In advisory opinion, OIG-HHS finds fault with proposed long-term care pharmacy joint venture

by Ben Vernia | April 15th, 2011

On April 14, the Office of Inspector General of HHS issued an advisory opinion declining to endorse a proposed joint venture between a long-term care pharmacy and some long-term care facilities, reasoning that it posed a danger of violating Medicare’s Antikickback Statute, 42 U.S.C. 1320a-7b(b).

The OIG-HHS’s opinion letter described the proposed joint venture:

[Name redacted] (the “Requestor”) is a long-term care pharmacy that provides pharmaceutical products and services primarily to skilled nursing facilities, intermediate care facilities, assisted living facilities, and residential care facilities in [State redacted] (collectively, “LTC Facilities”). The Requestor provides support and services to LTC Facilities, including the acquisition and delivery of medications, medication distribution systems, consultant pharmacist services, and formulary management services. The Requestor also provides ancillary services including: nursing support and education, such as IV training/certification; state and Federal regulatory assistance; and management of medical records (e.g., physician order sheets, medical administration records, treatment records, and other various tracking reports).

[Name redacted], one of the Requestor’s employees (“Requestor’s Employee”), is a pharmacist currently serving as the Requestor’s director of business integration. His duties include participating in Medicare Part D analyses, automation, and joint venture development. He also serves as a consultant pharmacist to LTC Facilities and is the director of the Requestor’s consultant pharmacist division.

Under the Proposed Arrangement, Requestor’s Employee would form a new long-term care pharmacy (“Newco”) that he would own along with one or more LTC Facility owners in the Requestor’s market area. Newco shares would be issued to the LTC Facility owners in proportion to the amount of capital they invest. Requestor’s Employee would be awarded the initial shares in Newco at a nominal price as an incentive for future services he would provide, namely, bringing in new investors and contracting with additional LTC Facilities on behalf of Newco. Any dividends or distributions would be paid in proportion to share ownership.

Noting that it had long expressed concerns about such joint ventures, the OIG-HHS noted that the long-term care facilities participating in the company would be contracting out essentially all of its operations, and would have “minimal or nonexistent” financial and business risk because “the would control the amount of business they would refer to Newco.”

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