July/August 2008
The Health and Human Services Office of Inspector General (OIG) has given the thumbs-down to a clinical laboratory’s proposal to provide free labeling of test tubes and specimen collection containers to dialysis facilities.
The lab requesting the opinion provides testing services to dialysis patients under service contracts with dialysis facilities. Services include tests payable under Medicare’s composite rate and tests that are separately billable to Part B (noncomposite rate tests).
The lab proposed to provide the free labeling services to selected dialysis facilities, with preference for those whose business the lab wants to obtain or retain. It would not charge for the services that are currently performed internally by the dialysis facility’s own personnel. The lab says its competitors are offering the same type of free services it would offer.
According to CMS payment rules, the OIG noted, lab test preparation services are included in composite rate payments, regardless of whether the services are for a composite or noncomposite rate test. Medicare does not make separate payments for administrative tasks associated with lab tests, such as labeling test tubes and specimen collection containers.
No Safe Harbor
The anti-kickback safe harbor for personal services and management contracts would not apply, the OIG concluded, because the selected dialysis facilities would not pay anything to the lab for the labeling services, despite the fact that these services have value to the facilities, given that lab specimen processing costs (including those associated with labeling) are included in the composite rate payments that facilities receive from Medicare.
The absence of safe harbor protection is "not fatal," the OIG said, but faulted the arrangement for providing free or below-market goods or services to actual or potential referral sources. The OIG noted that it has long held that free or below-market arrangements are suspect and may violate anti-kickback laws, depending on the circumstances.
Improper Swapping of Business
The OIG further said that the proposed arrangement smacks of improper "swapping" arrangements.
In its 1994 special fraud alert on lab arrangements, the OIG warned labs against offering discounts to a dialysis facility for composite rate tests payable out of the facility’s pocket, in exchange for referrals of all or most of the facility’s noncomposite rate tests that the lab can bill directly to Medicare or other federal health care programs.
Based on the facts presented by the requesting party, the OIG concluded that the lab would appear to be offering nonmonetary discounts to the selected dialysis facilities for their composite rate business with the intent to induce referrals for the more lucrative noncomposite rate business.
An OIG advisory opinion is issued only to the requesting party and is limited in scope to the specific arrangement described. It has no application to, and cannot be relied on by, any other individual or entity.
Advisory opinion No. 08-06 is available online at www.oig.hhs.gov/fraud/docs/advisoryopinions/2008/AdvOpn08-06.pdf.
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