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The rest of the story.

Editor's Note: Rosetta Hickstein, MT(ASCP), core lab supervisor of Pathology and Laboratory Medicine at All Children's Hospital in St. Petersburg, FL, asked a question about a Washington Report article on page 48 in our May 2006 issue: "New Enforcement Environment Affects Healthcare" by Daniel Garen. Her letter and the first part of his response appeared in our July 2006 issue on page 6. The second part of Mr. Garen's response was delayed from August's issue until now. Here is the remainder of his reply to Ms. Hickstein.

Mr. Garen's reply: Dr. Adams, laboratory director for Memorial Hospital, and Jim Brannon, sales rep for IVD Manufacturing Inc., are negotiating the sale of an automated chemistry system. Jim has reached his authorized marketing limit for the piece of equipment--$150,000. Jim then offers to give free chemistry reagents to help finance the transaction. These free reagents are valued at $30,000 over the life of the five-year contract. Dr. Adams agrees to the deal and signs the appropriate paperwork.

This transaction would likely be ruled to be a violation of the Antikickback Statute. The legal issues governing the provisions of free goods are complicated but are generally well settled. This answer will analyze the government's opinion on this topic and suggest some reasonable ways of structuring a transaction that would be in line with the government's guidance.

The Office of Health and Human Services (HHS) of the Inspector General (collectively, "OIG") is charged with preventing and detecting fraud, waste, and abuse, and to promote economy, efficiency, and effectiveness in HHS programs and operations. (5 U.S.C. App. 3) Essentially, the OIG is a collection of attorneys, auditors, and investigators that ensure the integrity of Medicare. As part of this work, they routinely opine on proposed transactions, such as the one described above.

In an Aug. 4, 1997, letter, the OIG stated, in relevant part: "The OIG has stated on numerous occasions its view that the provision of free goods by a seller to an actual or potential referral source may violate the anti-kickback statute depending on the circumstances. In the preamble to the 1991 safe harbor regulations, we state that giving free goods which have an independent value to a physician may violate the anti-kickback statute." 56 Fed. Reg. 35978 (July 1991).

The proposed transaction would also involve the billing of goods to Medicare that have been provided to an organization for free. This would likely be viewed as fraud. Samples and other free goods cannot be charged to the government, because the lab would be collecting reimbursement for a product they never purchased.


It should be understood that reagents that are provided at no cost for evaluation, waste, service, or correlation purposes are normally permissible as they are not billed to the government and, therefore, are not subject to the same scrutiny. However, that the amount of no-cost goods provided should be equivalent to what is necessary for this purpose.

Turning back to the transaction that Dr. Adams and Jim Brannon were discussing, it could be structured to meet the terms of the Antikickback's discount safe harbor. Under a rebate. Memorial Hospital could make a volume commitment that would make it eligible for a payment at the end of the year. This rebate would not be tied to a specific purpose. In other words, Memorial Hospital could take the money and drop it to its bottom line, remodel its cafeteria, or use it for the purchase of other reagents. This would provide the necessary incentive but would not likely run afoul of any regulatory entanglements.

Another way to structure the transaction would be to discount reagents at the point of sale. The savings could accrue and help the transaction remain attractive to Memorial Hospital. Whether provided as a rebate or discount, the key for the government is the transparency in that it can easily be discerned what is occurring in the transaction.

These types of transactions require an acute familiarity with the Antikickback Statute and the relevant safe harbors. The OIG has several opinion letters on this topic, which can be found on its website: Examination of these opinions and consultation with counsel are recommended whenever structuring a transaction of this type.
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Title Annotation:Readers respond
Publication:Medical Laboratory Observer
Article Type:Letter to the editor
Date:Oct 1, 2006
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