Kusserow’s Corner: Offering Group Purchasing Organization Equity Interests is a Fraud Risk

On July 23, the HHS Office of Inspector General (OIG) issued Advisory Opinion 13-09.  It concerned an arrangement involving a proposal to offer members of a group purchasing organization (GPO) an equity interest in the GPO’s parent organization in exchange for the member (1) extending its contract with the GPO for five to seven years; (2) committing not to decrease purchasing volume; and (3) relinquishing its right to a portion of the administrative fees that would otherwise have been passed through to the members under the Proposed Arrangement..  The OIG said the Proposed Arrangement could potentially generate prohibited remuneration under the Anti-Kickback Statute and become subject to administrative sanctions.

The opinion requestor is a publicly traded company that provides financial and performance improvement technology-based products and services to hospitals and health systems and has a wholly owned subsidiary that operates a GPO.  The OIG determined that the Proposed Arrangement could potentially generate prohibited remuneration under the Anti-Kickback Statute, as well as lead to administrative sanctions based on the facts provided.

The OIG said the GPO safe harbor provision could not apply because the Proposed Arrangement involved fees paid by vendors to the GPO, but also involved remuneration transferred between the Requestor and the GPO members that is not protected by the safe harbor.  The OIG noted that the equity interests the Requestor proposed to transfer to members under the Proposed Arrangement was remuneration that would not meet the discount safe harbor.  Furthermore, CMS requires GPO members to treat distributions of a portion of administrative fees received from a GPO as discounts or rebates.  But in this case, members would be asked to forego a portion of those distributions in exchange for shares of stock in the publicly traded parent of the GPO. As a result, unlike a discount, the remuneration under the arrangement would have no potential to benefit payors, including federal health care programs.

The OIG stated that when a GPO gives anything of value to its members to induce the members to order federally reimbursable products under the GPO’s contracts, the Anti-Kickback Statute is implicated.

Richard P. Kusserow served as DHHS Inspector General for 11 years.  He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters.  The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2013 Strategic Management Services, LLC.  Published with permission.