Government contracting & Medical billing: Avoided costs are kick-backs too

The Office of Inspector General’s ruling this week comes as an unwelcome surprise by casting doubt over the advantage of business models relying on related-party services.  OIG Advance Opinion 15-04 determined that, where a multi-office service provider might have an exclusive laboratory relationship, and where laboratory services were not charged to certain patients who were part of a (non-Medicare) program, it was then prohibited from billing Medicare for services to Medicare patients outside the program for comparable services.

The OIG focused on the fact that any payment was significantly higher than free so even if the amount charged Medicare was appropriate in the market, it was so disproportionate compared to the patients on the preferred program that the arrangement constituted overbilling.

In the proposal at issue, the exclusive relationship was valuable for many non-abusive reasons (including consistent patient experience and consistent reporting methodology). Thus passing cost savings on to program members was a factor but not the only motivation. The surprising rule will have a chilling effect on attempts to pass on savings where the government agency is not offered the same promotion (even when it is not able to provide the same advantages).