New OIG Advisory Opinion Dubious of ‘Fair Market’

Clinical lab network requested opinion based on proposal to pay hospitals for specimen collection

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CEO SUMMARY: There is a new advisory opinion from the Office of the Inspector General (OIG). It reviewed a proposal in which a clinical lab network would pay fair market value to hospitals for specimen collection based on volume of patients tested. The OIG said this arrangement would violate the federal Anti-Kickback Statute, because hospitals still had a financial incentive to refer patients to the lab network. 

Charles-Dunham-IV

WHILE A NEW OPINION FROM THE FEDERAL GOVERNMENT about compensation based on lab test volumes may not be surprising, it does for the first time put a specific stance about the matter on the record. 

Clinical laboratory managers and pathologists responsible for regulatory compliance will want to read through the the “Advisory Opinion 22-09” recently issued by the U.S. Department of Health and Human Services’ Office of the Inspector General (OIG). 

The OIG’s overall message has long been echoed by compliance experts: Any sort of remuneration from a testing lab to a hospital or physician’s office on a per-test or per-patient basis is likely to run afoul of the Anti-Kickback Statute—notwithstanding circumstances where the payment reflects fair market value for the services. 

“Even though someone needs to collect that blood sample, and even though the amount being paid to collect the sample might be fair market value, the OIG has now expressly stated that the laboratory paying the ordering provider is at a high risk of fraud because it could be used as a way to induce referrals to that particular laboratory,” said healthcare attorney Charles Dunham IV, a shareholder at law firm Greenberg Traurig LLP in Houston. “That’s the first time that the OIG has actually come out and said it after the fraud alert in 2014.” 

Dunham was referring to the 2014 OIG document, “Special Fraud Alert: Laboratory Payments to Referring Physicians.” 

Proposed Arrangement 

The operator of a clinical laboratory network, which is not named, requested the OIG’s opinion on a proposed arrangement involving paying hospitals for specimen collection activities based on volume of patients tested. 

Under the proposal, the lab would sign contracts with hospitals around the U.S. and pay those facilities a fair-market rate on a per-patient basis to collect, process, and test specimens. The lab would bill Medicare and private insurers for the tests. 

The collection services would be performed on the patients by hospital-employed or contracted phlebotomists at the hospitals. The lab would only pay the hospitals for work done on individuals who aren’t inpatients or registered outpatients. 

In the proposed arrangement, none of the hospitals’ employed or contracted physicians would be required to refer tests to the lab in question, and those physicians would not receive any remuneration from the hospitals for any test referrals to the laboratory network.

OIG Examines Incentives

The OIG took a hard stance against the proposed arrangement between the lab network and contracted hospitals. 

“We conclude that the proposed arrangement, if undertaken, would generate prohibited remuneration under the federal Anti-Kickback Statute, if the requisite intent were present, which would constitute grounds for the imposition of sanctions,” the OIG stated.

The OIG made clear that the arrangement would not meet a safe harbor—in other words, a business practice not considered an offense under the Anti-Kickback Statute—because the payment was volume-based. The agency further dissected the proposed arrangement with these observations:

  • Financial incentives exist. Even if the lab in question was not named on test order forms, the contracted hospitals could be motivated to refer patients to the lab for tests, the OIG said. “Indeed, because of the per-patient-encounter fees paid by requestor for the services (which contract hospitals agree to receive in lieu of any reimbursement for the services from a third-party payer), contract hospitals have a financial incentive to direct any such specimens to requestor for the furnishing of laboratory services,” the agency commented.
  • Fair market value is not a safety net. Regardless of the lab proposing to only pay the hospitals fair market value for the collection and processing of specimens, the OIG noted such arrangements present a risk for fraud. 
  • It’s hard to mitigate steering tests toward the lab. Even if the hospitals verified that no physicians would be directed to order tests from the labortory network, it would be difficult to stop the physicians or the hospitals from steering business toward the lab because the hospitals have an incentive to grab payments from the lab to offset costs, the OIG stated.

Dunham noted the gap between the 2014 Special Fraud Alert and the recent OIG opinion. In this latest Advisory Opinion, “the OIG came to a definitive position now—eight years later—that even if a lab only paid for what it collected under fair market value, there’s too much inherent risk in there and it will likely be deemed fraudulent by the government,” he said.

Concerns Go Far Back

The Special Fraud Alert outlined OIG concerns about payments from clinical laboratories to physicians in excess of fair market value and payments that reflected the volume or value of referrals of federal healthcare program business. The alert came at a time when the DOJ was beginning to heavily investigate certain organizations for kickbacks—in particular, BlueWave Healthcare Consultants and Health Diagnostic Laboratory (HDL). 

The Dark Report has written extensively on those cases, including recent court actions that tie back to those labs. (See TDR, “DOJ Charges Execs over Alleged Lab Kickbacks to Obtain Restitution,” June 6, 2022.)

However, observant lab managers and pathologists shouldn’t shrug off the latest OIG opinion just because their organizations would never go as far as BlueWave and HDL did, Dunham warned.

“Even if a laboratory is paying fair market value and the arrangement doesn’t compare to what BlueWave and HDL were doing, the OIG is saying, ‘We still don’t like it,’” he added. “The OIG still thinks that it’s a high risk. That’s where they’ve finally come out and been clearer.” TDR

Contact Charles Dunham IV at 713-374-3555 or dunhamc@gtlaw.com.

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