Discounted pathology services may violate law

OIG issues warning

The Office of the Inspector General (OIG) has determined that arrangements in which physicians receive pathology services at a discount below the actual cost of providing the services might violate federal anti-kickback laws.

Here’s the scenario the OIG painted: Company A, a professional corporation comprising three pathology specialists, offered its "account billing" customers discounts "that are greater than its cost savings, in order to match the prices of its competitors," the OIG noted.

In addition, "Company A’s profit margin for the non-federal health care program business . . . [was] less than the profit margin on the services that it billed directly to federal health care programs," the OIG noted.

In that case, account billing customers were physicians billed directly for pathology services for which the pathologists "accepted that payment as payment in full." Physician clients then billed the third-party payers and patients for the purchased pathology services.

Company A argued this account billing arrangement typically produced cost savings that were passed on to the physicians, a discount that was "not . . . conditioned upon the physicians sending Company A its federal health care program business," the OIG reported.

The problem: "Company A . . . assumed that the physicians receiving discounts under the proposed arrangement will send virtually all of their patients to [it]," noted the OIG.

In turn, the OIG concluded, the "circumstances surrounding the proposed arrangement suggest that a nexus may exist between the discount to the physicians for non-federal health care program business and referrals of federal health care program business."

In other words: While not official, there was a strong possibility of an implied understanding that in exchange for performing deeply discounted pathology services, physicians would refer their Medicare business to those pathologists.

Federal anti-kickback law includes an exception for "a discount or other reduction in the price of . . . services . . . under a federal health care program if the reduction is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or entity."

However, the OIG noted that this arrangement qual ified for the safe harbor because the "statutory exception for discounts . . . does not protect price reductions like those at issue here offered to one payer but not to Medicare or Medicaid."