1. INTRODUCTION

   On March 16, 2000, the Office of Inspector General ("OIG") of the Department of Health and Human Services ("HHS") published its final "Compliance Guidance For Nursing Facilities" ("Final NF Guidance"). 65 Fed. Reg. 14,289. As in the draft guidance released in October 1999(fn1), the Final NF Guidance reflects the specific elements that the OIG believes each nursing home should consider when developing and implementing an effective compliance program. The text of the guidance is available on the OIG internet page, http://www.dhhs.gov/progorg/oig/new.html, or you can obtain it from our office.

   The final guidance is very similar to the October 1999 draft guidance, which we discussed in detail in a November 2, 1999 Reed Smith Client Memorandum(fn2). Like the draft version, the Final NF Guidance sets forth the OIG’s general views on the value and fundamental principles of compliance programs for the health care industry generally, including nursing facilities ("NFs"), and it discusses the specific elements that NFs should consider when developing and implementing an effective compliance program. In particular, the NF Guidance identifies specific compliance risk areas for NFs,(fn3) including quality of care, residents’ rights, employee screening, vendor relationships, billing and cost reporting, and record keeping and documentation.

   Because of the similarities between the draft and final versions of the compliance program guidance, and in light of our comprehensive treatment of the draft guidance in our November 1999 Client Memorandum, this Memorandum discusses only significant changes between the two versions of the document. Please feel free to contact us, however, if you would like additional information about any aspect of the Final NF Guidance.

2. COMPLIANCE PROGRAM ELEMENTS
   1. Written Policies And Procedures

      As in the draft guidance, the Final NF Guidance states the OIG’s belief that every compliance program should involve the development and distribution of written compliance standards, procedures, and practices that guide the NF and its employees throughout day-to-day operations. The OIG continues to suggest that these policies and procedures be provided to all affected employees, as well as to physicians, suppliers, NF agents, and contractors. In response to industry comments, the OIG now clarifies, however, that these policies and procedures should be distributed to independent contractors "as applicable to those entities," rather than to all "who may affect or be affected by the nursing facility’s billing and care functions."

      1. Code Of Conduct

         In both the draft and final versions of the guidance, the OIG recommends that NFs develop a code of conduct (1) detailing the fundamental principles, values, and framework for action within an organization; (2) articulating the organization’s expectations of employees; and (3) summarizing the basic legal principles under which the organization must operate. The OIG recommends that employees certify that they have received and read the organization’s code of conduct. In the draft guidance, the OIG recommended that these certifications be updated on a regular basis, possibly as part of an annual training program; the Final NF Guidance instead suggests that these certifications need only be updated any time the code is revised or amended.

      2. Specific Risk Areas

         The OIG recommends that NFs prepare a comprehensive set of written policies and procedures to prevent fraud and abuse in facility operations and to ensure the appropriate care of their residents. The draft guidance noted that the OIG recognizes that most facilities have established policies to prevent fraud and abuse, and these providers may not need new policies as part of their compliance program if existing policies encompass the provider’s operations and relevant rules. The Final NF Guidance strengthens this language by acknowledging that many states also require NFs to have a policies and procedures manual. Nevertheless, the OIG continues to maintain that since the numerous federal and state NF statutes, rules, regulations, and manual instructions frequently are modified, all NFs should evaluate their current compliance policies and procedures by conducting a baseline assessment of risk areas, as well as regular reevaluations.

         As in the draft version, the Final NF Guidance points out that sound operating compliance policies are essential to all NFs, regardless of size and capability. If a lack of resources is genuinely an issue, however, the OIG continues to recommend that such NFs focus first on risk areas most applicable to their business operations. At a minimum, the OIG states that resources should be directed to analyze the results of annual surveys and to verify that the facility has effectively addressed any deficiencies, such as through the facility’s Quality Assessment and Assurance Committee. In response to industry concerns that the OIG’s view of a compliance program duplicates duties already more appropriately addressed through the NF’s Quality Assurance Committee, the Final NF Guidance adds language recognizing that "[t]his committee is best suited to establish measurable, outcome-based criteria that focus on vulnerabilities that adversely affect the care of residents." The OIG goes on to add that inclusion and participation of direct care staff (e.g., nurses and nurses’ aides who provide direct resident care) should also be encouraged. As discussed below, the OIG continues to maintain that quality of care is an integral component of compliance.

         1. Quality Of Care

            The Final NF Guidance reflects OIG’ continuing concern about the quality of care provided by NFs, and its belief that quality of care issues are a legitimate focus of compliance plans. This view is in keeping with the OIG’s (and Department of Justice’s) controversial assertion in recent years that substandard quality can trigger False Claims Act liability. Significantly, the OIG added a footnote to the Final NF Guidance that moderates somewhat the OIG’s linkage of quality of care complaints and false claims. The OIG now states that "[a]lthough the OIG is not suggesting that each and every survey citation or failure to meet the applicable standard of care is a per se violation of the False Claims Act (or a criminal, other civil, or administrative violation), knowingly billing for nonexistent or substandard care, items, or services may give rise to criminal, civil, and/or administrative liability."

            Like the draft guidance, the final version identifies several quality of care risk areas. In addition to those listed in the draft document, the OIG has added two new risk areas: "failure to accommodate individual resident needs and preferences," and "failure to provide an ongoing activities program to meet the individual needs of all residents."

            The Final NF Guidance also modifies a number of the draft risk areas. For instance, the risk factor regarding absence of a comprehensive care plan now specifies that the plan should include timetables, along with measurable objectives, and it should meet the resident’s nursing needs, along with medical, mental, and psychosocial needs.

            Likewise, the risk factor on inadequate staffing levels or insufficiently trained staff has been expanded to include insufficiently supervised staff. The OIG elaborates in a footnote that the facility should ensure that it has a sufficient number of staff, including registered nurses, licensed practical nurses, certified nurses assistants, and nursing assistants and other health care professionals to fully meet the needs of all of its residents. Sufficient staff should be provided to ensure that residents receive nursing and other health care services on a 24-hour basis that allow each resident to attain or maintain the highest practicable physical, mental and psychosocial well-being as determined by individual resident assessments and plans of care. The Final NF Guidance acknowledges that staffing standards can be established on a facility-specific or, often more appropriately, a unit-specific, basis, reflecting the acuity level and needs of the residents. The OIG explains that the use of an acuity level/staffing ratio model gives the facility the ability to adjust staffing levels as resident needs fluctuate, as well as a basis for conducting compliance audits. The OIG suggests that the compliance officer monitor on an ongoing basis the facility’s compliance with the staffing ratios established by the quality assurance committee, to ensure that the facility maintains staffing levels sufficient to serve resident needs. Note that for practical purposes, staffing ratios generally are not established by the quality assurance committee; ratios usually are established by the director of nursing or a comparable staff member.

         2. Residents’ Rights

            Like the draft version, the Final NF Guidance states that a NF’s compliance policy should address the residents’ right to a dignified existence that promotes freedom of choice, self-determination, and reasonable accommodation of individual needs. The final version clarifies in a footnote, however, that a reported increase in complaints about resident care and residents rights could be attributable to a greater presence of ombudsmen staff in nursing homes, although the OIG still asserts that states with more ombudsman staff and more frequent visits did not necessarily have more complaints.

            The Final NF Guidance also clarifies that NFs must, rather than should, (1) offer care to all eligible residents in accordance with federal and state admissions laws, and (2) maintain identical policies regarding "transfer, discharge, and provision of services under the State plan" for all residents, regardless of payment source. The OIG also now adds that "[i]t also is inappropriate to condition admission on a prospective resident’s agreement to hold the facility harmless for injuries or poor care provided to the individual."

         3. Billing And Cost Reporting

            Billing and cost reporting policies should be a major part of a NF’s compliance program, according to the OIG. The Final NF Guidance updates the discussion of how the introduction of the SNF prospective payment system ("PPS") and eventual implementation of consolidated billing creates additional issues for billing and cost reporting compliance policies. Once consolidated billing for services furnished to residents in a Part B stay is implemented, NFs should revisit their policies to address potential compliance issues in this area.

            Like the draft version, the Final NF Guidance lists a number of reimbursement risk areas a NF should consider addressing in its written compliance policies and procedures. In a footnote regarding the risk factor involving "submitting claims for equipment, medical supplies and services that are medically unnecessary," the OIG acknowledges that while no payment may be made for services that are not reasonable and necessary, "[a]t the same time, nursing facilities are required to provide the services necessary to attain or maintain the highest practicable physical, mental and psychosocial well-being of each resident." In order to meet these obligations, the OIG recommends that NFs formulate policies and procedures that include periodic clinical reviews, both prior and subsequent to billing for services, as a means of verifying that patients receive appropriate services.

            Moreover, in the risk factor related to submitting claims to Medicare Part A for residents who are not eligible for Part A coverage, the OIG now specifies that in order for a SNF stay to be covered by Medicare, the beneficiary must have a preceding three-day inpatient hospital stay. Observational stays and emergency room care do not qualify towards the three-day hospital stay requirement, the OIG notes.

            The OIG also elaborates on its concerns regarding billing under the PPS and consolidated billing as part of the "duplicate billing" risk factor. The OIG now suggests that a NF "may wish to flag a referral to an outpatient provider as a ‘PPS resident’ and inform the provider that the nursing home will be responsible for billing Medicare for the ancillary services."

            Moreover, as noted above, the OIG has modified the description of the risk factor involving knowingly billing for inadequate or substandard care. The OIG now clarifies that it is "not suggesting that each and every survey citation or failure to meet the applicable standard of care is a per se violation of the False Claims Act (or a criminal, other civil, or administrative violation), " although it continues to assert that "knowingly billing for nonexistent or substandard care, items, or services may give rise to criminal, civil, and/or administrative liability." We note that controversy remains regarding whether substandard quality of care results in liability under the False Claims Act.

            In other changes, the OIG has modified the risk factor, "forging physician or beneficiary signatures" to read "altering documentation or forging a physician signature" on documents used to verify that services were ordered and/or provided. The OIG also has elaborated on the risk factor involving failure to maintain sufficient documentation to establish that services were ordered and/or performed. The OIG now describes this risk factor as "failing to maintain sufficient documentation to support the diagnosis, justify treatment, document the course of treatment and results, and promote continuity of care."

            As in the draft version, the Final NF Guidance recommends that a NF take all reasonable steps to ensure compliance with the federal health care programs when submitting reimbursement-related information. The final version elaborates that "[a] key component of ensuring accurate information is the proper and ongoing training and evaluation of the staff responsible for coding diagnoses and regular internal audits of coding policies and procedures." Moreover, the OIG observes that the arrival of consolidated billing and the next edition of the coding manuals makes it "even more critical that knowledgeable individuals are performing these coding tasks."

         4. Employee Screening

As in the draft guidance, the Final NF Guidance recommends that NFs conduct a reasonable and prudent background investigation and reference check before hiring those employees who have access to patients or their possessions, or who have discretionary authority to make decisions that may involve compliance with the law. The Final NF Guidance adds a new recommendation that, because many of the services provided in nursing facilities are furnished under arrangement with non-employee personnel, including registry and personnel agency staff, the NF also should require these individuals to be subject to the same scrutiny by their agency prior to placement in the facility. We would, therefore, recommend that nursing homes include a clause in their contracts with staffing agencies that the agency warrants that their employees have not been convicted of criminal offenses or excluded from federal or state health programs.

The OIG continues to assert that NFs also should seriously consider whether to employ individuals who have been convicted of crimes of neglect, violence, theft or dishonesty, or financial misconduct; the OIG now has added convictions for other offenses related to the particular job.

Like the draft version, the Final NF Guidance lists a number of measures related to employee screening that should be incorporated into the compliance program’s policies and procedures. The OIG now clarifies that employees can certify on the employment application that they have not been convicted for a relevant offense or excluded. The new version also provides that NFs should check the OIG’s List of Excluded Individuals/Entities and the GSA’s list of debarred contractors to verify that employees are not excluded, but it does not require facilities to check other "available public sources." The OIG also adds recommendations that NFs:

• Require temporary employment agencies to ensure that temporary staff assigned to the facility have undergone background checks that verify that they have not been convicted of an offense that would preclude employment in the facility (as noted above); and
• Require current employees to report to the NF if, subsequent to their employment, they are convicted of an offense that would preclude employment in a NF or are excluded from participation in any federal health care program.