The U.S. Department of Health & Human Services, Office of Inspector General (OIG) recently issued Advisory Opinion No. 13-03, declining a clinical laboratory company’s proposed plan to provide various laboratory services to physician practice groups for those patients of the physician practices not covered by a federal healthcare program. Although the proposed arrangement only includes patients who are not covered by federal health care programs, the OIG opined that the physician practices would receive prohibited remuneration and that the proposed arrangement could affect the decision-making of the practices’ physicians, leading to prohibited referrals for laboratory services covered by a federal healthcare program.
One of the clinical laboratory company’s independent labs requested the opinion (Parent Lab). Under the proposed arrangement, the Parent Lab sought to establish a new company that would serve as a management company (Management Company) for several physician practices, thereby allowing the physician practices to own and operate their own clinical laboratories (Practice Labs). Under the proposed arrangement, the physician practices would purchase administrative and other support services for the Practice Labs from the Management Company pursuant to a written agreement and in exchange for a fixed rate consistent with fair market value (FMV) for such services. In addition, the physician practices would lease on an exclusive, full-time basis from the Management Company, a lab suite to house the Practice Labs. The Management Company and physician practices would enter into a written lease for the lab suite, with the rental amount set at a fixed rate consistent with fair market value (FMV). Finally, the physician practices would have the option to license from the Management Company, certain proprietary lab operation methods, as well as lab personnel and equipment. The Parent Lab indicated that the parties would enter into a written agreement for the provision of such services and that the cost for the services would be consistent with FMV and not based on referrals for federally payable items or services. The Parent Lab certified that the Practices would agree to only utilize the Practice Labs for patients who are not federal healthcare program beneficiaries, and that for such beneficiaries, the practices would be entitled to send the lab work to any lab of their choice, including the Parent Lab.
In analyzing the Proposed Arrangement, the OIG first noted its long-standing concern with joint venture arrangements, particularly those which “carve out” referrals of federal health care program beneficiaries or business generated by the federal health care programs. The OIG issued Special Advisory Bulletins scrutinizing contractual joint ventures in 1989 and again in April 2003.
In its Advisory Opinion, the OIG stated that arrangements that carve out referrals of federal health care program beneficiaries or business generated by the federal health care programs “implicate, and may violate,” the federal Anti-kickback Statute. The OIG opined that under the proposed arrangement, the Parent Lab would be offering the physician practices remuneration in the form of the opportunity to expand into a financially profitable lab business with little or no risk. The OIG further opined that the proposed arrangement could affect the decision-making of the practice’s physicians, causing the physicians to make future referrals to the Parent Lab for laboratory services covered by a federal healthcare program. For these reasons, the OIG declined to issue a favorable opinion protecting the proposed arrangement.