Sleep Centers

Recent OIG Guidance

On September 8, 2010, the OIG released Advisory Opinion 10-14 regarding an arrangement in which a sleep lab management company (the "Requestor") provides a Hospital sleep lab with all of the equipment, technology, supplies, and staff necessary to operate a sleep testing laboratory. No physicians have any ownership interest in Requestor and Requestor does not have any ownership interest in Hospital.

The Hospital provides the space for Requestor to conduct the sleep tests on Hospital's patients. Hospital also provides a medical director for the sleep testing facility. After a physician refers patients to Hospital's sleep testing facility, Requestor's personnel perform the sleep study and transmit the results to an interpreting physician. The Hospital bills Medicare, its patients or other third party payors for the sleep testing. The Opinion assumes that the Requestor's activities meet all of Medicare's "under arrangement" rules and regulations applicable to a hospital's Medicare outsourcing arrangements.

If the patient's physician determines that the patient needs continuous positive airway pressure (CPAP) therapy, then Requestor may perform another test "under arrangement" with the hospital to determine the appropriate CPAP pressure levels for the patient. Importantly, the OIG noted that the Requestor does not directly or indirectly dispense CPAP or any DME equipment to the Hospital or to any of the patients tested at the Hospital's managed lab.

As consideration for all of its testing services, Requestor charges Hospital a per-test or "per-click" fee calculated at an arm's-length negotiation and consistent with the fair market value for the services provided. The fees the Hospital pays Requestor do not depend on the Hospital's success in collecting payment.

On these facts, the OIG concluded that the arrangement does not meet the applicable safe harbors. The safe harbors covering equipment rental and personal services and management contracts require that the aggregate compensation payable under these arrangements be "set in advance." Because payments based on "per-click" fees cannot be set in advance, the safe harbors are inapplicable.

The OIG approved the arrangement even though it could not benefit from safe harbor protection. Failure to adhere to each aspect of an Anti-Kickback Statute safe harbor does not mean that the arrangement is illegal. Rather, each arrangement must be viewed on its facts and circumstances to determine whether safeguards exist to prevent or deter fraudulent or abusive behavior.

By applying this analysis to the facts addressed in the opinion, the OIG found that the arrangement does not contain certain "suspect" attributes found in some "under arrangement" arrangements. The "suspect characteristics" identified in the opinion include:

  1. A hospital paying above-market rates to the sleep test service provider (the "Manager").
  2. A Manager providing marketing services to the hospital's sleep test program.
  3. A Manager's agreement to accept below market rates for its services to secure referrals from the hospital to the Manager or its owners, including affiliated suppliers and providers.
  4. Direct or indirect ownership in the Manager by the hospital.
  5. Direct or indirect ownership interest in the Manager by referral sources to the hospital, such as physicians or physician groups.
  6. The furnishing of items ancillary or additional to the sleep test to persons who receive the test "under arrangement" at the hospital or other persons who are discharged hospital patients. Specifically, the OIG noted that "no DME or other items or services are provided by Requestor to the Hospital, Hospital patients, or patients tested at the sleep testing facility, directly or indirectly, in connection with the Arrangement."

The OIG found the arrangement to be reasonably acceptable in the absence of these suspect characteristics.

Contracted Joint Ventures Analysis
The OIG next analyzed the arrangement under its "Contracted Joint Venture" Bulletin. The OIG believes that contractual arrangements between potential referral sources - such as the "under arrangement" arrangement here - must be closely scrutinized to determine if they are disguised vehicles for the payment of improper kickbacks.

The OIG also concluded that this arrangement poses an acceptably low risk of improperly influencing or rewarding referrals under its Contracted Joint Ventures analysis for four reasons:

  1. First, the physicians ordering the sleep testing services do not have a direct or indirect financial interest in Requestor and Hospital does not have a direct or indirect ownership interest in Requestor.
  2. Second, because the per-test fees were determined through arm's-length transactions and reflect the fair market value for reasonable services actually rendered, while not considering the volume or value of referrals, there is a lesser likelihood of remuneration to induce referrals.
  3. Third, Requestor charges Hospital regardless of whether Hospital was successful in receiving reimbursement for the rendered sleep testing services.
  4. Finally, Hospital has assumed the business risk of this arrangement and Hospital and Requestor are each reimbursed in proportion to each entity's respective contribution--including risk assumption, but not referrals.

The OIG concluded that although the arrangement could potentially generate prohibited remuneration under the Anti-Kickback Statute, it would not impose administrative sanctions on the parties for this arrangement. The OIG reached its conclusion based on the absence of suspect characteristics attendant to some "under arrangement" arrangements and in light of the low risk of improper patient steering under the Contracted Joint Ventures analysis. Thus, the OIG found that the arrangement poses a low risk of fraud and abuse in connection with the Anti-Kickback Statute.


"When the Payor Takes Control- Sleep Medicine in 2012", by Dan Brown, Esq., Sleep Review Magazine, Jan-Feb 2012.

Daniel B. Brown, Esq. was quoted in, "Push to Prosecute Drowsy Driving May Hinge on Its Definition", The New York Times, November 30, 2012.

Taking a Bite into Oral Appliance Therapy”, by Daniel B. Brown, Esq., Sleep Review Magazine, July-August 2011.

Home Testing Demystification,” Sleep Review, March 2010.

Reimbursement, RACs, and Risks,” Sleep Review, June 2009.

Sleep Lab Compliance and the Law, Sleep Center Management Institute, 2004; Rev. 6th Ed. 2009.

For Sale - Your Sleep Lab?”, Sleep Review, January-February 2008.

Legal Implications of Sleep Apnea,” Obstructive Sleep Apnea: Diagnosis and Treatment, (Kuchida, Clete, ed,, Informa Healthcare, 2007).

Nine Legal Issues to Consider When Setting Up a Freelance Scoring Service,” Sleep Review, January/February 2007.

Ratting on the Competition” (Fraud and Abuse Review) Sleep Review, May/June, 2006.

The Price of Quality Assurance,” Advance for Managers in Respiratory Care, April, 2006.

The Quest For Interoperable Electronic Health Records: A Guide To Legal Issues In Establishing Health Information Networks (Contributor), American Health Lawyers Association, July, 2005.

Professional Liability in Sleep Medicine,” Sleep Review, June, 2005.

Staying on Top of Reimbursement,” Advance for Managers in Respiratory Care, January, 2005.

Trends in Medicare Reimbursement, Sleep Review, September, 2004.


“Playing it Straight Along the Curvy Track – Legal Aspects of Performing and Billing Sleep Services in 2011,” by Daniel B. Brown, Esq., 6th Annual Building and Streamlining Sleep Centers of Excellence, World Congress Strategic Leadership for the Health Care Industry, October 18, 2011, Chicago, IL.

“Medicare Update on Sleep Testing and Therapy,” Daniel B. Brown, Esq., California Sleep Society, October 2, 2011, Foster City, CA.

Legal Aspects of Sleep Medicine,” Daniel B. Brown, Esq., Atlanta School of Sleep Medicine, May 24, 2011, Atlanta, GA

“Fraud and Abuse Aspects of Sleep Medicine,” Daniel B. Brown, Esq., National Sleep Foundation, March 17, 2011, Washington, D.C.

“Business of Sleep Medicine,” Daniel B. Brown, Esq., American Academy of Sleep Medicine, February 21, 2011, San Diego, CA

Sleep Centers Questions?
For inquiries regarding sleep centers please contact Adrienne Dresevic, Esq. or Carey F. Kalmowitz, Esq. at (248) 996-8510 or (212) 734-0128.