Thursday, September 15, 2011

New OIG Advisory Opinion on Provision of Items and Services Below Cost or Free of Charge to Referral Sources in Exchange for Referrals


In an Advisory Opinion posted on August 4, 2011, the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services concluded that the provision of items and services below cost or free of charge to referral sources likely violates the federal anti-kickback statute.  A home medical equipment (HME) company requested the Advisory Opinion. 

The HME supplier provides medical supplies and equipment to skilled nursing facilities (SNF’s).  When the medical supplies and equipment that the HME company furnishes to SNF’s are covered by Medicare Part B, the HME company bills the Medicare Program for them.  When they are not covered under Medicare Part B, the HME supplier bills the SNF for the supplies.  The HME supplier usually charges SNF’s amounts in excess of the cost of the non-covered supplies in order to cover the cost of related services; such as inventory control, visits by customer service representatives, customized patient-specific packaging, etc.; plus overhead and profit.

In this case, SNF’s requested proposals for exclusive suppliers of items covered by the Medicare Program.  Bidders were also required to submit pricing for items not covered by the Medicare Program that SNF’s may purchase at their option.  The HME supplier wanted to submit bids offering pricing for the non-covered items and related services that were below the HME supplier’s costs.  The HME company acknowledged that the payments it would receive from Medicare Part B as SNF’s exclusive suppliers for covered items would more than offset any losses it would incur to furnish the non-covered items and related services below its costs.

In response to the suppliers’ request, the OIG first stated that the anti-kickback statute is implicated if any direct or indirect link exists between a price offered by a supplier or provider to referral sources for items or services that referral sources pay for and referrals of Federal business for which the supplier or providers can bill a Federal health care program.  According to the OIG, both referral sources and providers that receive referrals have obvious motives to trade below-cost payment rates for or free items and services for referrals of patients whose care will be paid for by the Medicare Program.

The OIG then pointed out that providers may be “swapping” the below-cost rates on certain types of business in exchange for other profitable Federal business from which providers can recoup losses incurred on the below-cost business.  The OIG stated that providers likely engage in such practices with the intent of inducing referrals of more lucrative business paid for by the Medicare Program.

It is worth considering this Advisory Opinion in light of the practices of some hospital discharge planners/case managers.  They may require post-acute providers to give services and/or supplies to patients for whom there is no payor source or payor sources that do not reimburse at rates that cover providers’ costs in order to receive referrals of patients whose care will be paid by the Medicare Program.  If post-acute providers are unwilling to render services free of charge, hospitals may bear the risk of continued care of such patients.  This type of “swapping” may also be prohibited by the OIG based upon the Advisory Opinion described above.


© 2011 Elizabeth E. Hogue, Esq.  All rights reserved. No portion of this material may be reproduced in any form without the advance written permission of the author.

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