OIG Says Lab Can’t Provide Free Services

In a recent advisory opinion, the Office of Inspector General (OIG) nixed a proposed arrangement whereby a multi-regional laboratory (Lab) sought to provide free services to out-of-network patients in exchange for exclusivity in referrals from the physicians.

Under the proposed arrangement the Lab envisioned entering into agreements with physician practices to provide all lab services required by the practice regardless of patients’ insurance coverage. In exchange, explained the Lab, the physicians obtained the “ease of communication and consistency in the reporting of test results,” that is often associated with working with a single laboratory.

Approximately 70% of the Lab’s physician-practices, however, have patients whose insurances limit the provision of lab services to specific labs (this amounted to about 10-40% of patients). To remove this roadblock the Lab proposed not to bill the patient, the practice or the health plan if it performed out-network services as long as the Lab had the exclusive agreements with the physician practice.

Under the agreement each party would represent that neither is getting a financial benefit from such an arrangement and the only item the Lab would offer to the physician would be a limited-use interface for electronic submissions.

Not so fast.

The OIG took a negative view of the proposed arrangement. It stated that the proposed arrangement potentially implicates the anti-kickback statute and the prohibition on charging Medicare or State health care programs substantially in excess of the provider’s usual charges.

The OIG took issue with the Lab’s locking down the physician referral stream. Since the OIG saw the “main purpose” of the arrangement as securing all of the referrals from a physician practice, including services paid for by federal funds, it analyzed whether remuneration would flow to the referral source.

The OIG’s position on the provision of free or below-market goods or services to actual or potential referral sources is longstanding and clear: such arrangements are suspect and may violate the anti-kickback statue, depending on the circumstances. If the physicians or physician practices would receive remuneration from the [Lab], the anti-kickback would be implicated.

In this case, while there would be no direct payments from the Lab to the physician/physician practice, the proposed arrangement would still be problematic, said the OIG.  The proposed arrangement would offer the physician practices a reduction in administrative burden (the convenience of consistent lab references) and possibly financial costs associated with using multiple labs (avoiding fee that some electronic health record vendors charge to connect to different labs). Furthermore, the arrangement had the potential to lead to “inappropriate steering of patients,” observed the agency.

The OIG also found problematic the elimination of fees for out-of-network patients while Medicare and Medicaid would continue to be billed at regular fees for services rendered to beneficiaries. “Thus, the proposed arrangement would essentially result in a two-tiered pricing structure,” said the OIG.

As proposed, the arrangement would generate prohibited remuneration, said the agency, and the parties stood to face potential sanctions such as exclusion and the imposition of civil money penalties.

If you have questions about this advisory opinion, the anti-kickback statute or have other health law questions, please contact our office.