The Health and Human Services Office of Inspector General (OIG) in a recent advisory opinion expressed concern about a laboratory services arrangement in which a lab management company would help physician groups set up their own labs. Advisory Opinion 13-03 (posted June 13, 2013) concerns the provision of laboratory services by a laboratory company to the patients of a physician practice not covered by a government payer. In its analysis, the OIG concludes that the proposed arrangement could potentially generate prohibited remuneration under the anti-kickback statute. The requestor of the opinion is an independent clinical laboratory that proposes to set up a separate new entity that would serve as a management company to contract with physician groups to help them set up their own clinical laboratories. The management company would provide these physician group labs with facility space and laboratory management and support services and would offer to lease them personnel, equipment, and licenses to use certain proprietary methods of operation owned by the parent clinical laboratory. Each physician group laboratory would operate under its own Clinical Laboratory Improvement Amendments certificate and would be responsible for its own quality-control process and its own billing. Important to the facts, from the […]
The Health and Human Services Office of Inspector General (OIG) in a recent advisory opinion expressed concern about a laboratory services arrangement in which a lab management company would help physician groups set up their own labs.
Advisory Opinion 13-03 (posted June 13, 2013) concerns the provision of laboratory services by a laboratory company to the patients of a physician practice not covered by a government payer. In its analysis, the OIG concludes that the proposed arrangement could potentially generate prohibited remuneration under the anti-kickback statute.
The requestor of the opinion is an independent clinical laboratory that proposes to set up a separate new entity that would serve as a management company to contract with physician groups to help them set up their own clinical laboratories. The management company would provide these physician group labs with facility space and laboratory management and support services and would offer to lease them personnel, equipment, and licenses to use certain proprietary methods of operation owned by the parent clinical laboratory. Each physician group laboratory would operate under its own Clinical Laboratory Improvement Amendments certificate and would be responsible for its own quality-control process and its own billing.
Important to the facts, from the requester’s point of view, is that the physician groups would commit to provide testing only for patients who are not federal health care program beneficiaries. For those patients, the physician group laboratories would refer specimens to another laboratory along with any esoteric testing or testing they could not perform in their own laboratories. While this other laboratory could be the parent laboratory, the requester certified that it would not require, pressure, or induce the physician office laboratories to refer any testing to it or to any other health care entity owned by or affiliated with it.
From the description of the proposed arrangement in the advisory opinion, each physician group laboratory would lease space from the management company in a building operated by the management company. This would be a separate laboratory suite used exclusively by each physician group laboratory. The lease agreement would meet the requirements of the anti-kickback statute safe harbor for lease and rental of space. If the physician group laboratories procured any services from the management company, there would be a written agreement and any payments would be consistent with fair market value and not related to any referrals between the parties, according to the proposal. Imagine a medical building filled with physician group laboratories, each separate except for the common relationship with a parent laboratory.
The Analysis
The OIG’s analysis started with a concern about any arrangements that carve out federal health care beneficiaries and business from otherwise “questionable financial arrangements.” Such arrangements can be used to disguise remuneration in return for federal health care program business through the payment of amounts purportedly related to nonfederal health care program business. Remuneration could come in the form of allowing the physician group to expand into the clinical laboratory business with little or no business risk.
Even though the physician group laboratories would only bill private-pay services, the OIG notes there is a likelihood that the group laboratories would refer federally funded business to the parent independent laboratory as a matter of convenience, to show loyalty, or simply as a way to get better pricing from the parent laboratory for the test they refer. The OIG feels this provides a “nexus” between the potential profits physician groups may generate from the private-pay clinical laboratory business on one hand axnd orders of the parent laboratory services for federally insured patients on the other. The term “nexus” was used in a 1999 advisory opinion that also received a negative ruling concerning discount pricing for referral sources of an independent clinical laboratory.
Finally, the OIG expressed a concern that the financial incentives resulting from this arrangement are likely to affect the physician’s decisionmaking with respect to all of his or her patients who are federally funded health care beneficiaries, as well as private beneficiaries, potentially resulting in the overutilization of laboratory services generally.
Hanlester and Other Issues
This proposal has eerie similarities to a 1995 case involving joint venture laboratories created as part of an arrangement between physician and physician groups and a large clinical laboratory. In this case, known as The Hanlester Network v. Shalala, the physicians and the laboratory were sanctioned under the anti-kickback statute, including fines and exclusions from the Medicare program. Hanlester was an important case, and all laboratory compliance officers should become familiar with it and the legal analysis associated with it. In addition, laboratory compliance officers should review advisory opinions even not directly concerning laboratories because of the ability to learn about government thinking concerning fraud and abuse and interpretations of the various statutes that govern the industry.
