New OIG Advisory Opinion Repeats Warning that Free Labeling Services Can Be Kickbacks

The government's longstanding aversion to labs providing free items or services to referral sources remains unaffected by changes in reimbursement methods. A laboratory sought an advisory opinion from the Office of Inspector General (OIG) regarding a proposal to provide dialysis facilities with free services, labeling test tubes and specimen collection containers used to collect specimens for testing at the lab. The OIG said such an arrangement would likely violate the Anti-Kickback Statute.

Facts of the proposed arrangement
Here is how the proposed arrangement would work:

• The lab performs testing services for dialysis facilities' patients;

• The lab provides free services to certain dialysis facilities for labeling; test tubes and specimen collection containers;

• Labeled tubes and containers are used to collect and send specimens to the lab for testing;

• Labeling is performed at lab not on site at the dialysis facility;

• The lab has discretion to choose which facilities receive this service and the lab admits its decision may be influenced by the need to obtain or retain business from a dialysis facility; and

• Without these free services, the dialysis facility would incur costs for labeling— which costs are not separately reimbursed by federal programs.

Not a new issue
The OIG has repeatedly expressed concern about laboratories providing free services or items to referral sources. In an oft-cited 1994 Fraud Alert, the OIG specifically called out labs that provide free items or services and indicated they raise an inference of kickbacks.

The OIG also addressed the same fact situation in a 2008 Advisory Opinion. At that time, dialysis facilities were paid composite rates. Now, dialysis facilities are paid via the End-Stage Renal Disease Prospective Payment System (since 2011)—a bundled payment that replaced the composite rate system. Under both payment systems, dialysis facilities were not separately paid for administrative tasks related to lab testing—such as labeling of test tubes and specimen containers.

OIG analysis
Once again, the OIG expressed its "longstanding and clear" position on labs providing free or discounted items or services to potential referral sources—" such arrangements are suspect and may violate the anti-kickback statute." This position was unaffected by the change in relevant payment systems between the 2008 and current proposals, the OIG said. Regardless of the payment system, the free services still saved the dialysis facilities from incurring a cost they'd otherwise bear on their own.

Additionally, the OIG pointed out that giving these labeling services to referral sources for free could also result in improper swapping arrangements. Because lab tests for dialysis services are bundled, discounts on dialysis-related lab services could induce the facility to send that lab its non-dialysis testing— which the lab can directly bill to Medicare or other federal programs.

It didn't help that in both the 2008 and current advisory opinion requests, the lab admitted its selection of which facilities got the free labeling services could depend "upon whether offering such services would be necessary to obtain or retain the business of a particular dialysis facility."

It seems the lab was possibly interested in getting a OIG statement that its competitors were offering kickbacks. The requesting lab in the 2008 and the current opinion notes some of its competitors are already providing these free services. The OIG warned that "comparable competitor arrangements" could likewise "run afoul of the anti-kickback statute."

Takeaway: OIG reiterates its disdain for labs providing free items and services to referral sources.