CEO SUMMARY: At the request of a yet-unidentified laboratory, the Office of the Inspector General issued Advisory Opinion 05-08 last month. It is a negative opinion on a proposed arrangement where a laboratory would reimburse client physicians as much as $6 for each blood draw performed by the physician and/or his staff. It is unlikely that many laboratories will be affected by this negative opinion.
PHLEBOTOMY SERVICES PROVIDED by physicians and reimbursed by labs is the subject of OIG advisory opinion 05-08, issued on June 6, 2005. Labs which are involved with phlebotomy services in doctors’ offices will want to study this opinion. Labs not contemplating such an arrangement will not be affected.
The Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services issued the opinion in response to the request of an unnamed lab. The requesting lab described a specific arrangement where the lab would reimburse physicians for performing phlebotomy services and furnish drawing supplies free of charge to the physicians.
In its response, OIG declared that such an arrangement would be a substantial risk that the lab would be generating remuneration in violation of the anti-kickback statute, which could subject violators—on both sides—to both criminal and civil penalties. The OIG also points out that this fact scenario would not fit into the safe harbor provisions for personal services and management contracts because the physicians here would be paid on a per-patient basis. Also, safe harbor regulations require that aggregate compensation paid for such services be set in advance and be consistent with fair market value in an arm’s-length transaction.
A Negative Answer
“I think the factual scenario laid out in the request for an opinion was worded in such a way as to draw out a negative answer,” stated Jane Pine Wood, Partner at McDonald Hopkins, based in Cleveland, Ohio. “The facts here are really laid out to emphasize the improper intent of at least one of the parties.
“That’s consistent with the reason why the unnamed lab was requesting an advisory opinion from the OIG,” she continued. “It sought the opinion because competing laboratories were engaged in the practice. That’s why I think the lab here was looking for a specific answer to address a specific situation in its market.
“In its request for an opinion, the unnamed lab stated that it wished to enter into the proposed arrangement with physicians because competing laboratories in that market were paying referring physicians to perform blood draws,” she explained. “It is likely that this lab recognized that the activity was probably in violation of the anti-kickback statute and sought to eliminate the practice among competitors in its market.”
“Intent” Plays A Role
Wood wanted to emphasize that “intent” is something that the OIG normally takes into consideration when evaluating these types of arrangements, because the Medicare and Medicaid Anti-kickback law is an intent-based statute. “Look at this type of arrangement from another perspective,” offered Wood. “Use the scenario of a rural setting. Patients must drive a long distance to reach a lab that can draw blood. This could be a real inconvenience for some patients.
“In a case like this, an arrangement to have the physicians draw the blood specimens and for the lab to pay the physician for that service might be seen by the OIG as a benefit to the patient and might get a more favorable response. The OIG is going to factor in the intent on both sides,” she stated.
“Further, in any such situation, the laboratory would reduce its compliance risk if those physicians wanting to provide in-office phlebotomy services were to also directly bill the patients,” she noted. “Of course, physicians don’t want to do this because they recognize the difficulty of collecting fees for phlebotomy services. It would be a losing proposition.
“Not only are physicians committing staff time to do the blood draws, but there would be the added expense of billing and collection. Under the proposed arrangement in OIG 05-08, however, such physicians wouldn’t have that overhead and might realize a profit on the service.”
Under the proposed arrangement discussed by OIG 05-08, the laboratory would pay physicians between $3 and $6 for each blood draw. The OIG commented on this fact. It pointed out that the Medicare program provides for payment of $3 per patient encounter for the services envisioned.
“It’s interesting to note the OIG’s concern that, under the proposed arrangement, physicians might be paid ‘twice the $3 amount Medicare pays for blood specimen collection’,” observed Wood. “In its opinion the OIG goes on to say, ‘Where a laboratory pays a referring physician to perform blood draws, particularly where the amount paid is more than the laboratory receives in Medicare reimbursement, (italics added) an inference arises that the compensation is paid as an inducement to the physician to refer patients to the laboratory.’ Does this mean that Medicare is suddenly setting fair market value?”
Wood recommended caution in such situations. “If a lab is considering an arrangement to pay physicians for in- office phlebotomy services, it should examine the proposed arrangement very carefully,” she said. “Consider every party that might benefit from such an arrangement. If the facts fall outside the anti-kickback prohibitions, be sure the justifications are well-documented. Keep the dollar amount reasonable and document why it’s reasonable. If the lab can convince the physicians to bill patients directly, all the better.”
The compliance issues raised in OIG 05-08 are likely to evolve further in the coming months. Pathologists and laboratory administrators facing competitive pressure in their markets to enter into similar arrangements with physicians for in-office phlebotomy services, should tread carefully.