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Negative OIG Advisory Opinion Regarding Exclusive Arrangements Between Labs and Physician Practices

On March 25, the Department of Health and Human Services Office of Inspector General (“OIG”) released Advisory Opinion 15-04 in which it concluded that an exclusive arrangement between a laboratory (“Requestor Lab”) and physician practices could generate prohibited remuneration under the anti-kickback statute. Furthermore, the OIG concluded that the proposed arrangement could violate the prohibition on charging Federal health care programs substantially in excess of usual charges, for which a provider may be excluded from participation in Federal health care programs.

The Requestor Lab proposed to enter into agreements with physician practices to provide all laboratory services for the practices’ patients and waive all the fees where Requestor Lab is out-of-network.  According to the Requestor Lab, some physician practices desire to work with a single laboratory “for ease of communication and consistency in the reporting of test results.” For example, different laboratories utilize different methods of reporting test results and require different interfaces for reporting tests to the lab.  However, some patients’ insurers require the use of a specific lab and will not reimburse any other lab under out-of-network benefits (“Exclusive Plans”).

Under the proposed arrangement, where a test is ordered for an Exclusive Plan patient, the Requestor Lab would not charge the patient, physician practice, or secondary insurer for the test. The laboratory would bill all other patients not under an Exclusive Plan, including Federal health care program beneficiaries. The Requestor Lab stated that neither the physician nor the practice would receive any financial benefit from the laboratory’s provision of services at no charge to the patients with Exclusive Plans.  The physicians would not draw the samples, and thus could not bill for the blood draw or the testing. The Requestor Lab would provide a free limited-use EMR interface for submitting orders and receiving results, which the OIG had previously determined is not remuneration under the anti-kickback statute.

The OIG concluded that the proposed arrangement could potentially generate prohibited remuneration under the anti-kickback statute.  Even though the Requestor Lab certified that physicians and physician practices would receive no financial benefit, the OIG concluded that a combination of factors would amount to remuneration to the physicians in exchange for their referrals for services to the Requestor Lab. The OIG found that the Requestor Lab would reduce administrative and possibly financial burdens (e.g., electronic record interface fees) associated with using multiple laboratories, and, as such, the OIG could not conclude that there was no possibility that the laboratory was not offering remuneration to induce the referral of Federal health care program business.

In addition to the anti-kickback statute analysis, the OIG noted that it has the authority to exclude providers from participation in Federal health care programs that it concludes have submitted or caused to be submitted bills or requests for payment to Medicare or Medicaid containing charges for items or services furnished “substantially in excess” of usual charges, unless good cause is shown. The OIG concluded that the proposed arrangement could result in a two-tiered pricing structure, where a substantial number of patients (those insured by Exclusive Plans) would receive services for free, regardless of financial need, and where other patients, including Federal health care program beneficiaries, would be charged. The OIG noted that the only reason for the proposed arrangement was to remove the obstacle that prevented the physician practices from referring all laboratory business to the laboratory.  While the OIG could not conclude whether the laboratory would violate the substantially in excess provision, it opined that the risk was too high to grant the arrangement prospective immunity under the advisory opinion.

Advisory Opinion 15-04 continues the OIG’s long-standing skepticism of physician-laboratory arrangements.

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