By Beth Anne Jackson, Brown & Fortunato
In its Advisory Opinion No. 22-09 issued April 25, 2022 (Opinion), the Office of Inspector General (OIG) concluded that a proposed arrangement (Arrangement) involving per-patient fees for specimen collection, processing, and handling paid by a clinical laboratory (Lab) to contracted hospitals (Hospitals) would generate “prohibited remuneration under the Federal anti-kickback statute, if the requisite intent were present,” constituting grounds for the imposition of sanctions, even if the per-patient fee were fair market value (FMV).
The Federal Anti-Kickback Statute makes criminal the knowing and willful offer, payment, solicitation, or receipt of remuneration to induce, or in return for, the referral of a patient to a person for the furnishing of, or arranging for the furnishing of, any item or service reimbursable under a federal health care program. The term “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind. The statute has been interpreted to cover any arrangement where one purpose of the remuneration is to induce such referrals. Many circuit courts of appeal, including the Fifth Circuit Court of Appeals that has jurisdiction over Texas, ascribe to this interpretation. Violation of the statute is a felony that can result in multiple consequences: a fine of $100,000 (max.), 10 years imprisonment, or both; and exclusion from Federal health care programs, including Medicare and Medicaid. Violations can also be pursued administratively and result in civil monetary penalties, as well as exclusion from Federal health care programs. Accordingly, the Federal Anti-Kickback Statute must be taken seriously.
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Pursuant to the Arrangement, the Lab would enter into contracts with Hospitals and pay them a per-patient encounter fee to collect, process and handle specimens (Services) that would then be sent to the Lab for testing. The Arrangement included several limitations intended to minimize the risk of violating the Federal Anti-Kickback statute. These limitations included: excluding Hospital inpatients and outpatients from the Arrangement; prohibiting Hospitals from separately billing payors or patients for the Services (which are separately billable), and requiring the Hospitals to represent and warrant that none of their employed or contracted physicians would be required to refer or be rewarded for any referrals to the Lab. These mitigation efforts, however, were overshadowed by the facts that the Hospital (a) had the opportunity to choose which clinical laboratory the specimens would be sent to if the order did not indicate one, and (b) that the Lab paid only for the collection of specimens sent to the Lab.
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The Arrangement was intended to fit within the personal services safe harbor by including a written contract signed by the parties, which covered all services to be provided and was for a term of one year; the compensation that was FMV; and the aggregate services contracted for did not exceed those which were necessary to accomplish the commercially reasonable business purpose of the services. The sticking point was the compensation: while it was FMV and set in advance, it inherently took into account “the volume or value of any referrals or other business generated between the parties” payable by Medicare, Medicaid, or other Federal health care programs because the Lab only paid for Services when the specimen was referred to the Lab.
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In its analysis, the OIG stated that the Arrangement would implicate the Federal Anti-Kickback Statute because it involved a payment from a clinical laboratory to a hospital that is in a position to make referrals to the laboratory for services payable by a federal health care program. Moreover, the OIG concluded that, under the Arrangement, the Hospitals would have a financial incentive to direct specimens for which another laboratory had not been specified to the Lab because of the per-patient encounter fees. Even though the Hospitals could otherwise have billed the patient or the patient’s insurer fairly nominal amounts for the Services (which may or may not have approximated the FMV fee paid by the Lab), the OIG viewed the Lab’s payment of the remuneration as violative of the Anti-Kickback Statute. The safeguard of prohibiting the Hospital from requiring its physicians to refer to the Lab was insufficient because the remuneration that the Hospitals received could be used to “offset the costs they incur to employ or contract with personnel to perform specimen collection services for . . . all patients, including those carved out of the . . . Arrangement.”
Arrangements, such as the one proposed in the Opinion, that do not meet all factors of the relevant Federal anti-kickback safe harbors are reviewed on a case-by-case basis. Weighing against the Arrangement were (i) the OIG’s purported experience that lab services are “particularly susceptible to the risk of steering,” and (ii) the compensation necessarily taking into account the volume or value of referrals. Failure to meet all elements of a safe harbor does not make an arrangement per se illegal. Nevertheless, in reviewing arrangements, special attention should be paid to ensuring that the “volume or value of referrals” element is not dismissed based on the existence of FMV.