Is Offering Free Labelling Services to Dialysis Facilities a Kickback?

SITUATION
XYZ Labs wants to offer dialysis facilities free labeling of test tubes and specimen collection containers. But rather than offering it to all dialysis facilities, XYZ Labs would provide it only to selected facilities based on whether it thinks the freebie is necessary to attract or retain that particular facility's business.

QUESTION
Does the arrangement violate the Anti-Kickback Statute (AKS)? A. Yes, because the free labelling is designed to induce referrals B. Yes, because free services of any kind are automatically kickbacks C. No, because the arrangement meets the personal services and management contracts safe harbor D. No, because free labelling provides no benefit to dialysis facilities

ANSWER
A. The arrangement is problematic because it looks like the lab is using it to buy the dialysis facilities' referrals.

EXPLANATION
This scenario, which is based on a recent Advisory Opinion (16-12), illustrates how the Office of Inspector General (OIG) determines whether free lab services run afoul of the AKS.

Free or below-market services are problematic because they raise the inference that the lab is trying to influence the referral source to select the lab. In this case, the inference is enforced by XYZ Labs' admission that it would offer free labelling only to particular dialysis facilities when it thought the inducement was necessary to attract or retain their business. Result: The OIG said it would treat the proposed arrangement as an AKS violation. So A is the right answer.

WHY WRONG ANSWERS ARE WRONG
B is wrong because while they raise red flags, free or belowmarket lab services are not automatically treated as kickback violations and may be justified in certain circumstances, e.g., if an AKS safe harbor applies.

C is wrong because the personal services and management contracts safe harbor applies only when compensation payments are consistent with fair market value. The dialysis facilities in this case would not pay any compensation to XYZ Labs for labelling.

D is wrong because free labelling would provide dialysis facilities a tangible benefit. Explanation: The Medicare end stage renal disease (ESRD) bundled payment that dialysis facilities receive includes ESRD-related lab tests. Labelling and other services related to those tests are not broken out from the ESRD bundled payment. Result: The free labelling offered by XYZ Labs covers services the dialysis facility would otherwise have to perform at its own expense.

Takeaway: The OIG's recent Advisory Opinion continues to emphasize the government's concern that free items or services can influence provider selection or induce referrals. The OIG's conclusion reiterates a nearly identical opinion issued in 2008.