Executive Summary
On June 13, 2013, the Department of Health and Human Services Office of Inspector General (“OIG”) posted Advisory Opinion 13-03 (“AO”), in which it considered whether a clinical laboratory’s proposal to contract with physician practices to enable the practices to provide clinical lab services to their non-federal health care program beneficiaries only, potentially violated the federal Anti-Kickback Statute (“AKS”). The OIG concluded the proposed arrangement could violate the AKS if the requisite intent to pay for referrals existed and declined to approve the arrangement, citing the following concerns:
- The clinical lab would offer the physician groups “remuneration” in the form of a “potentially lucrative business opportunity to expand into the clinical lab business with little or no business risk.” This remuneration, the OIG reasoned, could be viewed as a reward or inducement for the physician groups’ referrals of Medicare patients to the clinical lab even though the physician groups were not contractually obligated or expected to make such referrals.
- The availability of this turn-key lab business offering excellent financial incentives could affect the physicians’ clinical judgment, potentially resulting in overutilization of laboratory services paid under the federal health care programs.
The AO can be found here.
Proposed Arrangement
Under the proposed arrangement, an independent clinical laboratory company (“Parent Lab”) would establish a new legal entity (“Management Company”) to contract with physician groups (“Physician Groups”) to help them set up their own clinical laboratories (“Physician Group Labs”). The Management Company would provide the Physician Groups with facility space and laboratory management and support and would offer to lease them personnel, equipment and licenses for use of certain of the Parent Lab’s proprietary methods of operation. The parties would enter into agreements to cover all the provided items, services or leased assets. The Physician Groups would limit referrals to their own Physician Group Labs to non-federal health care program beneficiaries. All Medicare and Medicaid patient specimens would be sent to an outside lab, possibly the Parent Lab. The Parent Lab certified that it would not “require, pressure, or induce” the Physician Groups to make any referrals to the Parent Lab or to any of the Parent Lab’s affiliates.
Analysis
First, the OIG addressed the federal business “carve-out” aspect of the arrangement; the OIG has had a longstanding suspicion of these types of arrangements under the AKS. It believes in certain instances remuneration associated with non-federal health care program business actually is paid to induce Medicare/Medicaid business. In this case, the OIG believed that the Parent Lab’s offer to set up a turn-key, non-governmental pay clinical lab business for each Physician Group could well be a subterfuge for obtaining the various Physician Groups’ Medicare/Medicaid business – the kind of classic quid pro quo that is violative of the AKS if the parties intend to pay for referrals. The OIG believed participation in the proposed arrangement would increase the likelihood that the Physician Groups would refer their Medicare/Medicaid patients to the Parent Lab for reasons of convenience, to secure favorable contracts and pricing from the Management Company, or because they failed to differentiate between their own Physician Group Labs and the Parent Lab. Thus, the OIG could not say that there was no connection between the profits earned from the federal carve-out Physician Group Labs and the Physician Groups’ referrals of Medicare/Medicaid patients to the Parent Lab, which made the establishment of the Physician Group Labs possible.
Second, the OIG expressed concern that the proposed arrangement could facilitate overutilization of lab services and increase costs to the federal health care programs, insofar as the Physician Groups might feel obligated to send all their federal health care program lab referrals – perhaps even medically unnecessary referrals – to the Parent Lab.
Conclusion/Practical Takeaways
The OIG would not offer protection for the proposed arrangement. While this AO only applies to the Parent Lab that requested the opinion, stakeholders considering comparable arrangements should reconsider in light of this AO.
An arrangement involving a federal health care program “carve-out” does not necessarily immunize such an arrangement from scrutiny; remuneration paid to a referral source – even remuneration not directly implicating federal health care program business – still may be viewed as indirectly rewarding federal health care program referrals. This has been the OIG’s position for some time.
If you have any questions or would like additional information about this topic, please contact Adele Merenstein at 317-752-4427 or amerenst@hallrender.com, Rene R. Savarise at 502-568-9365 or rsavarise@hallrender.com or your regular Hall Render attorney.
Special thanks to Aaron W. Marcus, Law Clerk, for his assistance with the preparation of this article.
