[Date
Issued -- September 22, 1999]
By Facsimile and Regular Mail
[Name and address redacted]
Re: Discount Arrangements Between
Clinical Laboratories and SNFs
Dear [Name redacted]:
I write in response to your letter dated September 14, 1999, in which you asked
several questions regarding certain arrangements between clinical laboratories
and skilled nursing facilities ("SNFs") paid under the Prospective
Payment System ("PPS") for patients covered under Medicare Part A.
In particular, you have inquired about the applicability of OIG Advisory Opinion
99-2 (Feb. 26, 1999), which addressed a discount arrangement involving ambulance
services, to similar arrangements involving laboratories, and you seek clarification
with respect to the kinds of discounts that are prohibited under the anti-kickback
statute.
An advisory opinion applies only to the specific arrangement about which the
opinion is sought and is only binding on the party or parties requesting the
opinion. We do not provide formal legal guidance about such arrangements outside
the scope of the advisory opinion process. We issue advisory opinions regarding
the anti-kickback statute's application to specific arrangements pursuant to
procedures set forth in regulations at 42 C.F.R. Part 1008. The regulations
are also available on our web page at https://www.hhs.gov/oig. Requests must
be submitted by parties actually participating in the arrangement or by parties
who certify a good faith intent to enter into the arrangement if a favorable
advisory opinion is issued.
Notwithstanding, we can make some general observations about Advisory Opinion
99-2. In general, the analytical framework set forth in Advisory Opinion 99-2
would apply to arrangements between SNFs and any ancillary services provider,
including, but not limited to, clinical laboratories. At issue in Advisory Opinion
99-2 were ambulance service contracts that joined discounts to the SNFs for
ambulance services for PPS-covered patients with referrals of lucrative Part
B business that the ambulance company could bill directly to Medicare at an
undiscounted rate. The arrangements fell squarely within the anti-kickback statute:
the ambulance provider was giving something of value to the SNF (a discount
on PPS-covered business) that was tied to referrals of the SNF's Part B ambulance
business. In such circumstances, an unscrupulous provider may have an incentive
to overutilize services or to increase Federal costs by improper billing (such
as, in the case of ambulances, billing for more expensive forms of transport
than are necessary) to make up potential losses on the discounted PPS business.
These are some of the very evils that the anti-kickback statute is designed
to prevent.
As explained in the opinion, a key inquiry under the anti-kickback statute is
whether the discount on the PPS-covered business is intended to induce the referral
of Part B business. Neither the size nor structure of the discount is determinative
of an anti-kickback violation. Rather, the appropriate question to ask is whether
the discount -- regardless of its size or structure -- is tied or linked directly
or indirectly to referrals of other Federal health care program business.
When evaluating whether an improper connection exists between a discount on
PPS-covered business and referrals of Part B business, we look for indicia that
the discount on the PPS-covered business is not commercially reasonable in the
absence of other, non-discounted business. In other words, we look to see
whether the discount on the PPS-covered services makes business sense "standing
alone" without reference to any other business the provider may receive
from the SNF.
Advisory Opinion 99-2 identified two examples of discounts that are suspect:
discounts that are below the supplier's fully loaded costs, and
discounts that are lower than the prices that the supplier offers to a buyer that (i) generates a volume of business for the supplier that is the same or greater than the volume of Part A business generated by the PPS SNF, but (ii) does not have any potentially available Part B or other Federal health care program business.
In the absence of other facts to the contrary, these kinds of discounts suggest
that the supplier and the SNF may be "swapping" discounts on PPS-covered
business in exchange for profitable non-discounted Part B business, from which
the supplier can recoup losses incurred on the discounted business, potentially
through overutilization or abusive billing practices. These two discount arrangements
were intended as examples of suspect discounts. Other suspect practices include,
but are not limited to, discounts that are coupled with exclusive provider agreements
and discounts or other pricing schemes (such as capitation arrangements) made
in conjunction with explicit or implicit agreements to refer other facility
business. In sum, if any direct or indirect link exists between a price
offered to a SNF for PPS-covered services and referrals of Part B business,
the anti-kickback statute would be implicated.
Finally, you asked whether a laboratory may pass along to a SNF cost savings
(if any) resulting from billing a SNF directly under the PPS system if the
intent of providing this cost savings discount is to induce the referral of
Part B services. In general, the anti-kickback statute, 42 U.S.C. � 1320a-7b(b),
makes it a criminal offense knowingly and wilfully to offer, pay, solicit, or
receive any remuneration (i.e., anything of value) to induce, or in return for,
the referral of items or services for which payment may be made in whole or
in part by a Federal health care program. In other words, the statute prohibits
payments made purposefully to induce referrals of business paid for by a Federal
health care program, including Medicare and Medicaid. The statute has been interpreted
by courts to cover any arrangement where one purpose of the remuneration
is to induce referrals. Because the anti-kickback statute is an intent-based
statute, the determination whether a particular payment practice violates the
statute can only be made on a case-by-case basis after reviewing all potentially
relevant facts to determine the intent of the parties.
We are continuing to monitor the situation with respect to potentially
unlawful contracts between SNFs and services providers, as well as the potential
ramifications of these arrangements under the prohibition on charging Medicare
or Medicaid amounts substantially in excess of a provider's usual charge (section
1128(b)(6) of the Social Security Act).
I hope this information is helpful. If you have further questions or comments,
please feel free to contact me at 202-619-0335.
Sincerely,
/s/
Kevin G. McAnaney
Chief, Industry Guidance Branch