OIG Advisory Opinion No. 11-17 – Physician – Lab Arrangement Could be an AKS Issue

On November 23, 2011, the OIG issued Advisory Opinion No. 11-17, which concluded that a proposed arrangement between primary care physicians (the “Physicians”) and a laboratory management company (the “Lab Company”) could potentially generate prohibited remuneration under the Anti-Kickback Statute.

The Proposed Arrangement. The Lab Company proposed to provide allergy testing and immunotherapy services to patients within the Physicians’ medical offices, in addition to providing all of the necessary laboratory personnel, equipment, training, and billing and collection services. The Lab Company further proposed to assist the Physicians with marketing the allergy and immunotherapy services by preparing educational materials and reviewing the Physicians’ patient files to identify candidates that may need allergy services. All of these services were proposed to be provided by the Lab Company on an as-needed basis. The Lab Company also certified that it was not affiliated with any provider or supplier of health care items or services payable by Federal health care programs.

In return for the Lab Company’s services, the Physicians would utilize the Lab Company as their exclusive provider for allergy testing and immunotherapy services, and would provide the Lab Company with space, administrative support, general medical office supplies and furniture, general liability and malpractice insurance, and physician supervision and interpretation of the laboratory results.

The billing arrangement was structured so that the Physicians would bill Federal health care programs for the laboratory items and services provided using the Physicians’ provider numbers. Then, the Physicians would pay the Lab Company a fee equal to 60% of the gross collections as compensation for the services provided by the Lab Company. According to the Lab Company, this percentage fee is equal to the fair market value of the Lab Company’s services.

The OIG’s Analysis. In reviewing proposed arrangement, the OIG noted that the safe harbors available for equipment leases and personal services and management contracts were not available because the Lab Company would be providing the services on an as-needed basis. More specifically, this means that there would not be a set schedule for the services and that the aggregate compensation would not be set in advance.

The mere fact that the arrangement did not fit squarely within a safe harbor was not the end of the inquiry, as strict compliance is not required under the Anti-Kickback Statute. Accordingly, the OIG proceeded to review whether the arrangement otherwise posed a low-risk for fraud and abuse. In that regard, the OIG noted two concerns. First, the OIG stated that the percentage-based compensation arrangement was “inherently problematic”, as it would result in payments based upon the value and volume of business generated between the parties, rather than the fair market value of the services. Next, the OIG stated that the Lab Company’s review of patient files to identify candidates for allergy services would be a “suspect marketing activity” that could encourage the Physicians to order medically unnecessary tests thereby creating a risk of overutilization. (The OIG did not address the potential HIPAA implications of such practice).

Lastly, the OIG commented that while the Lab Company stated that the arrangement satisfied the Stark Law in-office ancillary services exception, this fact was immaterial to its analysis under the Anti-Kickback Statute, and that all transactions must be separately analyzed under both statutes.

You can get a copy of the Advisory Opinion here —–> Advisory Opinion No. 11-17

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