Mid-Atlantic Health Law TOPICS

A version of this article was published in the MSBA Bar Bulletin on February 8, 2017.

The Department of Health and Human Services Office of the Inspector General (OIG) recently issued an advisory opinion that a proposed exclusive laboratory arrangement could violate the federal Anti-Kickback Statute.

A. The Anti-Kickback Statute

Under the Anti-Kickback Statute, it is illegal knowingly and willfully to solicit or to receive any remuneration in return for referring an individual to a person for the purpose of furnishing health care services paid in whole or in part by a federal health care program. "Remuneration" includes the transfer of anything of value, directly or indirectly, in cash or in kind. Violators may be subject to criminal and civil penalties, and/or may be excluded from participating in federal health care programs.

B. The Proposed Arrangement

A medical laboratory sought an advisory opinion from the OIG regarding a proposal to enter into agreements with physician practices to provide all their patients' laboratory services, regardless of the patients' health insurance coverage. Under the proposed arrangement, the laboratory would provide free laboratory testing to patients with health insurance requiring them to use a different laboratory and no "out-of-network" coverage (an "exclusive plan"), but would bill all other patients in accordance with fee schedules or contracted rates.

The laboratory stated that some physician practices have expressed a desire to work with a single laboratory for ease of communication and consistency in reporting test results. The laboratory stated that it would not provide any items or financial benefits to the physician practices other than a limited-use electronic interface for submitting orders to, and receiving test results from, the lab.

C. OIG Advisory Opinion

The OIG found that the proposed arrangement could generate remuneration in violation of the Anti-Kickback Statute. The OIG observed that the physician practices would gain cost and administrative efficiencies from using a single provider, as well as the free provision of the electronic interface, for which some competing laboratories charge a monthly fee. The laboratory also did not identify any quality or safety improvements.

The OIG also distinguished the proposed arrangement from the situation where a health care provider offers discounts or free services to uninsured or underinsured patients. The proposed arrangement here would result in a two-tiered pricing structure where patients who were insured by exclusive plans would receive free services regardless of financial need, while others, including Medicare and Medicaid patients, would be charged at the regular rates. The OIG also noted that the laboratory had no reason to offer free services other than to remove an obstacle to physicians referring all of their laboratory business to the lab.

D. Implications

The OIG opinion reflects its "longstanding" view that arrangements that offer free or below-market goods or services to referral sources are "suspect" and may violate the Anti-Kickback Statute, notwithstanding how benign they might appear at first blush.