On August 4, 2011, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) released Advisory Opinion 11-11 refusing to approve a proposal between a supplier and a skilled nursing facility (SNF), as the OIG was concerned that the sales of products could be a "swapping arrangement" that could potentially generate illegal remuneration under the federal anti-kickback statute.
The requestor proposed two arrangements that it might use to respond to a request for proposal issued by a county-owned SNF. Under the first arrangement, the requestor would submit a bid to serve as the SNF's exclusive supplier of medical supplies and equipment covered by Medicare Part B and furnish non-Medicare-covered items at a price below cost, should the SNF choose to purchase those items. The requestor indicated that if it did not offer below-cost pricing on the noncovered items, the SNF would be unlikely to select it as the SNF's exclusive supplier. The requestor stated that the Medicare Part B payments for covered items would make up for the below-cost pricing of the noncovered items. The OIG opined that this would be an impermissible "swapping arrangement" under which the SNF would be given favorable pricing on items for which it paid out of pocket in exchange for referrals of risk-free Medicare-covered services. This opinion is consistent with Advisory Opinion 99-2 addressing similar issues and the 2006 settlement that Emergency Medical Services Corporation affiliates entered into with the U.S. Department of Justice to settle allegations that certain of its hospital and nursing home contract discounts violated the federal anti-kickback statute.
However, anticipating the OIG response, the requestor also asked if the result would be the same if a "friend" sold products below cost to the nursing home. Under the second proposed arrangement, the requestor would use two commonly owned supply companies. One to provide non-Medicare-covered items and related services and a second to provide Medicare-covered items and related services under a joint bid. The OIG also disapproved of this proposal and stated "it is the substance, not the form, of an arrangement that governs under the anti-kickback statute." The interjection of a separate but commonly owned company to provide the noncovered items and related services at below-cost prices did not change the OIG's analysis. Consequently, one must consider the entire realm of relationships commonly owned entities have with another party, not just the relationships of a single entity in isolation, when evaluating fraud and abuse risks.