Courtney A Groh is a Partner in Holland & Knight's Boston office

The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) has posted Advisory Opinion No. 18-07, a favorable opinion with respect to the addition of members in a group purchasing organization (GPO) that are wholly owned by the same parent organization as the GPO. This advisory opinion is the third opinion issued by the OIG that permits deviation from the "prohibition of common ownership" prong of the AKS safe harbor for GPOs. The safe harbor excludes certain fees paid by vendors to GPOs from the definition of "remuneration." The proposed arrangement analyzed in Advisory Opinion No. 18-07 satisfies the GPO safe harbor requirements, with the exception of a requirement that GPO members be wholly owned by the GPO or subsidiaries of a parent corporation that wholly owns the GPO.

The GPO is indirectly owned by a parent company that also owns 31 hospitals (affiliated facilities). Currently, the GPO, which has provided group purchasing services to hospitals for more than 20 years, does not provide such services to affiliated facilities. Instead, the GPO's current members include 134 non-affiliated hospitals and healthcare facilities. Under the proposed arrangement, the GPO wishes to include the affiliated facilities as members to its existing GPO structure. Both currently and under the proposed arrangement, the GPO negotiates discounts for its members on specialized products and services, which include information technology platforms, emergency department services and staffing, physician recruitment, telemedicine physician consults and refurbished equipment. The individual members, not the GPO, enter into contracts directly with the relevant vendors for goods and services.

The OIG concluded that this proposed arrangement would not materially increase the risk of fraud and abuse under the AKS. In deciding not to impose administrative sanctions with respect to the proposed arrangement, the OIG identified several factors such as the following: (1) the more than 100 unaffiliated facilities that the GPO currently serves and the fact that more facilities would increase the GPO's ability to lower prices; (2) the affiliated entities would constitute only 35 percent of the members of the GPO and 20 percent of total sales volume; (3) all members would be subject to the same GPO contract terms and conditions; (4) the parent company is an independent, public company that owns several hospitals and other healthcare-related organizations as separate legal entities; and (5) the GPO has been in existence for more than 20 years and will continue to provide GPO services to unaffiliated members. This advisory opinion confirms that with safeguards such as equal treatment of affiliated and non-affiliated members, a GPO can potentially have common ownership with its members.

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