Recently, the U.S. Department of Health & Human Services, Office of Inspector General (“OIG”) issued a Special Fraud Alert (“Alert”) entitled, “Laboratory Payments to Referring Physicians.” The Alert focuses on (1) Specimen Processing Arrangements and, (2) Registry Arrangements. These arrangements, according to the OIG, pose substantial risks for fraud and abuse under the federal Anti-Kickback Statute.

One purpose of the Anti-Kickback Statute is to protect patients from inappropriate medical referrals or recommendations by health care professionals who may be unduly influenced by financial incentives. When remuneration is paid purposefully to induce or reward referrals of items or services payable by a federal health care program, the statute is violated. Arrangements between referring physicians and laboratories have long been subject to scrutiny by the OIG for their potential to violate the Anti-Kickback Statute.^[1]

Specimen Processing Arrangements typically involve payments from labs to physicians for certain specified duties, such as collecting, processing and packaging blood specimens. Generally, payments are made on a per-specimen or per-patient-encounter basis. When a lab pays a physician for services, the potential for Anti-Kickback Statute violations is always present and there are several characteristics that may evidence such an unlawful transaction, including:

• Payment exceeds fair market value for services actually rendered by the party receiving payment;

• Payment for services for which payment is also made by a third party, such as Medicare;

• Payment is made directly to the ordering physician rather than to the ordering physician’s practice group, which may bear the cost of collecting and processing the specimen;

• Payment is made on a per-specimen basis for more than one specimen collected during a single patient encounter or another basis that takes into account the volume or value of referrals;

• Payment is offered on the condition that the physician order either a specified volume or type of tests or test panel, especially if the panel includes duplicative or unnecessary tests.

• Payment is made to the physician or physician’s practice group, despite the specimen processing being performed by a phlebotomist placed in the physician’s office or lab by a third party.

Registry Arrangements, the other suspect arrangement highlighted in the Alert, involve arrangements under which laboratories establish coordinate, or maintain databases on patients who have undergone, or who may undergo, certain tests. Labs that participate in Registry Arrangements often assert that the databases are intended to advance clinical research or to provide physicians with valuable knowledge, but the OIG is concerned that the arrangements “may induce physicians to order medical unnecessary or duplicate tests performed for the purpose of obtaining comparative data, and to order those tests from laboratories that offer Registry Arrangements in lieu of other, potentially clinically superior, laboratories.” Unlawful arrangements may be evidenced by the following:

• The laboratory requires, encourages, or recommends that physicians who enter into Registry Arrangements perform the tests with a stated frequency (e.g., four times per year) to be eligible to receive, or to not receive a reduction in, compensation.

• The laboratory collects comparative data for the Registry from, and bills for, multiple tests that may be duplicative or that otherwise are not reasonable and necessary.

• Compensation paid to physicians pursuant to Registry Arrangements is on a per-patient or other basis that takes into account the value or volume of referrals.

• Compensation paid to physicians pursuant to Registry Arrangements is not fair market value for the physicians’ efforts in collecting and reporting patient data.

• Compensation paid to physicians pursuant to Registry Arrangements is not supported by documentation, submitted by the physicians in a timely manner, memorializing the physicians’ efforts.

• The laboratory offers Registry Arrangements only for tests (or disease states associated with tests) for which it has obtained patents or that it exclusively performs.

• When a test is performed by multiple laboratories, the laboratory collects data only from the tests it performs.

• The tests associated with the Registry Arrangement are presented on the offering laboratory’s requisition in a manner that makes it more difficult for the ordering physician to make an independent medical necessity decision with regard to each test for which the laboratory will bill (e.g., disease-related panels).

The Alert does point out that the Anti-Kickback Statute does not prevent the payment of legitimate research activities. Registries which simply claim, however, they are intended to promote and support clinical research and treatment are not sufficient to disprove unlawful intent.

Both Specimen Processing and Registry Arrangements should be carefully and thoroughly drafted to avoid any hint of unlawfulness. The Anti-Kickback Statute ascribes criminal liability to both sides of an impermissible arrangement, meaning that both laboratories and physicians should take time to review their agreements to ensure payments are commercially reasonable and based on fair market value.

_{^[1] See Special Fraud Alert: Arrangements for the Provision of Clinical Laboratory Services (Oct. 1994).}