On August 4, 2011, HHS’s Office of the Inspector General issued an advisory opinion concluding that a proposed arrangement between a supplier of medical supplies and equipment and a skilled nursing facility could violate the federal Anti-Kickback Statute.

It was the supplier who asked for OIG’s review of the proposed arrangement, which would start with the SNF issuing an RFP for suppliers to bid on a contract to be the exclusive supplier of Part B supplies to the SNF. The winning bidder would contract with the SNF as follows:

  • The supplier would bill Medicare Part B for products eligible for Part B reimbursement and bill the SNF for products and services not eligible for Part B reimbursement.
  • The supplier would bill the SNF for non-Part B products below the supplier’s cost.
  • The Part B payments received by the supplier would both (i) cover the supplier’s cost in delivering any services needed in conjunction with the Part B Products, and (ii) make up for  the supplier’s losses incurred in providing non-Part B products below its cost.

The supplier also asked OIG if it would make a difference if the Part B products  were provided through its current company but the non-Part B products were provided by a new company under common ownership with the supplier.  

OIG did not bless either of these scenarios. Its reasoning:

  • The arrangement puts the SNF in a position to direct the Part B products business to the Supplier.
  • There is a bad connection between the below-cost pricing offered for non-Part B products and the SNF’s related referral of business for Part B products.
  • The supplier and the SNF have a motive to trade the below-cost pricing for non-Part B products for referrals of  the Part B products business.
  • It makes no difference if the Supplier provides non-Part B Products through its original company or forms a new one to do it. The same concerns apply.