This opinion addresses a proposed agreement (“Proposed Arrangement”) between a national anatomic pathology laboratory (“Requestor”) and laboratories owned in whole or in part by physicians who may refer (“Referring Physicians”) patients to Requestor (“Physician Labs”) or laboratories not owned by Referring Physicians (“Non-Physician Labs”). The Referring Physicians, Physician Labs and Non-Physician Labs would be in a position to refer laboratory business to Requestor, including laboratory services billed to federal health care programs.
The full text of OIG Advisory Opinion 23-06 includes a statement of the facts considered by the Office of Inspector General.
OIG determines that the Proposed Arrangement, if undertaken, would generate prohibited remuneration under the Federal Anti-Kickback Statute, and if the requisite intent were present, the Proposed Arrangement would constitute grounds for the imposition of sanctions.
The Proposed Arrangement proposes (the following is a high-level summary of the proposed Agreement):
a. Requestor’s services are reimbursed through two components: technical and professional. The technical component covers the physical preparation of the specimen (glass slide) for review by a pathologist. The professional component covers the analysis of the slide by the pathologist who communicates the outcome of the review to the referring physician. The Requestor confirms that a significant portion of the anatomic pathology services it performs is a result of referring physicians who order tests to assist them in diagnosing and treating patients.
b. Requestor has been approached by Physician Labs and Non-Physician Labs who would be in the position to refer laboratory business to Requestor that is billable to federal health care programs and other payors.
c. The Proposed Arrangement would require the Requestor to purchase the technical component of the anatomic pathology services from the Physician Labs or Non-Physician Labs for certain anatomic pathology tests for commercially insured patients. Specifically, (i) the Physician Lab or Non-Physician Lab would perform the technical component of the referred sample; (ii) Requestor would then perform the professional component and would bill commercial insurers as an in-network provider for both components, and (iii) the Requestor would pay the referring laboratory a fair market value, per specimen-fee, for performing the technical component of the referred tests. Requestor confirmed that generally it can perform the technical component in-house at a lower cost than the amount it would pay a Physician Lab or Non-Physician Lab to perform that component. Without the Proposed Arrangement, the Requestor could perform, bill and retain the full reimbursement for anatomic pathology services billable to commercial payors rather than sharing the work to be performed and the reimbursement to be received.
d. Requestor advised that although Physician Labs and Non-Physician Labs can perform both the professional and technical components themselves, they may not be able to bill or be considered “in-network” providers for commercial payors for anatomic pathology services. The Proposed Arrangement would allow the Physician Labs and Non-Physician Labs the opportunity to provide services to patients covered by the commercial payors that they would not otherwise be eligible to be paid for providing. Referring Physicians would be more likely to refer anatomic pathology services to other laboratories – including Requestor – that maintain contracts with commercial insurers to bill for those services.
e. Physician Labs and Non-Physician Labs would not be required to refer any federal health care program business to Requestor as a condition of participating in the Proposed Arrangement and they would retain the right to refer to other laboratories. Requestor certified that the Proposed Arrangement would likely result in it receiving referrals of federal health care program business from Physician Labs and Non-Physician Labs and that without the Proposed Arrangement, Requestor would likely not receive a significant volume of referrals of federal health care business from Physician Labs and Non-Physician Labs.
It is our view that OIG’s conclusion is based upon the existence of all the factors in the Arrangement. We expect that a different conclusion may be reached by OIG if one or more of those factors did not exist.
The following summarizes OIG’s legal analysis:
a. The Proposed Arrangement would implicate the Federal Anti-Kickback Statute (“AKS”) because it would involve the payment of remuneration by Requestor to Physician Labs and Non-Physician Labs that are parties “in a position to make referrals to Requestor for items and services that may be paid for, in whole or in part, by a Federal health care program.”
b. OIG opines that although the Proposed Arrangement would not involve the referral of, or billing for, services reimbursable by federal health care programs (“carve out”), the carve out is not dispositive with respect to whether the Proposed Arrangement implicates the AKS. OIG cites its “longstanding concern about arrangements under which parties carve out referrals of Federal health care program beneficiaries … from otherwise questionable financial arrangements …” which it considers violations of the AKS by disguising payments for federal health care program business through the payment of amounts purportedly related to non-federal health care program business.
c. OIG expresses concern that payments from Requestor to Physician Labs and Non-Physician Labs may increase the likelihood these entities or their affiliated Referring Physicians would order services from Requestor that are billable to federal health care programs.
d. The Proposed Arrangement was cited as not protected by safe harbors related to personal services, management contractors and outcomes-based payment arrangements. Additionally, OIG provides, “It is difficult to discern any commercially reasonable business purpose for Requestor to enter into the Proposed Arrangement … other than the possibility that such payment may induce referrals of patients, including Federal health care program beneficiaries.”
e. The Proposed Arrangement’s commitment that Requestor would pay fair market value to Physician Labs and Non-Physician Labs for the performance of technical component services was cited by OIG as not protecting the Proposed Arrangement from implicating and potentially violating the AKS. OIG concludes the fact of a payment creates an incentive for referrals, regardless of whether it is at fair-market value.
OIG concludes the Proposed Arrangement poses a significant risk of functioning, at least in part, as an opportunity for Requestor to pay valuable remuneration to potential referral sources for laboratory services to induce Physician Labs and Non-Physician Labs for referrals for laboratory services reimbursable by federal health care programs.
OIG Advisory Opinions are very fact specific and, by their terms, limited to the facts presented, to the specific Requestors, and are subject to specific limitations set out in the Advisory Opinions. The above is a high-level summary and consultation with counsel is recommended for a fuller review and discussion of the Advisory Opinion.
Should you need anything else on this topic or if you have a matter that you wish to pursue with the Department of Health and Human Services’ Office of Inspector General for an Advisory Opinion, please feel free to reach out to Matthew Babcock at firstname.lastname@example.org to discuss an engagement.
This alert is not a substitute for advice of counsel on specific legal issues.
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