Health Law Pointers - Volume III, No. 3

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         The New York Insurance Department released regulations that require health maintenance organizations (HMOs) and other health insurers to demonstrate to the Superintendent of Insurance the financial responsibility of health care providers, before entering into risk sharing arrangements with those providers.  Health care providers subject to compliance are those providers, including IPAs, earning annual in-network revenues of more than $1,000,000 from an individual HMO or insurer.  The regulations became effective August 22, 2001.  Risk sharing agreements that were approved by the Department of Health prior to the effective date are not required to comply with the new regulations until they are renewed.

Compliance with the new regulations will necessitate further consideration when drafting the financial risk transfer agreement and may require the providers to post security deposits upon entering into such arrangements.

If you or your group are contemplating risk sharing arrangements with HMOs, or have risk sharing agreements that you are about to renew, you should determine whether there are sufficient financial protections in place to satisfy the new requirements. To review the regulations, go to




            As a result of the Patient Health Information and Quality Improvement Act of 2000, Governor Pataki announced this summer the addition of a new web site designed to provide the public with important health information. The site currently contains the following segments:

Hospital Surveys (Statement of Rights, Health Care Proxy and services information)
Ø      Physician Profiles (Including disciplinary actions dating back to 1992)
Ø      Nursing Home Surveys (Recent surveys and links to related sites)
Ø      Managed Care Performance (Performance Reports; Bill of Rights; Appeals)
Ø      Cardiac Surgery Reports (Data about risk factors and mortality rates)
Ø      Patient Safety Center (Various safety guidelines and reports)
Ø      Nurses Aide Registry (Listing of Certified Nurses Aides with criminal histories)
Ø      Medicaid Fraud (General information about charges; how to report fraud)
Ø      Complaints about Care (Phone numbers for filing complaints)
Ø      Health Laws and Regulations (Browse the state index or perform searches) 

To access the web site go to and click on “Consumer Health”.


            In these highly regulated times, physicians and other health professionals should anticipate and prepare for the possibility of a government or managed care investigation.  Here are some tips on what to do if the investigators come calling:  

                        1)   Develop office procedures for handling government and managed care investigations in advance of any audit or visit;

                        2)   Make sure your staff knows what to do when the investigators arrive;

                        3)   Designate an individual to work with the investigators (this person should be prepared to take notes about what the investigators are reviewing, copying, doing and saying);

4)      Make sure staff members understand that they are not under any obligation to “volunteer” information or speculate about office experiences.  But do not forbid employees to speak to the investigators as this may give rise to charges of  “obstructing justice”;

5)      If investigators arrive unscheduled at your office, call your attorney immediately!

6)      If the investigators want to speak with you, do not keep them waiting for more than a few minutes; You should then explain to the investigators that you want to cooperate, but that you would like to arrange a time to talk when your attorney is present;

                        7)   Do not answer any questions without your attorney’s authorization.  Even answers to seemingly innocuous or simple questions may have unwanted implications; and

                        8)   Remain polite, professional and helpful, but avoid unnecessary conversation. Do not inadvertently expand the scope or nature of the audit.


            And if government investigators come bearing a search warrant?

            There is a strong possibility that you are facing criminal allegations or civil fraud.  Under these circumstances, ask the investigators to wait while you contact your attorney, but it is important to note that they do not have to wait for your attorney to be present.  You should nonetheless attempt to learn what it is they are interested in before they begin their search.  Fax the warrant to your attorney if possible and ask for immediate advice.

Send all of your employees home except key personnel.  The fewer people available to talk to the investigators, the better. Also, ask your staff members to keep the facts of the investigation confidential.  They should not talk about the situation with anyone, especially news reporters and other media personnel.

If the investigators are seizing documents, filing cabinets and computers that you need to continue to care for patients, ask if you can copy the information you need to conduct business, including making a backup of your computer files.

Having office policies in place in advance of any audit or investigation may help to avoid unwanted legal exposure and ease the anxiety associated with government investigations and searches.  For assistance in preparing a compliance program or if the investigators are calling on you, contact Robert P. Fine, Lawrence M. Ross or Anne M. Peterson at (716) 849-8900.


The Office of the Inspector General (“OIG”) recently issued three Advisory Opinions in which it recognized potential violations of the prohibition against inducements to Medicare beneficiaries[i] and the Anti-Kickback Statute[ii], but concluded that the violations did not justify administrative sanctions.

            OIG Advisory Opinion 01-13 (modifies Advisory Opinion 98-5)

            On August 24, 2001, the OIG issued an Advisory Opinion to a not-for-profit health maintenance organization (“HMO”) seeking to determine whether a “coordination of benefits” provision (“COB”) in its contracts with skilled nursing facilities violated the Federal Anti-Kickback Statute.  The potential violation arises when the patient has Medicare as its primary insurer and the HMO as its secondary insurer.  Under the relevant state laws, the Department of Insurance approves HMO contracts, premiums and fees for service (as is done here in New York).  The COB, which was previously approved by the State Insurance Department, provides that when the primary insurer (Medicare) pays the skilled nursing facility the same or more than the amount available under the HMO fee schedule, the nursing facility cannot seek additional payment from the HMO or from the patient.  

            In modifying a previously issued Advisory Opinion[iii], the OIG concluded that even though the waiver of co-insurance amounts potentially violates the Anti-Kickback Statute because the HMO may be avoiding its obligation to pay Medicare cost-sharing amounts for its own financial benefit, it would not impose sanctions.  The OIG warns that  Advisory Opinion 01-13 is specific to the facts presented, applies only to the HMO’s commercial products, and that the arrangement may also violate the False Claims Act or other federal laws for improper billing, claims submission, cost reporting or related conduct, and the OIG offers no opinion or waiver of any such sanctions.

            OIG Advisory Opinion 01-14

            On September 4, 2001, the OIG issued an advisory opinion concluding that it would not impose civil monetary penalties for potential violations of the federal provision prohibiting  inducements to beneficiaries or the Anti-Kickback Statute against a Hospital because the Hospital waives out-of-pocket expenses for its extension clinic’s patients seeking screening services and certain follow-up services for early detection of breast and cervical cancer (the extension clinic is located in a financially challenged neighborhood). 

            The OIG states that the arrangement plainly falls within the general statutory prohibition against improper inducements, and that it does not meet the statute’s exception for preventive care because the screening services are tied to follow-up care also reimbursable under Medicare and the follow-up services do not meet the statutory definition for preventive care.  However, the OIG makes clear that it will not impose sanctions because there is little risk of fraud and abuse and because the potential financial benefit to the Hospital is minimal.

            OIG Advisory Opinion 01-15

            And on September 26, 2001, the OIG rendered an opinion regarding a proposal to subsidize Medicare+Choice premiums and co-payments for members eligible for both Medicare and certain Medicaid benefits.  It again concluded that the arrangement could potentially generate prohibited remuneration but that it would not impose sanctions under the Anti-Kickback Statute or for violations of the prohibition against inducements to beneficiaries.  The OIG’s primary motivation was the requestors’ intent to protect their Medicare+Choice members who are eligible to receive both Medicare and Medicaid from increased cost-sharing obligations.  Even though the requesting managed care organizations operated the plans and provided the medical services under the plans, OIG concluded that the arrangement fit within the long-standing policy that providers are free to waive a Medicare beneficiary’s cost sharing obligation based on the individual’s financial need.


While each of the arrangements under review in these opinions were not subject to administrative sanctions, you should not expect the OIG to offer other arrangements similar treatment.  If you are contemplating an arrangement that may violate the federal rules, you may want to consider obtaining an advisory opinion from the OIG. 

To view the opinions summarized above, or for information about obtaining advisory opinions go to


[i] Section 1128A(a)(5) of the Social Security Act prohibits a person from offering or transferring remuneration to a beneficiary that such person knows or should know is likely to influence the beneficiary to order or receive items or services from a particular provider, practitioner or supplier for which payment may be made under the Medicare or Medicaid programs.

[ii] The Anti-Kickback Statute makes it a criminal offense for knowingly and willfully offering, paying, soliciting or receiving any remuneration to induce or reward referrals of items or services reimbursable under Federal health care programs.

[iii] OIG Advisory Opinion 98-5 – In the 1998 opinion, the OIG concluded that the COB potentially violated the Anti-Kickback Statute and the OIG would not waive administrative sanctions.

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