Swapping arrangements, other issues, addressed in OIG supplemental compliance program guidance for nursing facilities

A recurring issue I see in my practice, regarding nursing facility contracts with suppliers and providers (e.g. clinical labs and ambulance services), has been addressed yet again by the OIG.  This time, it's in the OIG Supplemental Compliance Program Guidance for Nursing Facilities published on September 30 (supplementing prior guidance issued in 2000.  The issue is referred to as "swapping" — swapping discounts on services paid for by a nursing facility (e.g., a service covered by consolidated billing requirements under Medicare Part A and therefore considered to be an "out of pocket" expense for the nursing facility) in exchange for referrals of services paid for by a governmental payor directly (e.g., a service paid directly by Medicare Part B).

The OIG has addressed swapping directly in the past, in Advisory Opinion 99-2, regarding an ambulance service swapping arrangement, and in subsequent correspondence relating AO 99-2 to clinical labs' relationships with nursing facilities.

A bright line test for discounts (at least in the ambulance arena) was proposed a couple years back, but later withdrawn.

This week's issuance makes a couple of key points:

(1) Size of discount doesn't matter; linkage to swapping matters.

(2) Below-cost or below-market deals are suspect.

(3) Discounts tied to "exclusives" or to implicit or explicit swap agreements are suspect.

So here's the latest on swapping, from 73 FR 56832 at 56844 (September 30, 2008):

Nursing facilities often obtain discounts from suppliers and providers on items and services that the nursing facilities purchase for their own account. In negotiating arrangements with suppliers and providers, a nursing facility should be careful that there is no link or connection, explicit or implicit, between discounts offered or solicited for business that the nursing facility pays for and the nursing facility’s referral of business billable by the supplier or provider directly to Medicare or another Federal health care program. For example, nursing facilities should not engage in ‘‘swapping’’ arrangements by accepting a low price from a supplier or provider on an item or service covered by the nursing facility’s Part A per diem payment in exchange for the nursing facility referring to the supplier or provider other Federal health care program business, such as Part B business excluded from consolidated billing, that the supplier or provider can bill directly to a Federal health care program. Such ‘‘swapping’’ arrangements implicate the anti-kickback statute and are not protected by the discount safe harbor. Nursing facility arrangements with clinical laboratories, DME suppliers, and ambulance providers are some examples of arrangements that may be prone to ‘‘swapping’’ problems. As we have previously explained in other guidance,the size of a discount is not determinative of an anti-kickback statute violation. Rather, the appropriate question to ask is whether the discount 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 offered to a nursing facility and referrals of Federal health care program business billed by a supplier or provider, suspect arrangements include below-cost arrangements or arrangements at prices lower than the prices offered by the supplier or provider to other customers with similar volumes of business, but without Federal health care program referrals. Other suspect practices include, but are not limited to, discounts that are coupled with exclusive provider agreements and discounts or other pricing schemes 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 by a supplier or provider to a nursing facility for items or services that the nursing facility pays for out-of-pocket and referrals of Federal business for which the supplier or provider can bill a Federal health care program, the anti-kickback statute is implicated.

(Emphasis supplied.)  Unfortunately, the new guidance offers little in the way of practical guidance.  Perhaps future rulemaking will succeed in creating a safe harbor for discounts of up to a specified level.

David Harlow
The Harlow Group LLC
Health Care Law and Consulting