Reserved Bed Arrangements and Payments

Many hospitals struggle to find appropriate skilled nursing facility placement for their patients needing post-acute long term care, particularly for higher acuity patients or where the hospital is located in an area with limited available nursing facility beds. Under a “reserved bed arrangement,” a hospital enters into an agreement with a local nursing facility to hold a designated number of SNF beds for the hospitals patients in exchange for a payment of cash by the hospital to the nursing facility or, in some cases, in exchange for in-kind services provided by the hospital to the nursing facility. 

These arrangements are permissible within certain limitations but, if set up or actually implemented improperly, may violate both the terms of a SNFs’ Medicare provider agreement and the federal Anti-Kickback Statute. The OIG has specifically identified reserved bed arrangements as a “risk area” for SNFs under the Anti-Kickback Statute in its September 30, 2008 Supplemental Compliance Program Guidance for Nursing Facilities.

Specifically, the OIG has made the following points in the Supplemental Guidance about these types of arrangements:

• These arrangements could be problematic under the Anti-Kickback Statute if one purpose of them is to induce referrals of federal health care program business from the nursing facility to the hospital. Conditioning the guaranteed availability of SNF beds upon the referral of federal health care program business by the hospital to the nursing facility potentially violates the Anti-Kickback Statute, even if no payments flow between the parties under the arrangement.
• Where the arrangement involves remuneration of any kind between the parties, the payments or in-kind services should not be established based, in any manner, on the value or volume of referrals from the SNF to the hospital.
• Payments that the OIG would consider problematic under the Anti-Kickback Statute include:
• Payments that involve double-dipping by the SNF or, in other words, payments by the hospital to the SNF to hold beds while those beds are occupied and the facility is already receiving reimbursement from some source for those beds;
• Payments to reserve more beds than the hospital legitimately needs; and
• Excessive payments or payments that exceed the nursing facility’s actual costs of holding a bed or the actual revenues a facility reasonably stands to forfeit by holding a bed for the hospital given the nursing facility’s occupancy rate and patient acuity mix.

According to the OIG’s Supplemental Guidance, reserved bed arrangements should be entered into only when there is a bona fide need to have the arrangement in place and should serve the limited need of securing needed beds, not future referrals of federal health care program business.

If these guiding principles seem potentially confusing, there is help. The Centers for Medicare and Medicaid Services’ Provider Reimbursement Manual (“PRM”) at Section 2105.3, entitled Costs of Reserving Beds or Services, expressly acknowledges the permissibility of reserved bed arrangements, sets out some of the limitations on these agreements and provides specific examples of reserved bed arrangements which are and are not permissible. See Pub. No. 15-1, part 1, chapter 21, section 2105.3.

In the following section of this section, we have summarized some of the pertinent provisions of that manual, which mirrors the OIG’s Supplemental Compliance Guidance discussion of reserved bed arrangements. Any provider utilizing or considering a reserved bed arrangement with a hospital should carefully review this section of the Provider Reimbursement Manual. According to the OIG’s Supplemental Compliance Guidance and the Provider Reimbursement Manual:

• Federal law limits the amount of money a nursing facility can charge a resident, or a third person acting on behalf of a resident, at least where the resident is a Medicaid or Medicare beneficiary. Specifically, a nursing facility which has entered into an agreement with the state to accept Medicaid residents or with the federal Centers for Medicaid and Medicare Services (“CMS”) to accept Medicare residents commits in those agreements to accept as payment in full the reimbursement provided by those programs for covered residents, and nursing facilities are prohibited from charging program beneficiaries additional sums for services covered by those programs 1. 42 C.F.R. §§ 489.21 (Medicare); 447.15 (Medicaid) and 42 C.F.R. § 483.10(c)(8) (limits on charges specific to skilled nursing facilities).
  
• The PRM specifically states that providers, including hospitals and nursing facilities, are allowed to enter into bed reservation agreements under which a provider receives guaranteed or priority placement for its discharged patients. However, these agreements are subject to certain restrictions on the types of remuneration the discharging facility can pay to the admitting facility under the arrangement. A provider which enters into an agreement in violation of those restrictions, in addition to other sanctions the provider may face under federal and/or state law, risks termination of their Medicare provider agreement and consequently the right to participate in the Medicare program. 2 The PRM in section 2105.3 D expressly states that “providers are permitted to enter into reserved bed agreements, as long as the terms of that agreement do not violate the provisions of the statute (the Social Security Act) and regulations which govern provider agreements which 1) prohibit a provider from charging the beneficiary or other party for covered services; 2) prohibit a provider from discriminating against Medicare beneficiaries, as a class, in admission policies;” or 3) prohibit certain types of payments in connection with referring patients for covered services (this generally refers to the federal Anti-Kickback Statute which prohibits the payment, receipt or arranging for the payment or receipt of items of value in exchange for referrals paid for, in whole or in part, by the Medicaid or Medicare programs).
  
• Section 2105.3 of the PRM includes a number of fact-specific examples designed to explain the types of bed reservation agreements which are permissible and, more importantly, the types of remuneration arrangements which are permitted and prohibited. 
  
• A hospital can pay a nursing facility an agreed-upon daily bed reservation fee, in exchange for which the nursing facility may offer either guaranteed or priority placement for the hospital’s heavy care or hard-to-place residents. However, that fee may only be paid for the days a reserved bed is vacant. Based on the examples contained in the PRM, payment of additional amounts, above and beyond the Medicare reimbursement received by the nursing facility for a resident residing in one of the reserved beds, clearly constitutes a violation of the prohibition on charging a Medicare beneficiary for covered services. For example, the PRM states that where a hospital pays a nursing facility $75.00 per day, for example, to hold beds for the hospital’s patients while those beds are vacant, this is permissible. By contrast, once a reserved bed is occupied by a Medicare beneficiary, if the hospital also paid the nursing facility the difference in the agreed-upon bed reservation fee and the Medicare reimbursement rate for that resident, this arrangement would violate the prohibition on charging Medicare beneficiaries for covered services. By analogy, it seems clear that once a Medicare beneficiary occupies a reserved bed, any payment to the nursing facility by the hospital would also violate that prohibition. In short, then, the hospital can pay the nursing facility to hold beds for the hospital’s patients, but only while those beds are unoccupied.
  
• The PRM also contains a number of examples dealing with “in-kind” services offered by the hospital in exchange for the reservation of beds for its patients. However, the examples included in the PRM suggest how CMS looks at in-kind arrangements.  Simply put, under the PRM, a hospital can offer a nursing facility in-kind services in exchange for the reservation of beds for the hospital’s patients so long as those services are offered generally to the nursing home’s entire population, and not just to the Medicare residents residing in the reserved beds. Nor can the in-kind services be offered only during periods when the reserved beds are occupied. For example, the PRM states that a hospital may, in exchange for a bed reservation agreement, provide a full-time registered nurse to the nursing facility.  Because this nurse would be full-time and available to the nursing facility in general, as opposed to just that portion of the facility containing the reserved beds or only on days when the reserved beds are occupied, this is not considered supplementation of the Medicare reimbursement rate.  If, by contrast, the nurse is made available to the nursing facility only on days when a Medicare resident occupies one of the reserved beds, this would be considered an impermissible supplementation of the Medicare rate.
  
• The PRM also contains some other examples which are helpful in terms of thinking creatively about services a hospital might offer a nursing facility as an incentive to enter into a bed reservation agreement. For example, the PRM explains that a hospital may offer a nursing facility free pharmacy, laboratory and radiology services in exchange for a bed reservation agreement, or free in-service education to the nursing facility staff. The hospital may, in the alternative, offer the nursing facility discounted rates for services like pharmacy, radiology or laboratory, among others. The PRM does not purport to contain an exclusive list of the types of in-kind goods or services a hospital may offer a nursing facility as part of a bed reservation agreement. In that sense, then, the parties to such an agreement can be creative in negotiating such an arrangement, based upon the unique capabilities of the hospital and the needs of the nursing facility. It is clear, however, that regardless of the items or services the parties exchange as part of a bed reservation agreement, those items or services must be made generally available to the nursing facility for use by all residents, and may not be offered only for the Medicare residents residing in reserved beds or only during times when those beds are occupied.

Auditing and Monitoring for Reserved Bed Arrangements

We devoted a prior section of this Compliance Guidance to the function of auditing and monitoring your compliance program in the specific context of the risk areas identified by the OIG in its 2008 Supplemental Compliance Guidance and those additional risk areas each facility identifies from its own operations. 

In the context of a formal corporate compliance program, auditing and monitoring just means having in place reliable, periodic systems to “audit” or check up on various aspects of facility and corporate operations which are identified in and are a part of your corporate compliance program. The keys to meaningful auditing and monitoring are 1) a workable system that is not overly complex; 2) a reliable system; 3) designated specifics on how the auditing process will work and who will be responsible for making sure it does; and 4) reviewing your auditing processes periodically to ensure that they, like other parts of your operations and business processes, are doing the job they were designed to do.

In the following discussion, we propose a sample auditing and monitoring tool for the risk area of reserved bed arrangements. This is only a sample and is designed to help facilities think about a method of ongoing self-evaluation of their operations regarding the risk area of reserved bed arrangements. Each facility should design an auditing and monitoring mechanism appropriate to its operations, staff and unique compliance program. The sample below utilizes the threshold questions we developed and recommended in the section of this Compliance Guidance entitled “Making Auditing and Monitoring Practical: A Step-by-Step Approach to Taking the Pulse of Your Operations and Compliance Program.”

1  The primary exception to this rule is that residents may be charged additional amounts for items not covered by the Medicaid or Medicare program, often referred to as “luxury” items. However, if a service or item is covered by Medicaid or Medicare, the nursing facility must accept as payment in full the reimbursement provided by the state or CMS for those items and services. 42 C.F.R. § 483.10(c)(8).
2  Such violations would also likely result in termination of a provider’s Medicaid agreement, with the end result that the provider could not participate in or bill either the Medicaid or Medicare program.