On March 25, 2015, the U.S. HHS Office of Inspector General (OIG) released an unfavorable Advisory Opinion in which it found that it could potentially impose administrative sanctions and exercise its permissive exclusion authority against a multi-regional medical laboratory (“Requestor”) proposing to enter into exclusive arrangements with physician practices to provide laboratory services to the practices’ patients. 

Under the terms of the proposed arrangement, the Requestor would provide laboratory services to all of the practices’ patients regardless of insurance coverage, but would waive all fees for those patients who are enrollees of insurance plans that require the patients to use a different laboratory than the Requestor (“Exclusive Plans”).  The Requestor certified that the Exclusive Plans do not include any individuals with Federal health care program coverage as their primary insurance, but some plan enrollees could have Federal health care program coverage as their secondary insurance.  For patients covered by Exclusive Plans, the Requestor would not bill the patients or anyone else – i.e., it would not bill the plans, the physician practices or any other secondary insurers.

The OIG found 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 or supplier’s usual charge.  With respect to the Anti-Kickback Statute analysis, the OIG began by stating that the main purpose of the arrangement was to secure all referrals, including those for services for federal health care program beneficiaries, and noting its longstanding skepticism of arrangements offering free or below market goods or services to actual or potential referral sources.  Despite the fact that the Requestor certified that the physicians and physician practices would not receive any financial benefit under the arrangement (partly due to the fact that the physicians would not be drawing the samples and, thus, would not be billing for those services), the OIG found that a number of facts, in combination, would amount to remuneration.  In particular, the OIG highlighted the fact that the physician practices expressed a preference to work with one laboratory for the sake of convenience in receiving test results and the efficiencies gained by maintaining a single interface.  The OIG found that the proposed arrangement would offer a means for the practices to work solely with the Requestor, thereby potentially reducing the administrative and possibly financial burdens associated with using multiple laboratories (e.g., monthly maintenance fees charged by electronic medical record vendors for connectivity with the interfaces).  Thus, the OIG stated that it could not rule out the possibility that, for particular agreements with physician practices, the Requestor would be offering remuneration to induce the referral of health care program beneficiaries.

The OIG also analyzed the proposed arrangement under the “substantially in excess” provision of the Social Security Act (§ 1128(b)(6)(A)), which provides permissive exclusion authority to prevent individuals and entities from charging the Medicare and Medicaid programs substantially more than their usual charges to other payors for the same items or services.  The OIG found that the proposed arrangement essentially would result in a “two-tiered pricing structure.”  Based on estimated statistics provided by the Requestor, the OIG found that a substantial number of patients may receive services for free regardless of financial need, and the proposed arrangement would relieve these patients and their plans from any obligation to pay in order to obtain all of the federal healthcare program business, which the Requestor would bill at the full rate.  The OIG acknowledged that it could not actually determine whether the Requestor would violate the substantially in excess provision without analyzing data from the physician practices, but stated that it was unable to conclude that the Requestor would not violate the provision based on the information available, and found that the proposed arrangement posed too high of a risk to grant it prospective immunity. 

For a copy of the Advisory Opinion, please click here.