Background
The Centers for Medicare & Medicaid Services (“CMS”) recently issued two advisory opinions regarding arrangements where for-profit clinical laboratories would provide certain devices without charge to physicians, including physicians that made referrals to the entities.1 These advisory opinions were the first issued by CMS in over two years. Though the arrangements discussed in the two advisory opinions appear similar in nature, CMS came to two different conclusions when analyzing the proposed arrangements.
Stark Law Exception for Lab Supplies
The Stark Law generally prohibits referring entities from exchanging remuneration unless the remuneration is paid as part of an arrangement that meets a Stark Law exception. However, the definition of remuneration excludes certain items and services. Specifically pertinent to this issue, the Stark Law remuneration definition excludes, “The furnishing of items, devices or supplies (not including surgical items, devices or supplies) that are used solely to collect, transport, process or store specimens for the entity furnishing the items, devices or supplies or are used solely to order or communicate the results of tests or procedures for the entity.”2 In the recent advisory opinions, CMS’s analysis focused on whether the devices provided were considered “surgical” devices, items or supplies.
Advisory Opinion Summary
In CMS-AO-2013-01, CMS analyzed an arrangement where the clinical laboratory would provide liquid-based Pap smear specimen collection kits to physicians for the purpose of obtaining cells for screening to detect abnormal cervical cell growth. The clinical laboratory would provide these devices to the physicians at no charge. CMS determined that, because the devices were used for screening purposes, they were not considered “surgical devices.” Because the devices at issue were low-cost, not considered surgical devices and intended to ensure proper specimen collection, CMS concluded that the provision of the devices was not remuneration. As such, CMS determined that the arrangement proposed in CMS-AO-2013-01 did not violate the Stark Law. In this advisory opinion, CMS did note that its conclusion may have been different if the device provided was not a single-use item.
In CMS-AO-2013-02, CMS analyzed an arrangement where the clinical laboratory would provide disposable biopsy brushes for use in obtaining biopsies of visible exocervical lesions to physicians at no charge. CMS determined that the biopsy brushes were “surgical devices.” In order to make this determination, CMS consulted the Food and Drug Administration (“FDA”) regulations, as well as the 510(k) premarket notification submitted to the FDA for the device. The FDA regulations identified biopsy brushes as a device intended to be used for surgical procedures. CMS also consulted the American Medical Association, which categorizes all biopsies as surgical procedures. Because the device was deemed to be a surgical device, it did not fit within the Stark Law exclusion from remuneration. As such, CMS determined that this arrangement would create a compensation arrangement and violate the Stark Law.
The varying conclusions between these two opinions results from the distinction in whether the devices provided were surgical devices or screening devices. Because the devices are both used during similar procedures, this distinction may continue to be a difficult line to draw.
Other Fraud and Abuse Issues
The Office of Inspector General of the U.S. Department of Health & Human Services (“OIG”) has also previously published several advisory opinions regarding arrangements similar to those discussed in the CMS advisory opinions.3 In those opinions, the OIG evaluated arrangements where clinical laboratories provided facilities with items and services that were used by the dialysis facilities in sending specimens to the lab for testing. The OIG concluded that the services provided to the facilities would substitute for services that the facilities were currently providing at their own expense. In one opinion, the arrangement also compensated physicians for collecting samples on a per-patient basis. Because the physicians were compensated at a rate as much as twice what Medicare would reimburse the physicians for performing those services, the arrangement was determined to impliedly compensate physicians for referrals. The OIG determined that these arrangements could potentially generate prohibited remuneration between the entities. Part of the OIG’s analysis hinged on the nature of services provided and that the clinical laboratories would likely be able to generate substantial revenue from the referrals received from the provision of these services.
Practical Takeaways
Due to the varying conclusions between these two advisory opinions, clinical laboratories should proceed with caution when considering providing devices, items or services to referring physicians or physician-owned practices. In order to fit within the exception to the Stark Law remuneration definition, items, devices or supplies provided to physicians cannot be “surgical” items, devices or supplies. CMS looks at several key factors when determining if a device is “surgical” in nature, including:
- Relevant regulations or commentary from federal agencies;
- Relevant CPT codes used for that particular device/procedure; and
- The intended purpose of the device.
Providers should also consider the Anti-Kickback Statute in specific circumstances, as similar activity may be prohibited even when physicians or physician-owned entities are not involved in the arrangement.
If you have any questions or would like additional information about this topic, please contact David H. Snow at 414.721.0447 or dsnow@hallrender.com, Alyssa C. James at 317.429.3640 or ajames@hallrender.com or your regular Hall Render attorney.
Please visit the Hall Render Blog at http://blogs.hallrender.com/ for more information on topics related to health care law.
1 CMS Advisory Opinion 2013-01 is available here. CMS Advisory Opinion 2013-02 is available here.
2 42 C.F.R. 411.351 (definition of “remuneration”).
3 See OIG Advisory Opinion 08-06; OIG Advisory Opinion 05-08; and OIG Advisory Opinion 04-16.
