Skilled nursing facilities are to assume the cost of durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) under a bundled payment methodology for residents in Medicare Part A covered stays. If a beneficiary is not in a covered stay — usually because he or she has exhausted Part A covered days — DMEPOS is paid under Medicare Part B and billed directly by the vendor or the patient’s DMEPOS-enrolled physician to Medicare.
“Swapping” describes a discount offered by a vendor to a SNF for items the SNF must provide under its bundled payment, in exchange for referrals to the vendor who then bills Medicare directly for these items. Enforcers may consider such swapping arrangements to constitute improper arrangements that violate the criminal Anti-Kickback Statute, the civil False Claims Act or other provisions of law. The existence of possible defenses does not mean that companies will avoid invasive and costly government scrutiny or exposure, nor does it necessarily mean the defenses will apply or that companies will avoid eventual liability under federal law.
We urge SNFs to examine arrangements with vendors to ensure they do not invite government scrutiny, run afoul of federal law or be perceived of doing so. To reduce the risk of exposure and potential liability, we recommend SNFs:
- Avoid arrangements that link or require Part B referrals in exchange for a discount to the SNF for bundled services.
- Avoid and/or carefully scrutinize arrangements that provide a discount on DMEPOS for Part A items and services in exchange for exclusivity, i.e., a promise of all referrals or exclusive access to provide items and services to residents covered under Part B, or in exchange for a preferred status.
- Avoid purchases of DMEPOS for Part A stays that are priced below the vendor’s cost (if discernable).
- Avoid purchases of DMEPOS from vendors at prices below those offered to buyers who have the same amount of Part A business as you but who do not have any potentially available Part B or other federal health care program business, if known, particularly if there is not a lawful reason for the discounts.
- Carefully review arrangements that may be offered in the form of subscriptions, “capitated rate programs” or “discounted bundles” for the above potential pitfalls.
The anti-kickback statute prohibits knowingly and willfully paying or receiving remuneration (anything of value) to induce referrals of items covered by federal healthcare programs. The statute has been interpreted to cover any arrangement where one purpose of the remuneration is to induce referrals. Violation of the statute constitutes a felony.
Additionally, any conviction would lead to automatic exclusion from participating in federal healthcare programs. The statute contains a safe harbor exception for “a discount or other reduction in price obtained by a provider of services or other entity under a federal health care program if the reduction in price is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or entity under a federal healthcare program,” but OIG has taken the position that this safe harbor is inapplicable to improper swapping arrangements.
The False Claims Act imposes civil liability on anyone who submits false claims to the government. As contended by whistleblowers and the Department of Justice, swapping arrangements can run afoul of the act for submitting claims while engaging in an arrangement that violates the Anti-Kickback Statute. If an entity makes false claims, it may pay up to treble damages and extensive penalties.
OIG guidance on swapping
The Health and Human Services’ Office of Inspector General has expressed concern with swapping arrangements. OIG cautions against arrangements where there is a nexus between (i) an alleged discount offered by a provider or vendor and (ii) the referrals of federal healthcare program business from the other party. According to OIG, a nexus may exist if:
- The contracting party is in a position to direct a significant amount of non-discounted federal healthcare program business to the provider or vendor;
- The parties have financial motives to trade discounts for referrals of non-discounted federal healthcare program business;
- The OIG has received reports that the linking of discounts and referrals is widespread throughout the industry, or a contracting party is likely to make the referrals to the vendor as a matter of business convenience.
OIG has noted that it finds certain discounts particularly suspect, including:
- Discounted prices below the vendor’s cost;
- Discounted prices that are lower than the prices that the vendor offers to a buyer that (i) generates a volume of business for the vendor that is the same or greater than the volume of Part A business generated by the SNF but (ii) does not have any potentially available Part B or other Federal health care program business;
- Discounts on PPS [bundled payment]-covered business that are coupled with exclusive vendor agreements; and
- Discounts on Medicare PPS or other capitated or prospective payment business made in conjunction with explicit or implicit agreements to refer other facility business to the vendor.
Substantial settlements with the Department of Justice reflect the risk of swapping arrangements. For example, in 2014, Omnicare paid $124.24 million — one of the largest “swapping” settlements — to resolve allegations that “Omnicare submitted false claims by entering into below-cost contracts to supply . . . drugs to [SNFs] and their resident patients to induce the facilities to select Omnicare as their pharmacy provider.”
More recently, in September 2019, Trident USA Health Services agreed to pay $8.5 million to resolve allegations that “Trident engaged in illegal ‘swapping’ arrangements under which Trident provided mobile x-rays to [SNFs] at prices below Trident’s costs to provide the services, or below fair market value, for the purpose of inducing the facilities to refer lucrative federal health program business to Trident.”
Armed with insights regarding the government’s view of swapping arrangements, SNFs would be wise to examine existing arrangements and proposed arrangements with vendors.
Lori A. Rubin is a partner at Foley & Larder LLP whose practice is focused on defending clients nationwide in government investigations and enforcement actions, especially investigations and enforcement actions arising out of the False Claims Act and Anti-Kickback Statute. Lori is based in the firm’s Washington, D.C. office. Japa Volchok, D.O., is the vice president of operations for Vohra Wound Physicians Management. He is a general surgeon and practicing wound care physician and manages Vohra’s legal and regulatory affairs. Foley & Larder partner Judith A. Waltz and associate Kara Schoonover also contributed to this article.