OIG Launches Investigation into Nursing Home Medicare Payments to Related Parties

The Department of Health and Human Services’ (HHS) watchdog arm added a probe of nursing homes’ Medicare payments to related parties in its list of priorities over the next year.

The HHS Office of the Inspector General (OIG) last week announced an additional investigation as part of its 2022 Work Plan — specifically focusing its efforts on whether skilled nursing facilities are reporting related-party costs in accordance with federal regulations.

The agency will also look into whether Medicare reimbursement is sufficient to cover beneficiary care – particularly if overhead costs have increased while allocations for patient care decreased.

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“Understanding skilled nursing facilities’ (SNFs’) costs is crucial to understanding the factors that contribute to nursing home performance and how nursing homes deliver care to beneficiaries,” OIG noted in its work plan.

Medicare requires that a reported amount of reimbursement be lower than the actual cost to the organization, or the market price for comparable services, facilities or supplies; this is done to remove incentive to realize profits through these transactions, according to OIG.

Legal experts have warned operators that getting into ancillary businesses simply to take advantage of a revenue stream is a bad idea.

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Still, ancillary service investment can be a key way to diversify and evolve post-Covid.

The work plan, updated monthly to identify high-risk areas to undertake audits and evaluations, is set to be published some time in 2023, according to OIG.

The latest move is in line with the Biden administration’s reform initiatives announced in February, particularly a call for nursing homes to be more transparent with their finances and increase scrutiny on private equity in the space.

It’s also a trend among some states – New York enacted a statute in 2021 requiring nursing homes to disclose proposed changes in ownership, as well as common or familial ownership of any entity providing services to the nursing home or its operator.

California’s Corporate Transparency in Elder Care Act requires operators to report their finances to the state and the public. An organization that operates, conducts, owns, manages or maintains a skilled nursing facility is required to prepare and file an annual financial report with the state’s office of statewide health planning and development.

Similarly, Florida nursing homes must submit audited financial statements within 120 days of an operator’s fiscal year.

Massachusetts and New Jersey have set limitations on how much nursing homes can spend for executive salaries, advertising, administrative expenses and how much can be considered profit. New Jersey operators must spend 90% of revenue on resident care, while those in Massachusetts must set aside 75%.

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