A medical supply/DME company thought it was on to something when it submitted two proposals to the OIG for review that involved the supplier bidding for an exclusive supplier deal with a county operated skilled nursing facility (“SNF”). Both arrangements were substantially similar, but would give the SNF below cost pricing on non-covered items and services in exchange for the exclusive contract and lucrative Medicare contract with the SNF.

Typically, medical supply companies that provide Medicare covered goods and services would bill Medicare directly. Non-covered goods and services will be charged directly to the SNF at a price that would cover the company’s costs and provide a profit. In this case, the SNF published an RFP soliciting bids to be its exclusive supplier of Medicare covered items and services. Each bid was also to include pricing for non-covered items. The supply company in question wanted to know if it could offer below-cost pricing to the SNF for the non-covered items and services.

The OIG, stated that “in evaluating whether an improper nexus exists between the rates offered for items and services and referrals of Federal business in a particular arrangement, we look for indicia that the rate is not commercially reasonable in the absence of other, non-discounted business.” It went on to observe that the proposed arrangement gave rise to an inference that the supplier and the SNF may be “swapping the below-cost rates on business for which the skilled nursing facility bears the business risk (i.e., the Non-Covered Items) in exchange for other profitable non-discounted Federal business (i.e., the Covered Items), from which the supplier can recoup losses incurred on the below-cost business, potentially through overutilization or abusive billing practices.” On that basis, the OIG declared that this type of “swapping” of improper discounts for the exclusive contract for the lucrative Medicare business poses a substantial risk of violating the anti-kickback statute.

The also OIG seemed to issue a not so veiled warning to the SNG that it bears some responsibility here as well by noting the “the SNF may be soliciting improper discounts on business for which it bears risk in exchange for referrals of business for which it bears no risk.” It should go without saying that the anti-kickback laws cut both ways. It is improper to both solicit a kickback and to offer one.