SNF Supplier Swapping Kickbacks: The Discount Buys the Next Referral

SNF supplier swapping kickbacks use free or discounted services to buy referrals the supplier can bill to Medicare or Medicaid. The facility saves money on expenses it would otherwise pay. The supplier gets the government-paid business. If you negotiate supplier rates, approve write-offs or know how the facility chooses its vendors, you may see the bargain that neither bill tells on its own.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

How SNF Supplier Swapping Kickbacks Work

The supplier can have two payment streams: the nursing facility pays for bundled services, and the government pays for separately billable services. Swapping ties the facility’s discounted price to its referrals of the other business.

Under Medicare Part A, the skilled nursing facility receives a bundled payment covering room, board, nursing and many outside services, including laboratory work and supplies. The facility pays its suppliers under their contracts. A lower laboratory or ambulance bill therefore leaves more of that payment with the facility.

Medicare’s consolidated-billing rules determine which services belong in the bundle.

The alleged swap joins that facility expense to a different stream of revenue. A supplier absorbs some of the facility’s costs, and the facility sends it business payable directly by Medicare Part B or Medicaid. The saved expense is the benefit the facility receives. The referral is what the supplier buys.

Would the Price Make Sense Without the Referrals?

A healthcare supplier’s price can reveal the exchange when it depends on getting the facility’s other federal-program business. In its September 1999 letter about laboratory discounts, the HHS Office of Inspector General asked whether the discounted work made business sense on its own, without the additional referrals.

The Office of Inspector General identified prices below the supplier’s fully loaded costs as one suspect pattern. Another was a price lower than the supplier offered a comparable customer generating the same or greater volume of work but offering no potential Part B or other federal-program referrals. The comparison looks beyond the discount percentage to what the supplier expects to earn from the relationship.

Exclusive-provider agreements and fixed per-patient prices tied to explicit or implicit referral agreements also drew the inspector general’s attention. The connection can sit in the pricing arrangement even when nobody writes a separate check for a referral. We examine what the supplier agreed to provide, what it charged and what business the facility promised in return.

The inspector general also explained the cost to patients and taxpayers: a supplier trying to recover losses on discounted work may have an incentive to provide unnecessary services or inflate its government bills. The facility’s bargain can create pressure somewhere else in the care and payment chain.

Regent: Free Ambulance Transport for Referrals

Free ambulance transport for SNF Part A residents in exchange for Part B referrals gives the facility an immediate saving and the ambulance company another source of payment. Regent Management Services shows why the facility’s side of that exchange matters.

In November 2015, Regent agreed to pay approximately $3.199 million to settle allegations that it received kickbacks from ambulance companies. Regent managed twelve separately owned and operated nursing facilities. The government alleged that ambulance companies provided free or heavily discounted transports in exchange for Regent’s referrals of other lucrative Medicare and Medicaid business.

Those discounted transports were expenses Regent would otherwise have borne at substantially higher rates. The alleged benefit was a smaller operating bill, delivered through the supplier’s pricing.

The company settling was the nursing-facility manager. Its role in choosing the ambulance supplier and receiving the saving put it inside the alleged exchange, even though the ambulance companies billed the separately payable transports. The person approving the facility contract may understand a part of the arrangement that the supplier’s Medicare billing staff never sees.

Kan-Di-Ki and Portable X-Ray and Lab Discounts

Portable X-ray and lab discounts in a nursing home swapping arrangement can connect a cheap facility contract to a much more valuable government-paid account. Kan-Di-Ki, doing business as Diagnostic Laboratories and Radiology, settled for $17.5 million in September 2013. The government alleged that below-cost Part A rates bought Medicare Part B and Medi-Cal referrals.

The whistleblowers’ complaint described artificially low prices for work the nursing homes paid from their own budgets. In return, it alleged, the homes sent all their Part B and Medi-Cal business to Diagnostic Labs, which billed those programs directly at the maximum allowable rate. The complaint put the value of the discount plainly:

The complaint alleged fixed rates as low as $1 per patient per day for Part A and HMO business.

Fraud and Abuse in the Health Care Market of California, published by the California Research Bureau at the California State Library in 1997, explains that capitation gives a provider a fixed budget, with the provider bearing costs that exceed it. Fee-for-service revenue instead grows with the number and type of services. In the alleged Diagnostic Labs arrangement, the supplier accepted the low fixed rate on the facility-paid side while receiving the separately billed referrals. The referral stream explains what the cheap daily rate leaves out.

The complaint also pointed to an internal analysis of hundreds of accounts showing approximately 71% discounts from fair market value on laboratory work and approximately 69% on radiology work, allegedly exchanged for referral business. It alleged that Diagnostic Labs forgave customers’ debts to keep the referrals coming. At one facility, the discounts on lab tests and X-rays did not carry over when the same types of services were billed to Medicare and Medi-Cal.

That gives an insider several connected records: the daily rate, the account analysis, the write-off and the separately billed work. The alleged bargain appears across them. An unpaid supplier bill that disappears can carry the same referral value as a low price offered at the beginning.

The Justice Department announced a collective whistleblower reward of approximately $3.8 million from the federal recovery.

Harborside and the Nominal DME Company

A nursing home’s nominal DME company can retain billing profits as the alleged referral kickback while an outside supplier does the work. This version puts a company between the nursing facility and the business actually providing the durable medical equipment.

In the government’s McKesson and MediNet allegations, a facility-affiliated supplier, CERES Strategies Medical Services, billed Medicare and retained profits while MediNet actually supplied and managed the service. The complaint alleged that the nominal supplier lacked meaningful equipment, staffing and patient-service operations of its own. Beverly facilities allegedly directed their durable medical equipment business to McKesson in exchange.

The alleged kickback was the profit CERES kept. Looking only at which company sent the Medicare bill would miss the division of work behind it: who supplied the equipment, who managed the service and who kept the money.

Harborside Healthcare and HHC Nutrition Services agreed in October 2009 to pay $1.375 million to resolve allegations involving kickbacks and assistance through a sham durable medical equipment provider that induced Harborside’s supply purchases. They also agreed not to pursue $498,000 in unbilled equipment claims.

What Evidence Is Needed to Prove Fraud?

Supplier-swapping evidence connects the facility’s financial benefit, the referral decision and the supplier’s government-paid business. The contract shows the price, account adjustments show the saving, and referral records and claims connect it to government-paid business.

The identity of each business matters too. Nursing-facility operators, management companies and service vendors can receive different payments. The certified provider, the company negotiating the supplier agreement and the company retaining a billing profit may occupy different places in the transaction. Management agreements, supplier accounts, cost reports and ownership disclosures help explain that division.

An employee who approves an account adjustment, a supplier manager who prices the contract or a facility administrator who directs the business may understand a different part of the same exchange. We work with that knowledge to connect the benefit to the referrals and the claims it generated.

When You Know What Bought the Referrals

If you know why a supplier cut the facility’s bill, forgave its debt or let its DME company keep the billing profits, speak with our whistleblower experts about the arrangement. We build the case with you around the benefit, the referrals and the people who chose the deal. We bring in health care kickback whistleblower lawyers who understand SNF supplier contracts and stay beside you from that first assessment through the case.