Yesterday, the U.S. Dept. of Health and Human Services Office of Inspector General (“OIG”) clarified its stance on a growing practice – provider attempts to circumvent fraud and abuse laws by structuring financial arrangements to apply only to business concerning non-Federal program beneficiaries.  The OIG reiterated its dim view of this practice, citing an underlying concern that ultimately, neither funds, nor provider motivations, can be adequately sequestered from one another in a universe where public and private pay patients mix. 

In the brief but direct Advisory Opinion 13-03, the OIG recites the facts of an arrangement in which an independent clinical laboratory (named as “Parent Laboratory” for purposes of the Opinion) proposed to contract with physician groups (“Physician Groups”).  The Physician Groups would set up their own clinical laboratories, to be managed by Management Company (a new legal entity established by Parent Company).  Management Company would provide Physician Groups with space, management services, support, in addition to other items offered for lease.  The Physician Groups, meanwhile, would pay Management Company a license fee, and would operate their laboratories for purposes of CLIA compliance.  Parent Laboratory certified to the OIG that the individual contracted physician laboratories would commit to provide testing only for patients who are not beneficiaries of Federal health care programs.  Specimens from Federal program beneficiaries would be routed to other laboratories, including, potentially, Parent Laboratory.  Parent Company avowed that it would not engage in any behavior to induce referrals, and supplied the OIG with mechanisms Physician Groups would utilize in order to sequester Federal program patient specimens. 

But these efforts, the OIG concluded, would not be sufficient to assuage Anti-Kickback statute (See 42 U.S.C. § 1320a-7b) compliance concerns.  The Opinion rationalized that arrangements that attempt to “carve-out” Federal program beneficiaries may, in fact, perform little more than compliance slight-of-hand, “disguising remuneration for Federal health care program business through the payment of amounts purportedly related to non-Federal health care program business.”  Specifically, the government noted:

Although the Physician Group Laboratories would bill only for services for non-Federal health care program patients, participation in the Proposed Arrangement may increase the likelihood that physicians will order services from the Parent Laboratory for Federal health care program beneficiaries. This may occur for reasons of convenience, to demonstrate commitment to the Parent Laboratory and potentially secure more favorable pricing on private pay services, or simply because the Physician Groups fail to make a distinction between the Parent Laboratory and the laboratories operated with support from the Parent Laboratory-owned Management Company.  

In other words, OIG seemed to conclude that physicians would simply be too human to comply –that factors such as “convenience” would ultimately trump even the best compliance safeguards.   The government stated that it “cannot conclude that there would be no nexus between the potential profits the Physician Groups may generate from the private pay clinical laboratory business, on the one hand, and orders of the Parent Laboratory’s services for Federally insured patients, on the other.” 

And that was not all.  The OIG also cited concerns that the financial incentives offered by the private pay arrangement with the Parent Laboratory would affect a physician’s decision-making rationale with respect to all the physician’s patients, and ultimately lead to overutilization of laboratory services by Federal program beneficiaries. 

In sum, OIG refused to offer the proposed arrangement the protections of a favorable advisory opinion, basically because the arrangement did not offer physicians enough protections from themselves. 

Could You Arrangement Have Too Much Room For Human Error?

OIG Advisory Opinion 13-03 makes clear that the margin for compliance error must be practically zero in arrangements that risk overutilization and may impact physician decision-making.  Health care providers should heed its warnings, and consider whether any of their arrangements allow for too much human risk:

  • Does your arrangement specifically carve out Federal program beneficiaries?  If so, expect scrutiny.  The Opinion makes clear that OIG is on to the fact that carve-outs are utilized in an effort to protect “otherwise questionable financial arrangements.”  The OIG has not gone so far as to say that a carve-out is never workable, only that the government views such arrangements with suspicion.
  • Does your arrangement really offer no potential remuneration?  (If you are convinced it does not, look again, and ask yourself why anyone would want to enter into it.)   In the Opinion, the OIG found that the proposed arrangement offered physicians remuneration in the form of opportunity – a chance to expand into the laboratory business with little or no business risk.  The “potential” upside, and the seeming lack of any downside, was a sufficient motivator for non-compliance, in the government’s view. 
  • Will your arrangement still be compliant, absent any human decision-making?  Arrangements with the best chance of compliance are those that require practically no human thought or action to be lawful, once implemented (for example, physician employment arrangements, via written contract, with self-implementing terms).  The arrangement proposed in the Opinion required daily, repeated efforts on behalf of physicians to appropriately sequester lab samples and follow specific protocols.
  • Does the arrangement allow for independent qualify checks and safeguards? An arrangement where physicians monitor only themselves, and where there is really no effective way to independently evaluate internal motives (such as why a specimen was routed to a particular lab at a particular time), may be too risky for the government to approve.  Providers should note that the government has given more favorable review, of late, to arrangements where independent third parties were brought in to perform quality checks (see, for example, OIG Advisory Opinion 12-22).