Yesterday the Office of Inspector General for the Department of Health and Human Services  (the “OIG”) issued Advisory Opinion 15-04 (“Advisory Opinion”) in which it found that an exclusive arrangement between a laboratory and a physician practice could potentially generate prohibited remuneration under the Anti-Kickback Statute and also subject the laboratory to certain administrative sanctions.  Notably, the OIG also concluded that the proposed arrangement could constitute grounds for permissive exclusion under the federal prohibition against charging the Medicare and Medicaid programs “substantially in excess” of usual charges.

The Proposed Arrangement

The Requestor – a multi-regional medical laboratory – proposed entering into exclusive agreements with physician practices whereby the laboratory would provide all required laboratory services (unless the patient chose a different laboratory) to the physician practices.  According to the Requestor, some physician clients want this type of arrangement because they prefer to work with a single laboratory for ease of communication and consistency in the reporting of test results.  However, some commercial insurance plans require their enrollees to use a particular laboratory and do not pay for out-of-network laboratory services (“Exclusive Plans”).  The Requestor certified that approximately 70 percent of its physician practice clients had indicated that between 10 percent and 40 percent of their patients are enrolled in Exclusive Plans.  As part of the proposed arrangement, the Requestor would not bill the patient, the physician practice, the Exclusive Plan, or any secondary insurer for services furnished to patients enrolled in Exclusive Plans.  Nearly all other patients – whether covered by a federal health care program or a commercial insurance plan – would be billed in accordance with fee schedules or contracted rates.

Under the written agreement between the parties, each physician would be required to represent that neither the physician nor the practice would receive any financial benefit from the Requestor’s provision of free laboratory services to patients covered by Exclusive Plans, including any financial benefit received through an incentive program that would pay a bonus or impose a penalty based upon the utilization (or lack thereof) of laboratory services. The Requestor certified that it would not provide any items, services, or financial benefits, other than a limited-use electronic health records interface for submitting orders to and receiving results from the Requestor.  Physician practices would be eligible to enter into the proposed arrangement only if they did not draw the samples and thus did not bill for the blood draw or the testing.

The OIG’s Analysis

The OIG found that the proposed arrangement could generate remuneration under the Anti-Kickback Statute.  The OIG pointed to two facts that, taken together, supported its conclusion that the proposed arrangement would “reduc[e] administrative and possibly financial burdens associated with using multiple laboratories.”  First, the OIG claimed that physician practices would gain certain efficiencies because they would receive test results with consistent reference ranges (which might not be the case if they used multiple laboratories).  Second, although a physician practice typically does not pay for the EHR interface itself, the OIG believed that the proposed arrangement would relieve physician practices from having to pay monthly maintenance fees charged in connection with any EHR interface that it currently maintained with one or more other laboratories.  The OIG thus concluded that it could not rule out with sufficient confidence the possibility that the Requestor would be offering remuneration to induce the referral of federal health care program beneficiaries.  The OIG also noted that the Requestor had failed to provide any evidence of quality or safety improvements that would justify the proposed arrangement, or of any safeguards that would make the remuneration low risk under the Anti-Kickback Statute.  In fact, the OIG noted that the Proposed Arrangement could be construed as causing the inappropriate steering of patients, including federal health care program beneficiaries.

In a footnote, the OIG acknowledged that any remuneration offered to patients through the proposed arrangement presents a low risk of fraud and abuse under the Anti-Kickback Statute due to the lack of connection to services payable by a federal health care program.

Finally, the OIG concluded that the proposed arrangement may justify use of the OIG’s permissive exclusion authority under Section 1128(b)(6)(A) of the Social Security Act, which is often referred to as the “substantially in excess” provision.  This statute authorizes permissive exclusion authority for the OIG in cases where a provider or supplier charges the Medicare and Medicaid programs amounts that are “substantially in excess of” their “usual charges to other payors for the same items or services.”  Although the OIG has stated previously that providing discounted or free services to uninsured or underinsured patients does not implicate the statute, it noted that the proposed arrangement involved the provision of free services to insured patients.  The OIG thus found that the proposed arrangement could potentially cause more than half of the laboratory’s non-Medicare and non-Medicaid patients to receive free services while Medicare and Medicaid would be charged at the regular rate.

Commentary

Notably, the OIG has only opined on this permissive exclusionary authority on only a handful of occasions, and the most recent was in 2013.  The last time the OIG concluded that an arrangement could trigger exclusion under this section was in Advisory Opinion 99-13, which concerned client billing arrangements between laboratories and their physician clients.  The OIG later issued clarifying letters on April 20, 2000 and April 26, 2000.  The OIG has tried and failed on multiple occasions to implement regulations interpreting the substantially in excess provision.   Its last attempt was on September 15, 2003, but it withdrew the proposed rule in 2007.

The reasoning applied in this negative OIG advisory opinion is difficult to comprehend.  The OIG’s conclusion that the proposed arrangement would amount to remuneration apparently is based only on the fact that the physician practices would receive intangible, non-quantified benefits from consistent reference ranges and an untested presumption that the physician practices had other interfaces that resulted in charges for monthly maintenance fees, which may or may not be the case.   We note that the OIG has long been critical of the relationships between laboratories and physician practices, as evidenced most recently by a June 2014 Special Fraud Alert addressing payments by laboratories to physicians.