[Federal Register Volume 59, Number 242 (Monday, December 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31157]


[[Page Unknown]]

[Federal Register: December 19, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
 

Publication of OIG Special Fraud Alerts

AGENCY: Office of Inspector General, HHS.
ACTION: Notice.

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SUMMARY: This Federal Register notice sets forth the 5 previously-
developed Special Fraud Alerts issued directly to the health care 
provider community by the HHS Office of Inspector General (OIG). In 
keeping with the OIG's goal and intent of publicizing its concern about 
possible widespread and abusive health care industry practices, and 
seeking wider dissemination of this information to the general public, 
we are republishing the main content of these Special Fraud Alerts in 
the Federal Register. This notice also serves to alert the general 
public of our intention to publish all future OIG Special Fraud Alerts 
in this same manner, in addition to the current method used to 
distribute this material to Medicare and State health care program 
providers.

FOR FURTHER INFORMATION CONTACT: Joel J. Schaer, Legislation, 
Regulations and Public Affairs Staff, (202) 619-0089.

SUPPLEMENTARY INFORMATION:

I. Background

The Use of Fraud Alerts by the OIG

    Over the years, the OIG has used fraud alerts as a vehicle to 
identify fraudulent and abusive practices within the health care 
industry. The majority of these fraud alerts are disseminated 
internally to the OIG's Office of Investigations and other agencies 
within the Department. However, the OIG has also developed and issued 
Special Fraud Alerts intended for extensive distribution directly to 
the health care provider community.

Special Fraud Alerts

    Since 1988, the OIG has issued 5 ``Special Fraud Alerts'' 
addressing specific trends of health care fraud and certain practices 
of an industry-wide character. Specifically, the OIG Special Fraud 
Alerts have served to provide general guidance to the health care 
industry on violations of Federal law (including various aspects of the 
anti-kickback statute), as well as to provide additional insight to the 
Medicare carrier fraud units in identifying health care fraud schemes.
    In developing these Special Fraud Alerts, the OIG relies on a 
number of sources, such as studies or management and program 
evaluations conducted by the OIG's Office of Evaluation and 
Inspections. In addition, the OIG may consult with experts in the 
subject field, including those within the OIG, other agencies of the 
Department, other Federal and State agencies, and from those in the 
health care industry.

The Nature of Past Special Fraud Alerts

    For the most part, the OIG Special Fraud Alerts have been reserved 
for national trends in health care fraud and have addressed potential 
violations of the Medicare and State health care programs' anti-
kickback statute. The Special Fraud Alerts have addressed the following 
topic areas that could violate the anti-kickback statute:
     Joint venture arrangements;
     Routine waiver of Medicare Part B copayments and 
deductibles;
     Hospital incentives to referring physicians;
     Prescription drug marketing practices;
     Arrangements for the provision of clinical laboratory 
services.

II. Federal Register Publication of Special Fraud Alerts

    In the past, the OIG has always printed and distributed copies of 
these Special Fraud Alerts directly to all Medicare program providers. 
While the OIG Special Fraud Alerts have been designed to be available 
to all affected program providers, we believe it is useful to publicize 
these various issues and concerns involving potential abusive health 
care industry practices to a more widespread audience. For this reason, 
we are using this Federal Register notice as a vehicle to reprint the 
substance of the 5 previously-issued Special Fraud Alerts cited above. 
It is our intention to use this same Federal Register form for 
publishing future Special Fraud Alerts developed by the OIG.
    Because each of the previously-developed Special Fraud Alerts 
contained a similar brief narrative as to the nature of the OIG and a 
description of the Medicare and Medicaid anti-kickback statute, we will 
first summarize and set out this material in one section, as it is 
germane to all 5 subject issuances. Following that will be the main 
body and content of each of the Special Fraud Alerts. Lastly, we have 
provided the general information set forth in each of these Special 
Fraud Alerts addressing information on how to report information on 
suspected violations.

The OIG Special Fraud Alerts

A. General Background
    The Office of Inspector General was established at the Department 
of Health and Human Services by Congress in 1976 to identify and 
eliminate fraud, abuse and waste in Health and Human Services programs 
and to promote efficiency and economy in departmental operations. The 
OIG carries out this mission through a nationwide program of audits, 
investigations and inspections. To help reduce fraud in the Medicare 
and Medicaid programs, the OIG is actively investigating violations of 
the Medicare and Medicaid anti-kickback statute, 42 U.S.C. Section 
1320a-7b(b).

What Is the Medicare and Medicaid Anti-Kickback Law?

    Among its provisions, the anti-kickback statute penalizes anyone 
who knowingly and willfully solicits, receives, offers or pays 
remuneration in cash or in kind to induce, or in return for:
    A. Referring an individual to a person for the furnishing, or 
arranging for the furnishing, of any item or service payable under the 
Medicare or Medicaid program; or
    B. Purchasing, leasing or ordering , or arranging for or 
recommending purchasing, leasing or ordering, any goods, facility, 
service or item payable under the Medicare or Medicaid program.
    Violators are subject to criminal penalties, or exclusion from 
participation in the Medicare and Medicaid programs, or both. In 1987, 
section 14 of the Medicare and Medicaid Patient and Program Protection 
Act, PL 100-93, directed this Department to promulgate ``safe harbor'' 
regulations, in order to provide health care providers a mechanism to 
assure them that they will not be prosecuted under the anti-kickback 
statute for engaging in particular practices. The Department published 
11 final ``safe harbor'' regulations on July 29, 1991 (42 CFR 1001.952, 
56 FR 35952), and two more on November 5, 1992 (42 CFR 1001.952, 57 FR 
52723). The scope of the anti-kickback statute is not expanded by the 
``safe harbor'' regulations; these regulations give those in good faith 
compliance with a ``safe harbor'' the assurance that they will not be 
prosecuted under the anti-kickback statute.
B. Special Fraud Alert: Joint Venture Arrangements
(Issued August 1989)
    The Office of Inspector General has become aware of a proliferation 
of arrangements between those in a position to refer business, such as 
physicians, and those providing items or services for which Medicare or 
Medicaid pays. Some examples of the items or services provided in these 
arrangements include clinical diagnostic laboratory services, durable 
medical equipment (DME), and other diagnostic services. Sometimes these 
deals are called ``joint ventures.'' A joint venture may take a variety 
of forms: it may be a contractual arrangement between two or more 
parties to cooperate in providing services, or it may involve the 
creation of a new legal entity by the parties, such as a limited 
partnership or closely held corporation, to provide such services. Of 
course, there may be legitimate reasons to form a joint venture, such 
as raising necessary investment capital. However, the Office of 
Inspector General believes that some of these joint ventures may 
violate the Medicare and Medicaid anti-kickback statute.
    Under these suspect joint ventures, physicians may become investors 
in a newly formed joint venture entity. The investors refer their 
patients to this new entity, and are paid by the entity in the form of 
``profit distributions.'' These subject joint ventures may be intended 
not so much to raise investment capital legitimately to start a 
business, but to lock up a stream of referrals from the physician 
investors and to compensate them indirectly for these referrals. 
Because physician investors can benefit financially from their 
referrals, unnecessary procedures and tests may be ordered or 
performed, resulting in unnecessary program expenditures.
    The questionable features of these suspect joint ventures may be 
reflected in three areas:
    (1) The manner in which investors are selected and retained;
    (2) The nature of the business structure of the joint venture; and
    (3) The financing and profit distributions.

Suspect Joint Ventures: What To Look For

    To help you identify these suspect joint ventures, the following 
are examples of questionable features, which separately or taken 
together may result in a business arrangement that violates the anti-
kickback statute. Please note that this is not intended as an 
exhaustive list, but rather gives examples of indicators of potentially 
unlawful activity.

Investor

     Investors are chosen because they are in a position to 
make referrals.
     Physicians who are expected to make a large number of 
referrals may be offered a greater investment opportunity in the joint 
venture than those anticipated to make fewer referrals.
     Physician investors may be actively encouraged to make 
referrals to the joint venture, and may be encouraged to divest their 
ownership interest if they fail to sustain an ``acceptable'' level of 
referrals.
     The joint venture tracks its sources of referrals, and 
distributes this information to the investors.
     Investors may be required to divest their ownership 
interest if they cease to practice in the service area, for example, if 
they move, become disabled or retire.
     Investment interests may be nontransferable.

Business Structure

     The structure of some joint ventures may be suspect. For 
example, one of the parties may be an ongoing entity already engaged in 
a particular line of business. That party may act as the reference 
laboratory or DME supplier for the joint venture. In some of these 
cases, the joint venture can be best characterized as a ``shell.''
     In the case of a shell laboratory joint venture, for 
example:

--It conducts very little testing on the premises, even though it is 
Medicare certified.
--The reference laboratory may do the vast bulk of the testing at its 
central processing laboratory, even though it also serves as the 
``manager'' of the shell laboratory.
--Despite the location of the actual testing, the local ``shell'' 
laboratory bills Medicare directly for these tests.
     In the case of a shell DME joint venture, for example:
--It owns very little of the DME or other capital equipment; rather the 
ongoing entity owns them.
--The ongoing entity is responsible for all day-to-day operations of 
the joint venture, such as delivery of the DME and billing.

Financing and Profit Distribution

     The amount of capital invested by the physician may be 
disproportionately small and the returns on investment may be 
disproportionately large when compared to a typical investment in a new 
business enterprise.
     Physician investors may invest only a nominal amount, such 
as $500 to $1500.
     Physician investors may be permitted to ``borrow'' the 
amount of the ``investment'' from the entity, and pay it back through 
deductions from profit distributions, thus eliminating even the need to 
contribute cash to the partnership.
     Investors may be paid extraordinary returns on the 
investment in comparison with the risk involved, often well over 50 to 
100 percent per year.
C. Special Fraud Alert: Routine Waiver of Copayments or Deductibles 
Under Medicare Part B
(Issued May 1991)
    To help reduce fraud in the Medicare program, the Office of 
Inspector General is actively investigating health care providers, 
practitioners and suppliers of health care items and services who (1) 
are paid on the basis of charges\1\ and (2) routinely waive (do not 
bill) Medicare deductible and copayment charges to beneficiaries for 
items and services covered by the Medicare program.
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    \1\This fraud alert is not intended to address the routine 
waiver of copayments and deductibles by providers, practitioners or 
suppliers who are paid on the basis of costs or diagnostic related 
groups. The fact that these types of services are not discussed in 
this fraud alert should not be interpreted to legitimize routine 
waiver of deductibles and copayments with respect to these payment 
methods. Also, it does not apply to a waiver of any copayment by a 
Federally qualified health care center with respect to an individual 
who qualifies for subsidized services under a provision of the 
Public Health Service Act.
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What Are Medicare Deductible and Copayment Charges?

    The Medicare ``deductible'' is the amount that must be paid by a 
Medicare beneficiary before Medicare will pay for any items or services 
for that individual. Currently, the Medicare Part B deductible is $100 
per year.
    ``Copayment'' (``coinsurance'') is the portion of the cost of an 
item or service which the Medicare beneficiary must pay. Currently, the 
Medicare Part B coinsurance is generally 20 percent of the reasonable 
charge for the item or service. Typically, if the Medicare reasonable 
charge for a Part B item or service is $100, the Medicare beneficiary 
(who has met his [or her] deductible) must pay $20 of the physician's 
bill, and Medicare will pay $80.

Why Is it Illegal for ``Charged-Based'' Providers, Practitioners and 
Suppliers to Routinely Waive Medicare Copayment and Deductibles?

    Routine waiver of deductibles and copayments by charge-based 
providers, practitioners or suppliers is unlawful because it results in 
(1) false claims, (2) violations of the anti-kickback statute, and (3) 
excessive utilization of items and services paid for by Medicare.
    A ``charge-based'' provider, practitioner or supplier is one who is 
paid by Medicare on the basis of the ``reasonable charge'' for the item 
or service provided. 42 U.S.C. 1395u(b)(3); 42 CFR 405.501. Medicare 
typically pays 80 percent of the reasonable charge. 42 U.S.C. 
1395l(a)(1). The criteria for determining what charges are reasonable 
are contained in regulations, and include an examination of (1) the 
actual charge for the item or service, (2) the customary charge for the 
item or service, (3) the prevailing charge in the same locality for 
similar items or services. The Medicare reasonable charge cannot exceed 
the actual charge for the item or service, and may generally not exceed 
the customary charge or the highest prevailing charge for the item or 
service. In some cases, the provider, practitioner or supplier will be 
paid the lesser of his [or her] actual charge or an amount established 
by a fee schedule.
    A provider, practitioner or supplier who routinely waives Medicare 
copayments or deductibles is misstating its actual charge. For example, 
if a supplier claims that its charge for a piece of equipment is $100, 
but routinely waives the copayment, the actual charge is $80. Medicare 
should be paying 80 percent of $80 (or $64), rather than 80 percent of 
$100 (or $80). As a result of the supplier's misrepresentation, the 
Medicare program is paying $16 more than it should for this item.
    In certain cases, a provider, practitioner or supplier who 
routinely waives Medicare copayments or deductibles also could be held 
liable under the Medicare and Medicaid anti-kickback statute. 42 U.S.C. 
1320a-7b(b). The statute makes it illegal to offer, pay, solicit or 
receive anything of value as an inducement to generate business payable 
by Medicare or Medicaid. When providers, practitioners or suppliers 
forgive financial obligations for reasons other than genuine financial 
hardship of the particular patient, they may be unlawfully inducing 
that patient to purchase items or services from them.
    At first glance, it may appear that routine waiver of copayments 
and deductibles helps Medicare beneficiaries. By waiving Medicare 
copayments and deductibles, the provider of services may claim that the 
beneficiary incurs no costs. In fact, this is not true. Studies have 
shown that if patients are required to pay even a small portion of 
their care, they will be better health care consumers, and select items 
or services because they are medically needed, rather than simply 
because they are free. Ultimately, if Medicare pays more for an item or 
service than it should, or if it pays for unnecessary items or 
services, there are less Medicare funds available to pay for truly 
needed services.
    One important exception to the prohibition against waiving 
copayments and deductibles is that providers, practitioners or 
suppliers may forgive the copayment in consideration of a particular 
patient's financial hardship. This hardship exception, however, must 
not be used routinely; it should be used occasionally to address the 
special financial needs of a particular patient. Except in such special 
cases, a good faith effort to collect deductibles and copayments must 
be made. Otherwise, claims submitted to Medicare mat violate the 
statutes discussed above and other provisions of the law.

What Penalties Can Someone Be Subject to for Routinely Waiving 
Medicare Copayments or Deductibles?

    Whoever submits a false claim to the Medicare program (for example, 
a claim misrepresents an actual charge) may be subject to criminal, 
civil or administrative liability for making false statements and/or 
submitting false claims to the Government. 18 U.S.C. 287 and 1001; 31 
U.S.C. 3729; 42 CFR 1320a-7a). Penalties can include imprisonment, 
criminal fines, civil damages and forfeitures, civil monetary penalties 
and exclusion from Medicare and the State health care programs.
    In addition, anyone who routinely waives copayments or deductibles 
can be criminally prosecuted under 42 U.S.C. 1320a-7b(b), and excluded 
from participating in Medicare and the State health care programs under 
the anti-kickback statute. 42 U.S.C. 1320a-7(b)(7).
    Finally, anyone who furnishes items or services to patient 
substantially in excess of the needs of such patients can be excluded 
from Medicare and the State health care programs. 42 U.S.C. 1320a-
7(b)(6)(B).

Indications of Improper Waiver of Deductibles and Copayments

    To help you identify charge-based providers, practitioners or 
suppliers who routinely waive Medicare deductibles and copayments, 
listed below are some suspect marketing practices. Please note that 
this list is not intended to be exhaustive but, rather, to highlight 
some indicators of potentially unlawful activity.
     Advertisements which state: ``Medicare Accepted As Payment 
in Full,'' ``Insurance Accepted As Payment in Full,'' or ``No Out-Of-
Pocket Expense.''
     Advertisements which promise that ``discounts'' will be 
given to Medicare beneficiaries.
     Routine use of ``Financial hardship'' forms which state 
that the beneficiary is unable to pay the coinsurance/deductible (i.e., 
there is no good faith attempt to determine the beneficiary's actual 
financial condition).
     Collection of copayments and deductibles only where the 
beneficiary has Medicare supplemental insurance (``Medigap'') coverage 
(i.e., the items or services are ``free'' to the beneficiary).
     Charges to Medicare beneficiaries which are higher than 
those made to other persons for similar services and items (the higher 
charges offset the waiver of coinsurance.)
     Failure to collect copayments or deductibles for a 
specific group of Medicare patients for reasons unrelated to indigency 
(e.g., a supplier waives coinsurance or deductible for all patients 
from a particular hospital, in order to get referrals).
     ``Insurance programs'' which cover copayments or 
deductibles only for items or services provided by the entity offering 
the insurance. The ``insurance premium'' paid by the beneficiary is 
insignificant and can be as low as $1 a month or even $1 a year. These 
premiums are not based upon actuarial risks, but instead are a sham 
used to disguise the routine waiver of copayments and deductibles.
D. Special Fraud Alert: Hospital Incentives to Physicians
(Issued May 1992)

Why Do Hospitals Provide Economic Incentives to Physicians?

    As many hospitals have become more aggressive in their attempts to 
recruit and retain physicians and increase patient referrals, physician 
incentives (sometimes referred to as ``practice enhancements'') are 
becoming increasingly common. Some physicians actively solicit such 
incentives. These incentives may result in reductions in the 
physician's professional expenses or an increase in his or her 
revenues. In exchange, the physician is aware that he or she is often 
expected to refer the majority, if not all, of his or her patients to 
the hospital providing the incentives.

Why Is it Illegal for Hospitals to Provide Financial Incentives to 
Physicians for Their Referrals?

    The Office of Inspector General has become aware of a variety of 
hospital incentive programs used to compensate physicians (directly or 
indirectly) for referring patients to the hospital. These arrangements 
are implicated by the anti-kickback statute because they can constitute 
remuneration offered to induce, or in return for, the referral of 
business paid for by Medicare or Medicaid. In addition, they are not 
protected under the existing ``safe harbor'' regulations.
    These incentive programs can interfere with the physician's 
judgment of what is the most appropriate care for a patient. They can 
inflate costs to the Medicare program by causing physicians to overuse 
inappropriately the services of a particular hospital. The incentives 
may result in the delivery of inappropriate care to Medicare 
beneficiaries and Medicaid recipients by inducing the physician to 
refer patients to the hospital providing financial incentives rather 
than to another hospital (or non-acute care facility) offering the best 
or most appropriate care for that patient.

Suspect Hospital Incentive Arrangements--What To Look For

    To help identify suspect incentive arrangements, examples of 
practices which are often questionable are listed [below]. Please note 
that this list is not intended to be exhaustive but, rather, to suggest 
some indicators of potentially unlawful activity.
     Payment of any sort of incentive by the hospital each time 
a physician refers a patient to the hospital.
     The use of free or significantly discounted office space 
or equipment (in facilities usually located close to the hospital).
     Provision of free or significantly discounted billing, 
nursing or other staff services.
     Free training for a physician's office staff in such areas 
as management techniques, CPT coding and laboratory techniques.
     Guarantees which provide that, if the physician's income 
fails to reach a predetermined level, the hospital will supplement the 
remainder up to a certain amount.
     Low-interest or interest-free loans, or loans which may be 
``forgiven'' if a physician refers patients (or some number of 
patients) to the hospital.
     Payment of the cost of a physician's travel and expenses 
for conferences.
     Payment for a physician's continuing education courses.
     Coverage on hospitals' group health insurance plans at an 
inappropriately low cost to the physician.
     Payment for services (which may include consultations at 
the hospital) which require few, if any, substantive duties by the 
physician, or payment for services in excess of the fair market value 
of services rendered.
    Financial incentive packages which incorporate these or similar 
features may be subject to prosecution under the Medicare and Medicaid 
anti-kickback statute, if one of the purposes of the incentive is to 
influence the physician's medical decision as to where to refer his or 
her patients for treatment.
E. Special Fraud Alert: Prescription Drug Marketing Schemes
(Issued August 1994)

How Does the Anti-Kickback Law Relate to Prescription Drug Marketing 
Schemes?

    In recent years, prescription drug companies in the United States 
have increased their marketing activities among providers, patients and 
suppliers such as pharmacies. Many prescription drug marketing 
activities go far beyond traditional advertising and educational 
contacts. Physicians, suppliers and, increasingly, patients are being 
offered valuable, non-medical benefits in exchange for selecting 
specific prescription drug brands. Traditionally, physicians and 
pharmacists have been trusted to provide treatments and recommend 
products in the best interest of the patient. In an era of aggressive 
drug marketing, however, patients may now be using prescription drug 
items, unaware that their physician or pharmacist is being compensated 
for promoting the selection of a specific product. Prescription drugs 
supplied under one of these programs are often reimbursed under 
Medicaid. Among the specific activities, which the OIG has identified, 
are the following actual cases:
     A ``product conversion'' program which resulted in 96,000 
brand-name conversions. In this scenario, for instance, Drug Company A 
offered a cash award to pharmacies for each time a drug prescription 
was changed from Drug Company B's product to Drug Company A's product. 
The pharmacies were induced to help persuade physicians, who were 
unaware of the pharmacies' financial interest, to change prescription.
     A ``frequent flier'' campaign in which physicians were 
given credit toward airline frequent flier mileage each time the 
physician completed a questionnaire for a new patient placed on the 
drug company's product.
     A ``research grant'' program in which physicians were 
given substantial payments for de minimis recordkeeping tasks. The 
physician administered the drug manufacturer's product to the patient 
and made brief notes, sometimes a single word, about the treatment 
outcome. Upon completion of a limited number of such ``studies,'' the 
physician received payment from the manufacturer.
    If one purpose of any of these marketing schemes is to induce the 
provision of a prescription drug item reimbursable by Medicaid, then 
the criminal anti-kickback statute is implicated. There is no statutory 
exception or ``safe harbor'' to protect such activities. Thus a 
physician, pharmacy or other practitioner or supplier receiving payment 
under these activities may be subject to criminal prosecution and 
exclusion from participation in the Medicare and Medicaid programs.
    A marketing program that is illegal under the anti-kickback statute 
may pose a danger to patients because the offering or payment of 
remuneration may interfere with a physician's judgment in determining 
the most appropriate treatment for a patient. Further, where the 
patient is a Medicaid beneficiary, these drug marketing practices may 
increase the Federal government's costs of reimbursing suppliers for 
the products. The OIG is investigating various drug marketing schemes, 
and enforcing the anti-kickback laws where these practices affect the 
Federal health care programs.

What To Look For

    Generally, a payment or gift may be considered improper under 42 
U.S.C. 1320a-7b(b) if it is:
     Made to a person in a position to generate business for 
the paying party;
     Related to the volume of business generated; and
     More than nominal in value and/or exceeds fair market 
value of any legitimate service rendered to the payer, or is unrelated 
to any service at all other than referral of patients.
    OIG investigation may be warranted where one or more of the 
following features is present in prescription drug marketing 
activities:
     Any prize, gift or cash payment, coupon or bonus (e.g., 
airline discounts and related travel premiums), offered to physicians 
and/or suppliers (including pharmacies, mail order prescription drug 
companies and managed care organizations) in exchange for, or based on, 
prescribing or providing specific prescription products. These items 
are particularly suspect if based on value or volume of business 
generated for the drug company.
     Materials which offer cash or other benefits to 
pharmacists (or others in a position to recommend prescription drug 
products) in exchange for performing marketing tasks in the course of 
pharmacy practice related to Medicare or Medicaid. The marketing tasks 
may include sales-oriented ``educational'' or ``counseling'' contacts, 
or physician and/or patient outreach, etc.
     Grants to physicians and clinicians for studies of 
prescription products when the studies are of questionable scientific 
value and require little or no actual scientific pursuit. The grants 
may nonetheless offer substantial benefits based on, or related to, use 
of the product.
     Any payment, including cash or other benefit, given to a 
patient, provider or supplier for changing a prescription, or 
recommending or requesting such a change, from one product to another, 
unless the payment is made fully consistent with a ``safe harbor'' 
regulation, 42 CFR 1001.952, or other Federal provision governing the 
reporting of prescription drug prices.
F. Special Fraud Alert: Arrangements for the Provision of Clinical Lab 
Services
(Issued October 1994)

How Does the Anti-Kickback Statute Relate to Arrangements for the 
Provision of Clinical Lab Services?

    Many physicians and other health care providers rely on the 
services of outside clinical laboratories to which they may refer high 
volumes of patient specimens every day. The quality, timeliness and 
cost of these services are of obvious concern to Medicare and Medicaid 
patients and to the programs that finance their health care services. 
Since the physician, not the patient, generally selects the clinical 
laboratory, it is essential that the physician's decision regarding 
where to refer specimens is based only on the best interests of the 
patient.
    Whenever a laboratory offers or gives to a source of referrals 
anything of value not paid for at fair market value, the inference may 
be made that the thing of value is offered to induce the referral of 
business. The same is true whenever a referral source solicits or 
receives anything of value from the laboratory. By ``fair market 
value'' we mean value for general commercial purposes. However, ``fair 
market value'' must reflect an arms length transaction which has not 
been adjusted to include the additional value which one or both of the 
parties has attributed to the referral of business between them.
    The office of Inspector General has become aware of a number of 
practices engaged in by clinical laboratories and health care providers 
that implicate the anti-kickback statute in this manner. Below are some 
examples of lab services arrangements that may violate the anti-
kickback statute.

Provision of Phlebotomy Services to Physicians

    When permitted by State law, a laboratory may make available to a 
physician's office a phlebotomist who collects specimens from patients 
for testing by the outside laboratory. While the mere placement of a 
laboratory employee in the physician's office would not necessarily 
serve as an inducement prohibited by the anti-kickback statute, the 
statute is implicated when the phlebotomist performs additional tasks 
that are normally the responsibility of the physician's office staff. 
These tasks can include taking vital signs or other nursing functions, 
testing for the physician's office laboratory, or performing clerical 
services.
    Where the phlebotomist performs clerical or medical functions not 
directly related to the collection or processing of laboratory 
specimens, a strong inference arises that he or she is providing a 
benefit in return for the physician's referrals to the laboratory. In 
such a case, the physician, the phlebotomist, and the laboratory may 
have exposure under the anti-kickback statute. This analysis applies 
equally to the placement of phlebotomists in other health care 
settings, including nursing homes, clinics and hospitals.
    Furthermore, the mere existence of a contract between the 
laboratory and the health care provider that prohibits the phlebotomist 
from performing services unrelated to specimen collection does not 
eliminate the OIG's concern, where the phlebotomist is not closely 
monitored by his [of her] employer or where the contractual prohibition 
is not rigorously enforced.

Lab Pricing at Renal Dialysis Centers

    The Medicare program pays for laboratory tests provided to patients 
with end stage renal disease (ESRD) in two different ways. Some 
laboratory testing is considered routine and payment is included in the 
composite rate paid by Medicare to the ESRD facility which in turn pays 
the laboratory. Some laboratory testing required by the patient is not 
included in the composite rate, and these additional tests are billed 
by the laboratory directly to Medicare and paid at the usual laboratory 
fee schedule price.
    The OIG is aware of cases where a laboratory offers to perform the 
tests encompassed by the composite rate at a price below fair market 
value of the tests performed. In order to offset the low charges on the 
composite rate tests, the ESRD facility agrees to refer all or most of 
its non-composite rate tests to the laboratory. This arrangement 
appears to be an offer of something of value (composite rate tests 
below fair market value) in return for the ordering of additional tests 
which are billed directly to the Medicare program.
    If offered or accepted in return for referral of additional 
business, the lab's pricing scheme is illegal remuneration under the 
anti-kickback statute. The statutory exception and ``safe harbor'' for 
``discounts'' does not apply to immunize parties to this type of 
transaction, since discounts on the composite rate tests are offered to 
induce referral of other tests. See 42 CFR 1001.952(h)(3)(ii).

Waiver of Charges To Managed Care Patients

    Managed care plans may require a physician or other health care 
provider to use only the laboratory with which the plan has negotiated 
a fee schedule. In such situations, the plan usually will refuse to pay 
claims submitted by other laboratories. The provider, however, may use 
a different laboratory and may wish to continue to use that laboratory 
for non-managed care patients. In order to retain the provider as a 
client, the laboratory that does not have the managed care contract may 
agree to perform the managed care work free of charge.
    The status of such agreements under the anti-kickback statute 
depends in part on the nature of the contractual relationship between 
the managed care plan and its providers. Under the terms of many 
managed care contracts, a provider receives a bonus or other payment if 
utilization of ancillary services, such as laboratory testing, is kept 
below a particular level. Other managed care plans impose financial 
penalties if the provider's utilization of services exceeds pre-
established levels. When the laboratory agrees to write off charges for 
the physician's managed care work, the physician may realize a 
financial benefit from the managed care plan created by the appearance 
that utilization of tests has been reduced.
    In cases where the provision of free services results in a benefit 
to the provider, the anti-kickback statute is implicated. If offered or 
accepted in return for the referral of Medicare or State health care 
plan business, both the laboratory and the physician may be violating 
the anti-kickback statute. There is no statutory exception or ``safe 
harbor'' to immunize any party to such a practice because the Federal 
programs do not realize the benefit of these ``free'' services. See 42 
CFR 1001.952(h)(3)(iii).

Other Inducements

    The following are additional examples of inducements offered by 
clinical laboratories which may implicate the anti-kickback statute:
     Free pick-up and disposal of bio-hazardous waste products 
(such as sharps) unrelated to the collection of specimens for the 
outside laboratory.
     Provision of computers or fax machines, unless such 
equipment is integral to, and exclusively used for, performance of the 
outside laboratory's work.
     Provision of free laboratory testing for health care 
providers, their families and their employees.
    When one purpose of these arrangements is to induce the referral of 
program-reimbursed laboratory testing, both the clinical laboratory and 
the health care provider may be liable under the statute and may be 
subject to criminal prosecution and exclusion from participation in the 
Medicare and Medicaid programs.
G. Reporting Information

What To Do If You Have Information About Suspect Activities or 
Arrangements

    If you have information about health care providers, practitioners, 
entities or other persons engaging in these types of activities or 
arrangements described above, contact any of the regional offices of 
the Office of Investigations of the Office of Inspector General, U.S. 
Department of Health and Human Services, at the following locations:

------------------------------------------------------------------------
       Regions                   States served               Telephone  
------------------------------------------------------------------------
Boston..............  MA, VT, NH, ME, RI, CT............    617-565-2660
New York............  NY, NJ, PR, VI....................    212-264-1691
Philadelphia........  PA, MD, DE, WV, VA................    215-596-6796
Atlanta.............  GA, KY, NC, SC, FL, TN, AL, MS        404-331-2131
                       (No. District).                                  
Chicago.............  IL, MN, WI, MI, IN, OH, IA, MO....    312-353-2740
Dallas..............  TX, NM, OK, AR, LA, MS (So.           214-767-8406
                       District).                                       
Denver..............  CO, UT, WY, MT, ND, SD, NE, KS....    303-844-5621
Los Angeles.........  AZ, NV (Clark Co.), So. CA........    714-836-2372
San Francisco.......  No. CA, NV, AZ, HI, OR, ID, WA....    415-556-8880
Washington, DC......  DC and Metropolitan areas of VA       202-619-1900
                       and MD.                                          
------------------------------------------------------------------------

    Dated: December 2, 1994.
June Gibbs Brown,
Inspector General.
[FR Doc. 94-31157 Filed 12-16-94; 8:45 am]
BILLING CODE 4150-04-P