Recently, the Department of Health & Human Services Office of Inspector General ("OIG") issued a Notice of Termination1 of Advisory Opinion 11-18, which was issued December 7, 2011,2 and rejected a similar proposal in Advisory Opinion 14-03.3

This is the first Notice of Termination of an Advisory Opinion issued by OIG.

OIG Advisory Opinion 11-18

OIG Advisory Opinion 11-18 responded to an inquiry from a publicly traded company ("Requestor") regarding a new service designed to facilitate the exchange of information amongst health care providers ("Coordination Service"). Specifically, Advisory Opinion 11-18 addressed whether the Coordination Service and associated fee structure ("Proposed Arrangement") would constitute grounds for penalty under the Anti-Kickback Statute. The Anti-Kickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal health care program.  Remuneration includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.  

Under the Proposed Arrangement, health care providers that purchased the Coordination Service and EHR service ("Coordination Service Package") received a discount on their monthly EHR Service subscription fees ("EHR Service Fee").  Health care providers wishing to make referrals used the Coordination Service to access an electronic database of other health care providers.  The Requestor charged a fee for making this referral ("Transmission Fee") each time a health care provider made a referral using the Coordination Service.  The party responsible for paying this fee would vary depending upon the agreements between the health care providers and the Requestor. 

Health care providers also had the option to enter into "Trading Partner Agreements" with the Requestor, which, among other benefits, provided Trading Partners favorable treatment on Transmission Fees.  When the receiving health care provider was a Trading Partner, the receiving health care provider paid the Transmission Fee.  In contrast, each time a health care provider used the Coordination Service to make a referral to a Non-Trading Partner, the referring health care provider's EHR Service discount was reduced by an amount equal to or less than $1.00, until the discount disappeared entirely.

OIG originally concluded that this Proposed Arrangement presented only a minimal risk of improper federal health care business.  At the time, OIG believed there were several factors mitigating the risk that the Transmission Fee would have an improper influence on referrals related to federal health care business:

  • The Transmission Fee was assessed each time a health provider made a referral to a receiving health care professional via the Coordination Service, regardless of whether the patient received subsequent treatment.
  • The Transmission Fee was minimal for each transaction (less than or equal to $1.00). 
  • The total amount of Transmission Fees that could be charged to a health care provider was capped at the difference between the undiscounted monthly EHR Service Fee and the discounted monthly fee charged for the EHR Service component of the Coordination Service Package.
  • Once the cap was reached, additional referrals to Non-Trading Partners had no financial consequences. 

Accordingly, OIG found that the Proposed Arrangement's fee structure would not materially alter referral decisions.

Final Notice of Termination of Advisory Opinion 11-18

Upon further consideration, OIG terminated Advisory Opinion 11-18.  OIG stated that the Proposed Arrangement discussed in Advisory Opinion 11-18 presented problematic financial incentives and posed more than a minimal risk of fraud and abuse under the Anti-Kickback Statute.  In its Notice of Termination, OIG concluded that the financial incentive provided to health care providers under the Proposed Arrangement could induce the selection of Trading Partners rather than Non-Trading Partners, particularly with respect to high-frequency services such as laboratory tests.  OIG is now stating that the factors mentioned above and considered in Advisory Opinion 11-18 are insufficient to guard against the risk to federal health care programs. 

Advisory Opinion 14-03

The Requestor is a publicly traded corporation that operates a nationwide network of clinical laboratories ("Clinical Laboratory").  Electronic transmission of laboratory test orders have become increasingly important to the Clinical Laboratory's business.  Both the Clinical Laboratory and the referring physicians benefit from the convenience of electronically transmitted orders.  The Clinical Laboratory of this arrangement has now entered into an agreement with the Requestor of Advisory Opinion 11-18 ("EHR Provider").   

Under the arrangement, the referring physicians may use the EHR Provider's EHR Service to generate and transmit orders to and receive results from the Clinical Laboratory.  When an order for a clinical laboratory test is created by a Referring Physician using the EHR Service, the Clinical Laboratory is displayed as an "in-network" laboratory because of its arrangement with the EHR Provider.  As an "in-network" laboratory, the Clinical Laboratory then pays the EHR Provider a per-order fee for each set of tests ordered by a referring physician using the EHR Provider's EHR Service.  If the referring physician uses the EHR Service to order tests from an "in-network" laboratory, such as the Clinical Laboratory, the referring physician does not pay a Transmission Fee.  However, the EHR Provider charges the referring physician a fee of up to $1.00 each time the referring physician uses the EHR Provider's EHR Service to order laboratory tests from an "out-of-network" laboratory.  Some referring physicians told the Clinical Laboratory that they would only refer laboratory tests to Requestor if it entered into the Arrangement.

OIG concluded that the 2014 arrangement posed more than a minimal risk of fraud and abuse to federal health care programs because referring physicians have the option to pay a transmission fee that is determined by the referring physicians' choice of laboratory.  OIG found that this fee structure could materially influence the referring physicians' referral decision.  Additionally, OIG determined that the 2014 arrangement may permit the Clinical Laboratory to indirectly pay compensation to the referring physicians by relieving them of a financial obligation in return for the referring physicians' laboratory test referrals. 

Practical Takeaways

Health care providers should be aware of the risks associated with entering into agreements with referral exchanges.  If the health care provider is relieved of a financial burden based upon a relationship with a referral exchange, the health care provider should scrutinize the relationship to ensure compliance with the Anti-Kickback Statute.  Per-unit or per-referral charges should be analyzed carefully.