On August 24, 2010, the Office of the Inspector General for the Department of Health and Human Services (OIG) released Advisory Opinion 10-13, which addressed the acceptability under the federal anti-kickback laws of a hospital providing free pre-authorization services to patients and physicians. In sum, the OIG found such an arrangement acceptable under certain specified circumstances.

The hospital requesting the opinion noted that many commercial insurers had begun requiring that providers obtain pre-authorization in order for the insurer to cover diagnostic imaging services. Pre-authorization refers to the process where medical or other information requested by an insurer is provided to the insurer in exchange for an authorization code for coverage of a service, allowing payment from the insurer to the provider. Many of this hospital’s patients are insured through commercial carriers, which frequently require such pre-authorization for coverage. Other patients were Medicare or Medicaid enrollees in managed care organizations, which also frequently require pre-authorization. Further, each insurer maintained different requirements regarding whether the referring physician, the hospital, or the patient is responsible for obtaining pre-authorization from the insurer. According to the hospital, it commonly received incorrect pre-authorization numbers from the offices of referring physicians. In such cases, insurers routinely denied the hospital’s claims, requiring the hospital to contact the physician’s office to obtain the correct number and re-submit the claim.

Based on these facts, the hospital proposed the provision of free pre-authorization services for all patients referred to it for imaging services. The hospital proposed that, when a patient’s imaging procedure required pre-authorization, the hospital’s Pre-Access Department use documentation provided by the referring physician and contact the patient’s insurer to obtain pre-authorization. The pre-authorization would then be retained by the hospital, and also transmitted to the referring physician. The hospital would not charge for the Pre-Access Department’s services. The service would be equally available to all patients and referring physicians of the hospital.

In approving the arrangement, the OIG noted that the federal anti-kickback statute, 42 U.S.C. § 1320a-7b(b), prohibits individuals or entities from knowingly and willfully offering, paying, soliciting or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid or any other federally-funded program. Courts have interpreted the law to cover any arrangement in which one purpose of the remuneration is to induce or compensate for program referrals. Any provision of free or below-market goods or services is suspect under the anti-kickback statute. OIG noted that under its 2005 Supplemental Compliance Program Guidance for Hospitals, “arrangements under which hospitals…provide physicians with items or services for free or less than fair market value…[or] relieve physicians of financial obligations they would otherwise incur…pose significant risk.” OIG found that obtaining pre-authorization from insurers is an administrative service that may have value to physicians, depending upon the particular allocation of administrative responsibility in a provider’s insurer contract. Nevertheless, OIG determined that the proposed arrangement had a low level of risk for producing referrals. The OIG based its determination on several factors, including: 1) that the pre-authorization service would be offered on an equal basis to all patients and physicians; 2) that no payments or assurances of pre-authorization approval would be made to physicians; 3) that the hospital’s Pre-Access Department would identify itself and the nature of the program to insurers; and 4) that the hospital held a legitimate business interest in offering uniform pre-authorization services. The legitimate business interest arose based on the fact that, while insurers may place responsibility for pre-authorization on the referring physician, only the hospital’s payments are affected by any failure to obtain the pre-authorization. The OIG found the hospital’s financial interest in ensuring that the pre-authorization is diligently pursued proved a rationale for the arrangement “wholly distinct from any scheme to curry favor with referral sources.” Based on the facts presented and its analysis, OIG determined that it would not impose administrative sanctions in connection with the hospital’s pre-authorization program.

A copy of the Advisory Opinion is available here.

In asmuch as this advisory opinion was specific to the facts presented, hospitals and physicians should be cautious about extrapolating its conclusions to other situations. We would be pleased to be a resource if you have any questions about these issues.