OIG Issues Advisory Opinion for Group Purchasing Organization That Includes Labs

Group purchasing organizations (GPOs) are entities that act as a purchaser of supplies and equipment for a number of other entities—usually health care providers such as hospitals. Laboratories can play a role in such arrangements. For example, just last year, molecular laboratory NeoGenomics announced it was entering into a three-year agreement with a GPO named Premier. The arrangement made NeoGenomics an in-network laboratory provider for Premier and gave the lab access to a significant number of hospitals participating in the Premier network. The volume purchasing made possible by GPOs provides the opportunities for discounts and cost savings.

This month, the U.S. Department of Health and Human Services Office of Inspector General released Advisory Opinion 16-06 addressing whether a proposed GPO arrangement, which included laboratory participants, would run afoul of the Anti-Kickback Statute. The GPO negotiated “with vendors regarding products and pricing to be offered to the GPO[’s]” members and vendors paid the GPO administrative fees (set forth in written agreements) according to a “percentage of the value of sales to members.”

That GPO’s membership included more than 84,000 health care entities including hospitals, nursing facilities, clinics, physician practices, home care and laboratories. The GPO originally had two owners: a health system and a Co-owner owned by 120 health care providers and suppliers. The health system proposed to acquire the individual entities owning the Co-owner to increase efficiencies in the GPO operations. The end result would be that the GPO would still be owned by two entities: The Health System and a New Co-Owner that the Health System would wholly own. 800 of the 84,000 GPO members were also owned or operated by the Health System.

The OIG evaluated applicability of two Anti-Kickback Statute safe harbors—the discount safe harbor and the GPO safe harbor. The discount safe harbor was relevant to the discounts the GPO negotiated with vendors for the GPO members and the vendor administrative fees the GPO distributed to members. The GPO safe harbor was relevant to the administrative fees the vendors paid the GPO. There were no issues regarding whether the discount safe harbor would be satisfied.

However, the proposed arrangement would cause the GPO to be owned by the same entity that owns one percent of the pool of GPO members—which would mean the GPO wouldn’t satisfy the definition of a GPO under the GPO safe harbor. But the OIG decided that such ownership arrangement didn’t increase the risk to federal health care programs. The OIG explained that the purpose of the GPO safe harbor was to recognize that GPOs “help reduce health care costs” by the volume discounts it can achieve on goods and services purchased. Specifically referencing laboratories’ participation in such arrangements, the OIG noted that in a 1991 final rule regarding the safe harbor a commenter had asked if “a nursing home chain requesting percentage payments from laboratories as GPO fees would qualify for the safe harbor.” The final rule stated that wholly-owned subsidiaries couldn’t do what the owner of the subsidiary couldn’t—i.e., get vendors to pay fees in exchange for referrals. But this proposed arrangement was very different than that laboratory arrangement described in the 1991 final rule, the OIG explained in the Advisory Opinion. Instead, the OIG said, the members owned by the same entity that also owned the GPO were only one percent of the total GPO members. And all the members were subject to the same terms in their GPO agreements whether they were affiliated with the Health System owning the GPO or not—so, the members related to the Health System didn’t get better terms than any other members. Therefore, because the GPO would still operate as a purchasing agent for a group of entities a majority of whom were unrelated to the GPO, the arrangement presented “an acceptably low risk of fraud and abuse in connection with the anti-kickback statute.”

The Advisory Opinion applies only to the parties requesting it. But the fact that the OIG was willing to look beyond the “letter of the law” in terms of whether the safe harbor was met and look at the realities of the arrangement is encouraging and allows an arrangement intended to save health care costs and increase efficiencies.

Takeaway: OIG says a GPO arrangement presented an “acceptably low” risk despite the fact it didn’t meet the exact definition of a GPO in the GPO Anti-Kickback safe harbor.