interest and with the patient’s consent, neither the Health System nor the Clinic is under any obligation to make any such referrals; and,

• The Clinic would be free to enter into agreements with other providers or suppliers of comparable goods, items, or services or with other lenders or donors, and to the extent the Clinic were to have multiple individuals or entities willing to offer comparable remuneration, the Requestors certified that the Clinic would employ a reasonable methodology to determine which individuals or entities to select and would document its determination.

Conclusion

The OIG concluded that the above considerations mitigate the risk of fraud and abuse of the arrangement. Therefore, the OIG concluded that although the arrangement would generate prohibited remuneration if the requisite intent were present, it would not impose administrative sanctions on the Requestors in connection with arrangement under the AKS.

As the OIG has emphasized, its Advisory Opinions are issued only to the requestors of the opinion, and have no application to, and cannot be relied on by, any individual or entity, nor may they be introduced into evidence by anyone other than the requestors to prove the individual or entity did not violate the anti-kickback statute or any other law.

Erin Howard also contributed to this article.