According to its Web site, the mission of the HHS Office of Inspector General (“OIG”) “is to protect the integrity…of HHS programs as well as the health and welfare of program beneficiaries.” Among other functions, OIG periodically issues Special Fraud Alerts to address what it perceives as industry-wide practices of concern to it, including what it deems to be trends in health care fraud, and to provide guidance to health care professionals and institutions on violations of Federal law, including the anti-kickback statute (“AKS”). HHS, Publication of OIG Special Fraud Alerts, 59 FR 65372 (Dec. 19, 1994).

 

The AKS, 42 U.S.C. § 1320a-7b, is a criminal statute that prohibits the exchange of anything of value, or even an offer to do so, to induce (or reward) the referral of federal health care program business. AKS is an intent-based statute: it prohibits knowing and willful payments if even one of their purposes is to induce or reward referrals of Federal health care program business, even if the sum paid reflects fair market value for the service(s) rendered. Remuneration need not be in cash to qualify as unlawful remuneration under the AKS. An unlawful arrangement might include provision of free or below-market supplies, for example. OIG may infer intent from a number of factors, such as the legal structure of the arrangement, its operational safeguards, and the conduct of the parties. OIG has been aggressive in alleging AKS violations regarding agreements that in businesses other than healthcare would be commonplace and perfectly lawful.

 

It is important to understand that AKS ascribes criminal liability to parties on both sides of an impermissible “kickback” arrangement. One must also understand that a violation of AKS, a felony, can have serious consequences. Convictions are punishable by a maximum fine of $25,000, imprisonment up to 5 years, or both. In particularly serious cases, conviction can lead to exclusion from Federal health care programs, including Medicare and Medicaid. OIG can also impose civil money penalties. Hence, health care professionals and institutions need to be mindful of this law and of its teeth.

 

About two months ago, OIG issued a Special Fraud Alert concerned with laboratory payments to referring physicians, specifically payments “for blood specimen collection, processing, and packaging (“Specimen Processing Arrangements”), and for submitting patient data to a registry or database (“Registry Arrangements”) which typically involve payments by a laboratory to a physician to compensate him for data collection and reporting services. OIG, “Special Fraud Alert: Laboratory Payments to Referring Physicians” (June 25, 2014), (hereinafter “SFA.”). Neither of these practices is per se unlawful. According to the SFA, however, each is vulnerable to abuse, and the SFA lays out criteria the Agency will rely on to identify those arrangements that it deems to be suspect. Hence, engaging in the practices delineated in the SFA is apt to invite attention and inquiry, even if it does not necessarily result in conviction. In general, OIG may view as suspect laboratory payments to physicians for services that in its judgment are compensated at rates above fair market value, or that the laboratory does not actually need, or for which the physician is otherwise compensated.

 

In the SFA, OIG pointed out that it had previously admonished that “providing free or below-market goods or services to a physician who is a source of 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.”

 

Emphasizing the relatively minimal role the patient plays in laboratory testing, OIG identified in its SFA four major concerns typically associated with kickbacks—corruption of medical judgment, overutilization, increased costs to the Federal health care programs and beneficiaries, and unfair competition. 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 provides the best, most clinically appropriate service. Such transfers of value also may induce physicians to order more laboratory tests than are medically necessary, particularly when the transfers of value are tied to, or take into account, the volume or value of business generated by the physician.

 

SFA, at 2. Physicians of a certain age may find the implications offensive, but the language quoted is nevertheless the prevailing view at OIG today.

 

Let us examine more closely the two classes of agreement that OIG singled out as problematic:

1. Blood-Specimen Collection, Processing, and Packaging Arrangements. 

Specimen Processing Arrangements characteristically provide for laboratory payments to physicians for collecting blood specimens, centrifuging specimens, storing them at an appropriate temperature, and packaging them for transport. According to the SFA, many Specimen Processing Arrangements provide for payments “made on a per-specimen or per-patient encounter basis and often are associated with expensive or specialized tests.”

SFA at 3. In limited circumstances, under CPT Code 36415, Medicare will reimburse (a little) for venipuncture. Similarly, subject to some restrictions, “Medicare reimburses physicians for processing and packaging specimens for transport to a clinical laboratory through a bundled payment.” CPT Code 90000. Where laboratories are separately paying the same physician for specimen collection, however, OIG may see the double billing as evidence of intent to induce referrals.

 

OIG specifically identified as suspect the following payments made by a lab to a physician:

A. Payment exceeds fair market value for services actually rendered by the party receiving the payment.

B. Payment is for services for which payment is also made by a third party, such as Medicare.

C. Payment is made directly to the ordering physician rather than to the ordering physician’s group practice, which may bear the cost of collecting and processing the specimen.

D. Payment is made on a per-specimen basis for more than one specimen collected during a single patient encounter or on a per-test, per patient, or other basis that takes into account the volume or value of referrals.

E. Payment is offered on the condition that the physician order either a specified volume or type of tests or test panel, especially if the panel includes duplicative tests (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information), or tests that otherwise are not reasonable and necessary or reimbursable.

F. Payment is made to the physician or the physician’s group practice, despite the fact that the specimen processing is actually being performed by a phlebotomist placed in the physician’s office by the laboratory or a third party.

 

SFA at 4, 5. Note that from OIG’s perspective, limiting such payments to services rendered to non-Medicare and non-Medicaid patients is not a solution:

 

Because physicians typically wish to minimize the number of laboratories to which they refer for reasons of convenience and administrative efficiency, Specimen Processing Arrangements that carve out Federal health care program business may nevertheless be intended to influence physicians’ referrals of Federal health care program business to the offering laboratories.

 

SFA at 5.

 

2. Registry Payments.

 

OIG says it is aware that “clinical laboratories are establishing, coordinating, or maintaining databases, either directly or through an agent, purportedly to collect data on the demographics, presentation, diagnosis, treatment, outcomes, or other attributes of patients who have undergone, or who may undergo, certain tests performed by the offering laboratories.” SFA at 5. It asserts that the labs involved deceitfully claim that these data bases “are intended to advance clinical research to promote treatment, to provide physicians with valuable clinical knowledge for patients with similar disease profiles, and to provide other benefits to physicians or the healthcare industry generally” SFA, 5, 6. It expressed concern that in reality such agreements, despite the stated purposes, “may induce physicians to order medically unnecessary or duplicative tests, including duplicative tests performed for the purpose of obtaining comparative data, and to order those tests from laboratories that offer Registry Arrangements in lieu of other, potentially clinically superior, laboratories.” SFA, 6. OIG identifies the following characteristics as suspect:

A. The laboratory requires, encourages, or recommends that physicians who enter into Registry Arrangements perform the tests with a stated frequency (e.g., four times per year) to be eligible to receive, or to not receive a reduction in, compensation.

B. The laboratory collects comparative data for the Registry from, and bills for, multiple tests that may be duplicative (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or that otherwise are not reasonable and necessary.

C. Compensation paid to physicians pursuant to Registry Arrangements is on a per-patient or other basis that takes into account the value or volume of referrals.

D. Compensation paid to physicians pursuant to Registry Arrangements is not fair market value for the physicians’ efforts in collecting and reporting patient data.

E. Compensation paid to physicians pursuant to Registry Arrangements is not supported by documentation, submitted by the physicians in a timely manner, memorializing the physicians’ efforts.

F. The laboratory offers Registry Arrangements only for tests (or disease states associated with tests) for which it has obtained patents or that it exclusively performs.

G. When a test is performed by multiple laboratories, the laboratory collects data only from the tests it performs.

H. The tests associated with the Registry Arrangement are presented on the offering laboratory’s requisition in a manner that makes it more difficult for the ordering physician to make an independent medical necessity decision with regard to each test for which the laboratory will bill (e.g., disease-related panels).

SFA, at 6. Also characterized as suspect: “if a laboratory were to pay, and collect data for its Registry from, only a subset of physicians who were selected on the basis of their prior or anticipated referral volume, rather than their specialty, sub-specialty, or other relevant attribute.” SFA at 7. 

 

Analysis

The logical inference from the SFA is that laboratories and the physicians they work with need to be cautious in how they structure their agreements. They can still enter into Specimen Processing Arrangements and Registry Arrangements, but should recognize that the authorities may well scrutinize the details. This may be an opportune time, then, for clinical laboratories and physicians that are party to such arrangements to examine their practices and consider whether they should be restructured, or perhaps even abandoned altogether. The question to be asked always is whether OIG might be able to assert that one of the reasons for the arrangement is to induce referrals of patients for lab services.

To reduce the risk of regulatory scrutiny, payment should be offered to physicians through some formula independent of past or anticipated referrals. For example, Specimen Processing Arrangements can be set up to provide for a fair market value, set-in-advance fixed fee that does not take into account individual patients, encounters or specimens. It may be useful to expressly disclaim in the agreement any intent to induce or reward referrals. It would certainly be prudent to studiously avoid arrangements with any of the features that OIG has now in its SFA expressly identified as suspect. Note, however, that an agreement with none of the characteristics OIG has expressly questioned could still violate, or could allegedly violate, AKS. The list above should be seen as illustrative, not exhaustive.

This area of the law can be confusing. Allegations of violations have serious consequences, even for those who are exonerated, as investigation and defense are often costly in time, money, and emotional capital. As discussed above, conviction can have dire consequences. Parties to these arrangements, therefore, should proceed with caution, and should seek advice of counsel.

An option that in certain circumstances might be attractive is to seek an OIG Advisory Opinion. OIG has discretion to opine on whether a proposed arrangement is likely to be seen as violative. Deciding to entrain this process, however, is no small matter. The government may require highly detailed information, it may take many months to furnish an answer, or decline to answer at all, and the answer, if given, may not be what the inquiring parties want to see. They are then faced with the dilemma of how to proceed in the face of a critical opinion. On the other hand, a favorable opinion, though not a guarantee that all will be well, is nevertheless highly reassuring. Again, it would be prudent to confer with counsel before deciding whether to seek an advisory opinion from OIG.

If it appears that the benefits of proceeding outweigh the risks, and seeking the opinion is reasonable, those involved should understand the rules. The inquiring party must certify that all of the information it provides in its request is true and correct and constitutes a complete description of the relevant facts and agreements among the parties. If OIG elects to provide the information sought, it will expressly say that it relied solely on the facts and information presented to it. OIG will not undertake an independent investigation of the information presented. It will limit its opinion to the facts presented. OIG will expressly state that “if material facts have not been disclosed or have been misrepresented, this opinion is without force and effect.” OIG will also standardly issue two other caveats:

1) Any definitive conclusion regarding the existence of an anti-kickback violation requires a determination of the parties’ intent, which determination is beyond the scope of the advisory opinion process; and

2) OIG’s opinion may not be relied on by any persons other than the requestor. This language notwithstanding, these opinions, identifiers redacted, are matters of public record, and are often studied to attempt to ascertain how by analogy OIG is likely to evaluate a given agreement.

Additional information about the advisory opinion process may be found at: http://oig.hhs.gov/faqs/ advisory-opinions-faq.asp.

Finally, readers are reminded that, in addition to the Federal AKS discussed above, many states have enacted similar legislation that also governs agreements between laboratories and physicians as well as other common agreements in health care. Discussion of that topic is beyond the scope of this paper, but complying with the federal rules does not necessarily mean that state law has also been complied with, and vice-versa. In structuring arrangements, both sets of law must be taken into account.

 

Joseph P. McMenamin MD, LLM.

Chief Legal Officer

W Medical Strategy Group

 

Joe is the Chief Legal Officer of W Medical Strategy Group. Joe also practices law at McMenamin Law Offices, PLLC. He has more than 25 years of experience in defending biotech, pharmaceutical and other healthcare organizations against a variety of allegations in state and federal court. He also has advised them on a variety of legal issues. Joe has counseled hospitals, nursing homes, physicians, and other health care providers with respect to a wide array of legal issues as well, including their interactions with regulated industry.