The Department of Health and Human Services Office of Inspector General (HHS OIG) has issued another advisory opinion in a long line of guidance from the agency regarding lab business practices.  On March 25, 2015, OIG published Advisory Opinion No. 15-04 concluding that a regional medical laboratory’s (Laboratory) proposed arrangement to provide free lab services to certain patients of physician practices, with whom the lab had exclusive referral arrangements, raised kickback concerns and potentially could violate the Social Security Act’s “substantially in excess” provision.

Under the proposed agreements, the physician practices would refer all of their patients (including Federal health care program beneficiaries) to the Laboratory for lab services, and the Laboratory would not charge the patient, physician practice or insurance plan for any services provided to a defined subset of patients enrolled in plans that require them to use a particular laboratory.  The Laboratory certified to OIG that the physicians and physician practices would receive no financial benefit as a result of the arrangement.

Despite the lack of any direct payments to the physicians or physician practices, the OIG found that the combined effect of other factors in the proposed arrangement amounted to remuneration sufficient to pose kickback concerns.  First, OIG noted that the physician practices preferred to work with a single laboratory for ease of communication and consistency in reporting.  Second, the physician practices could relieve themselves of certain monthly maintenance fees they otherwise would incur if they needed to maintain additional interfaces with other laboratories.  According to OIG, the combined effect of these factors reduced the practices’ administrative and possible financial burdens associated with working with several medical laboratories.  Thus, the Laboratory “would be offering remuneration to induce the referral of Federal health care program beneficiaries.”  OIG added that the Laboratory presented no quality- or safety-related improvements stemming from the proposed arrangement that would be sufficient to reduce the kickback risk.

OIG also raised the issue as to whether the proposed arrangement posed a high enough risk of violating the “substantially in excess” provision of OIG’s permissive exclusion authority. By not charging certain commercial insurance patients but fully charging Federal health care program beneficiaries, the arrangement suggests Medicare and Medicaid could be charged a rate “substantially in excess” of the rates charged to other payors. The OIG found that such a possibility was sufficient to withhold granting the Laboratory’s proposal “prospective immunity” under the law.