OIG Nixes Proposed Physician Lab Arrangement

A new advisory opinion from the Office of the Inspector General (OIG) of the Department of Health and Human Services nixed a proposed arrangement between an independent clinical laboratory and physician groups highlighting the intense government scrutiny of lab-physician agreements.

The laboratory proposed to create a management company, which would contract with physician groups to assist them in establishing their own clinical laboratories. The proposed arrangement envisioned that the physician groups would only bill for patients who are not Federal healthcare program beneficiaries. Laboratory specimens of Federal healthcare program beneficiaries as well as confirmation or esoteric testing would be sent by the physician groups to other labs.

To ensure compliance under this proposed arrangement, the collected specimens at such physician group’s offices would be segregated by color-coded labeling system to distinguish private payers from Federally funded payers. The laboratory certified that it would not pressure the physician groups to refer such specimens to it, or any entity owned by or affiliated with it.

Additionally, the management company established by the laboratory would provide physician groups with various services, including laboratory management and support and facility space. The laboratory would also offer to lease to physician groups personnel, equipment, and offer to license the proprietary methods of operation for specimen accession, workflow, quality assurance standards and test report. The physician groups, however, would be responsible for obtaining a CLIA certificate and compliance. Furthermore, the physician groups would be responsible for their own laboratory’s data collection and quality review process, as well as their own billing for the laboratory services.

In its advisory opinion, the OIG stated that such an arrangement implicates the Federal antikickback statute and could result in administrative sanctions. Specifically, the agency noted that it has “long-standing concern about arrangements under which parties ‘carve out’ referrals of Federal health care program beneficiaries or business generated by Federal health care programs from otherwise questionable financial arrangements.”

The primary concern in the arrangement under review by the OIG was that it “implicate[s], and may violate, the anti-kickback statute by disguising remuneration for Federal health care program business through the payment of amounts purportedly related to non-Federal health care program business.”

According to the OIG advisory opinion, the laboratory was offering the physician groups remuneration in the form of the potentially lucrative opportunity to expand into the clinical laboratory business with little or no business risk.

While the physician groups would bill only for services for non-Federal health care program patients:

participation in the Proposed Arrangement may increase the likelihood that physicians will order services from the Parent Laboratory for Federal health care program beneficiaries. This may occur for reasons of convenience, to demonstrate commitment to the Parent Laboratory and potentially secure more favorable pricing on private pay services, or simply because the Physician Groups fail to make a distinction between the Parent Laboratory and the laboratories operated with support from the Parent Laboratory-owned Management Company. Thus, we cannot conclude that there would be no nexus between the potential profits the Physician Groups may generate from the private pay clinical laboratory business, on the one hand, and orders of the Parent Laboratory’s services for Federally insured patients, on the other.

The OIG also expressed concern that the financial incentives offered through the private pay clinical laboratory business under the proposed arrangement “are likely to affect a physician’s decision-making with respect to all of his or her patients, including Federal health care program beneficiaries, potentially resulting in the over-utilization of laboratory services generally and increased costs to the Federal health care programs.”

While the advisory opinion is limited to, among other things, the parties seeking the opinion, it nonetheless serves as an education tool for others seeking guidance about the structure of their business arrangements.

If you have questions about a proposed business arrangement, provider Medicare & Medicaid enrollment and participation, OIG exclusion, or have other legal or compliance questions, please contact our office.