Agreements May Violate Anti-Kickback Laws
Marketing and billing consultants who work with medical supplies should pay particular attention to a recent advisory opinion issued by the Office of the Inspector General (OIG) of the Department of Health and Human Services.
In that advisory opinion, the OIG found that an arrangement between a marketing/billing consultant and a medical supplies manufacturer, which is somewhat common in the industry, probably violates the federal anti-kickback statute.
That law makes it a crime to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce the referral of business covered by a federal healthcare program.
Specifically, the OIG determined that payments under a contract between a medical supplies manufacturer and a marketing and billing consultant, under which the consultant would distribute the manufacturer's product and provide related billing services, may be subject to sanctions under the Social Security Act. This could include exclusion from the Medicare and Medicaid programs as well as civil monetary penalties.
This OIG advisory opinion reinforces the need for healthcare organizations that enter into service agreements to carefully consider the structure of those agreements, especially when the referral of patients or the volume of patients is being contemplated as a basis of payment in the agreement. The failure to do so can be extremely costly.
Contractual Arrangement
The specific contractual arrangement at issue in the OIG's advisory ruling involved a medical supplies manufacturer that sought to consign orthopedic soft good products to a consultant. In return, the consultant agreed to supply marketing and billing services in connection with the products and then to consign them to physicians.
The manufacturer was to retain possession of the goods until informed by the consultant that they should be shipped to physicians. At that point, the consultant would submit claims to insurance carriers, including the Medicare and Medicaid programs, and would accept assignment and bill Medicare and Medicaid under its own supplier numbers. The consultant would retain a consulting fee and forward the balance of the payments it would receive to the manufacturer.
According to the OIG's advisory opinion, the ceiling in the Medicare fee schedule for each item in nearly each case exceeded the price at which the manufacturer currently sold the identical products to other purchasers. Indeed, the OIG observed, in many of the cases, that the consultant's Medicare price was four or five times as high as the manufacturer's list prices.
The OIG opined that the proposed compensation arrangement probably violated the federal anti-kickback law for a number of reasons:
- First, the OIG said, the agreement included significant financial incentives that increased the risk of abusive marketing and billing practices.
- The OIG also was concerned that, under the agreement, the consultant would have opportunities to unduly influence referral sources and patients.
- Finally, the OIG stated, the arrangement contained no safeguards against fraud and abuse.
The OIG considered whether the arrangement might be protected under the exception in the law for personal services and management contracts, but concluded that this exception did not apply.
Training Fees Under Scrutiny
The OIG also considered whether training fees paid by the manufacturer to the consultant violated the anti-kickback law.
After reviewing the matter, the OIG stated that the training services portion of the arrangement also probably violated the law and that there was no exception applicable to this portion of the arrangement.
Although the OIG said that it was not able to determine whether the training fees represented the fair market value for the training services, it did note that it was possible that the fees represented disguised compensation for the consultant's activities.
Overall, the OIG found that the arrangement between the consultant and manufacturer provided multiple opportunities and financial incentives for marketing and billing activities that could lead, individually or collectively, to more than a minimal risk of federal healthcare program abuse.
Accordingly, the OIG concluded that the arrangement would probably violate the anti-kickback statute and would be subject to sanctions and civil monetary penalties.
Healthcare organizations that enter into service agreements should carefully consider the structure of those agreements, especially when the referral of patients or the volume of patients is being contemplated as a basis of payment in the agreement.
Michael E. McDermott is a partner with the Long Island law firm of Farrell Fritz, P.C., which represents hospitals, physicians, managed care and other health care providers in general, corporate and regulatory matters. He can be reached at (516) 227-0700.