Physician-Lab Agreements to Provide Exclusive Lab Services and Waive Patient Fees Could Be Kickback, OIG Advises

The federal Office of the Inspector General (OIG) reviewed a laboratory’s proposal to enter into agreements with physician practices to provide all laboratory services for the practices’ patients, and waive all fees for those practices’ patients who are enrollees of certain insurance plans that require patients to use a different laboratory. In Advisory Opinion No. 15-05 (posted 3/25/15), OIG concluded that this proposed arrangement could constitute an illegal kickback under federal anti-kickback law.OIG lab antikickback

The Bottom Line

Clinical laboratories should not enter into exclusive arrangements with physician practices under which the lab covers patient fees for patients enrolled in some insurance plans, as this likely constitutes an illegal kickback.

OIG’s Advisory Opinion: The Background Facts

The lab requesting the opinion is a multi-regional medical laboratory that provides clinical lab, anatomic pathology, and forensic pathology services to hospitals, long-term care and assisted facilities, physicians, businesses, and government agencies.

There are the facts:

Typically, when [the lab’s] physician-practice clients order laboratory tests, their patients go to one of these patient service centers where the patient’s blood is drawn, or other sample is collected, and then is tested at a laboratory site. The [lab] transmits the results back to the physician practice in the manner the physician requested …

[S]ome physician practices have expressed a desire to work with a single laboratory……..

[A]pproximately 70 percent of the [lab’s] physician-practice clients have patients who are enrolled in insurance plans that require their enrollees to use a particular laboratory … [which means that] if the Requestor [lab] is not the Exclusive Plan’s designated laboratory, the then Exclusive Plan would not pay the Requestor for any testing performed on the Exclusive Plan’s enrollees (even as an out-of-network provider)….

Under the Proposed Arrangement, the Requestor would enter into agreements with physician practices to provide all laboratory services required by the physician practices’ patients, regardless of the patients’ health plan coverage. If a physician whose practice has an agreement with the Requestor orders a laboratory test from the Requestor for an Exclusive Plan enrollee, the Requestor would not bill the patient, the physician practice, the Exclusive Plan, or any secondary insurer for the test. The Requestor would bill all other patients … in accordance with fee schedules or contracted rates….

[N]either the physician nor the practice would receive any financial benefit from the Requestor’s provision of laboratory services at no charge to Exclusive Plan enrollees….

OIG’s Analysis of Exclusive Clinical Lab Arrangements with Physician Practices that Waive Patient Lab Fees

In the advisory opinion, OIG analyzed the above arrangement and concluded that under it, the Requestor (lab) “would provide free services to certain patients to secure all business, including Federal health care program business, from physician practices,” thus implicating the anti-kickback statute. In fact, “the main purpose of the Proposed Arrangement is to secure all of the referrals … from participating physician practices;” therefore, OIG would analyze “whether any remuneration could flow to a source of referrals or recommendations” made under this arrangement.

OIG reiterated its position that the provision of free or below-market goods or services to actual or potential sources of referrals of patients is suspect and likely violates the federal anti-kickback statute.

OIG then noted the following factors that “in combination, would amount to remuneration” to the physician practices, even then they would not be paid per se for the referral of patients to the lab under the exclusive arrangement:

  • Physician practices would experience convenience and efficiency from the arrangement
  • Physician practices would benefit from savings in their electronic medical record by virtue of having an interface with one laboratory only

OIG noted no corresponding benefits in safety or quality of patient care, and on the contrary, found that the arrangement could result in “inappropriate steering of patients.”

OIG also noted that a large number of physician-practice patients could potentially receive the free lab services.

Brief Thoughts

Previously, Health Diagnostics Laboratory Inc. agreed to pay approximately $47 million to the government after an investigation revealed the Virginia-based company paid fees to physicians in exchange for blood samples, according to The Wall Street Journal, as reported again in the Fierce Health Payer Antifraud blog.

OIG also issued a Special Fraud Alert: Laboratory Payments to Referring Physicians (6/25/14), addressing compensation paid by laboratories to referring physicians and physician group practices for blood specimen collection, processing, and packaging, and for submitting patient data to a registry or database.

OIG in this Fraud Alert referenced past OIG guidance documents and advisory opinions addressing remuneration offered and paid by laboratories to referring physicians. In these, OIG “repeatedly emphasized that providing free or below-market goods or services to a physician who is a source of such referrals, or paying such a physician more than fair market value for his or her services, could constitute illegal remuneration under the anti-kickback statute.”

OIG emphasized:

  • Whenever a laboratory offers or gives to a source of referrals [i.e., a physician or medical group] anything of value not paid for at fair market value, the inference may be made that the thing of value is offered to induce the referral of business.”
  • “This is because such transfers of value may induce physicians to order tests from a laboratory that provides them with remuneration, rather than the laboratory that providers the best, most clinically appropriate service.”
  • This is of special concern because the decision to order lab tests, as well as the choice of laboratory, is typically made by the physician with no patient input.
  • When determining the fair market value of a physician’s services, a clinical laboratory should consider whether the services for which it compensates the physician have already been, or may be paid for–including through a bundled payment–by Medicare.

The Fraud Alert goes into much detail about prohibited arrangements, and then ominously, points out that both parties to an impermissible kickback arrangement may be subject to criminal liability.

Because of heightened enforcement scrutiny of physician practice arrangements with laboratories, physicians and medical groups should have such arrangements screened by anti-kickback attorneys who can review for anti-kickback concerns. Contact our health care attorneys today to ensure that your provider arrangements are fully compliant.

Legal Strategy Session
Michael H Cohen Healthcare & FDA Lawyers

Contact our healthcare law and FDA attorneys for legal advice relevant to your healthcare venture.

Leave a Comment

Start typing and press Enter to search