Publications: Legal Matters – Providers Hiring Themselves Must Limit Costs

Question -

The owner of our facility apparently is starting a sub-company to take care of housekeeping and/or food services. Isn’t there a danger in sub-contracting or referring business to “yourself,” so to speak?

Answer -

There is nothing inherently wrong or illegal about sub-contracting with a related party for the provision of necessary services. In fact, these sorts of arrangements are very common.

However, even though nursing facilities are reimbursed by the Medicare program and many state Medicaid programs on the basis of prospectively determined rates that are not based upon the facility’s “cost” of doing business, the Medicare program still requires a participating nursing facilities to complete a cost report in accordance with cost-based reimbursement rules, regulations and principles. One such rule is the “related party” rule. Under the related party rule, unless an exception applies, “costs applicable to services, facilities and supplies furnished to a provider by an organization related by common ownership or control can be included in the allowable cost of the provider at the cost to the related organization.”

In other words, a provider may contract for the provision of necessary services; facilities and supplies with a related party, but the provider’s allowable cost is limited to the supplier’s actual cost of furnishing the service, facility or supply. Medicare providers that have failed to properly report related party costs have been prosecuted for submitting false claims.

Reproduced with permission from McKnight's Long-Term Care News

To contact the author, please click .