Resources

Client Alerts, News Articles, Blog Posts, & Multimedia

Everything you need to know about BMD and the industry.

Proposed Laboratory Arrangement Draws Heightened Scrutiny from the OIG

Client Alert
October 18, 2023

On September 25, 2023, the Office of Inspector General for the U.S. Department of Health and Human Services (OIG) issued Advisory Opinion 23-06 (AO). The Opinion involved a proposed arrangement between an independent laboratory and other physician laboratories for the purchase of the technical component of anatomic pathology services.

The Arrangement at Issue

The proposed arrangement specifically involved an anatomic pathology laboratory operator (“Requestor”) that entered into agreements with third-party laboratories, including laboratories that were owned by and/or employed physicians (“physician laboratories”).

Importantly, reimbursement for anatomic pathology laboratory services involves two distinct components: a “technical” component, involving the physical preparation of the specimen for pathologist review, and a “professional” component, involving analysis of the slide by the pathologist. Under the arrangement, the physician laboratory completed the technical component of the anatomic pathology service and then referred the prepared specimen to the Requestor for completion of the professional component. Once both components were finished, the Requestor billed commercial payors for both components as an in-network provider and paid the referring physician laboratory a fair market value, per-specimen fee for the technical component of the anatomic pathology service.

The OIG’s Conclusion

The OIG ultimately concluded that the arrangement at issue, if it was entered into with the requisite intent, would implicate the Federal Anti-Kickback Statute (AKS) and constitute grounds for sanctions. Notably, the proposed arrangement did not satisfy any safe harbor, including the safe harbor for personal services and management contracts. In reaching this conclusion, the OIG highlighted that 1) the arrangement allowed the Requestor to pay the physician laboratory for services that they would otherwise not be able to bill for due to their out-of-network status and 2) if the Requestor did not enter into the arrangement, it would lose out on a significant volume of referrals, including federal health care program business, from physician laboratories.

What this Opinion Means for Labs Moving Forward

This Opinion is noteworthy because the OIG opined that the proposed arrangement lacked commercial reasonableness. Even though the physician laboratory was paid fair market value for the technical component of the services under the proposed arrangement, the Requestor had the ability to perform both components and would save money and time doing so rather than paying a third party to perform the technical component. Thus, the proposed arrangement was not commercially reasonable.

Additionally, the OIG reiterated its skepticism toward arrangements that “carve out” federal health care program business in the Opinion. Historically, the OIG has been skeptical of carve out arrangements because they potentially “disguise remuneration for Federal health care program business through the payment of amounts purportedly related to non-Federal health care program business.” 

Lastly, the Opinion cautioned that, absent an applicable safe harbor, proposed arrangements must be evaluated under the AKS on a case-by-case basis by examining the totality of the circumstances to determine whether a “nexus” exists between the proposed arrangement and referrals for services reimbursable by Federal healthcare programs. Per the OIG, a nexus likely existed between the proposed arrangement at issue and referrals for services reimbursable by Federal healthcare programs for two important reasons. First, there was no commercially reasonable purpose for the arrangement for the Requestor. Second, the Requestor, because of this arrangement, would probably receive more referrals of Federal healthcare program business from physician laboratories.

Moving forward, all laboratories should exercise caution if they intend to enter into arrangements resembling the one at issue in this Opinion. In-network independent laboratories that can perform both components effectively should perform both the technical and professional components. Relatedly, out-of-network physician laboratories should not enter into arrangements where they are paid for anatomic pathology services that they are unable to independently bill for.

If you have questions about this Advisory Opinion, or third-party laboratory arrangements, please contact BMD Vice President and Healthcare Attorney Amanda Waesch at alwaesch@bmdllc.com.

Health LawAmanda L. Waeschjordan burdickAnti-Kickback Statute
Client Alert

Ohio Supreme Court Clarifies Medical Statute of Limitations

February 1, 2021The Ohio Supreme Court issued a decision in late December that clarifies and finalizes the Ohio law regarding the period of time in which patients can assert claims for medical malpractice. The Court was examining the interplay between three different statutes being the statute of limitations, the statute of repose, and the savings statute.Client Alert

Ohio Hospitals and Healthcare Clinics: It’s Time to Revisit Your Billing and Collection Practices

February 1, 2021According to a recent Cuyahoga County case, certain healthcare entities may not be protected from liability when engaging in unfair or deceptive billing acts. This decision is consistent with the growing trend across the country to encourage price transparency and eliminate unfair surprise billing practices by health care organizations. Now is the time for hospitals and other health care organizations to revisit their billing and collection policies and procedures to confirm that they are legally defensible and consistent with best practices.Client Alert

HIPAA Business Associate Agreements: Why These Contracts Matter

January 27, 2021No one loves drafting, reading or negotiating HIPAA Business Associate Agreements (BAAs). Yet many of us need to do so, and some of us do so daily. They are often boring, dense and technical, but BAAs are important from both a legal and a business perspective, and they deserve our attention. Failure to enter a BAA when one is required can constitute a HIPAA violation that results in substantial liability, as demonstrated by certain recent Department of Health & Human Services (HHS) settlements.1 A business associate who makes a disclosure that is not authorized by the applicable BAA or required by law can be subject to civil and, in some cases, criminal penalties. Further, parties are often presented with BAAs that contain onerous one-sided indemnification and other provisions that can be devasting to an organization in the event of a HIPAA breach. The significance of a BAA is often not fully understood by the parties until something goes wrong (e.g., a HIPAA security incident or breach, an Office of Civil Rights (OCR) audit or a fracture in the relationship between the parties) and, at that point, there is limited opportunity to mitigate legal and business risk. Ideally, attention should be given at the commencement of the business associate relationship, when the parties are able, to thoughtfully addressing regulatory requirements, planning and preparing for potential adverse events and appropriately allocating risk among the parties. As with most healthcare regulatory compliance initiatives, a proactive approach with respect to BAAs is preferable. This article provides a broad overview of certain BAA requirements and some practical negotiating tips for the parties involved.Client Alert

“I’m Out Of Here!” Now What?

January 27, 2021We all know that the healthcare industry is experiencing a wave of integration. This trend has been evident for many years. Fewer physicians are willing to assume the legal, financial and other business risks associated with owning their own practices. More and more physicians, including anesthesiologists, are becoming employed by large physician groups, health systems and national providers. This shift necessarily involves not only entry into new employment arrangements but also the termination of existing relationships. And those terminations are often governed by written employment agreements, state and federal healthcare laws and employer benefit plans and other policies and procedures. Before pursuing their next opportunity, physicians should pause for a moment and first attend to the arrangement that they are leaving. Departing physicians need to understand their legal rights and obligations when leaving their current employment relationships in order to avoid unintended consequences and detrimental missteps along the way. Here are a few words of practical advice for physicians contemplating an exit from their current employment arrangements.Client Alert

Investment Training for the Second and Third Generations

January 19, 2021Consider this scenario. Mom and Dad started the business from the ground up. Over the decades it has expanded into a money-making machine. They are able to sell the business and it results in a multimillion-dollar payday for their labors. The excess money has allowed Mom and Dad to invest with various financial advising firms, several fund management groups, and directly with new startups and joint ventures. Their experience has made them savvy investors, with a detailed understanding of how much to invest, when, and where. They cannot justify formation of a full family office with dedicated investors to manage the funds, but Mom and Dad have set up a trust fund for the children to allow these investments to continue to grow over the years. Eventually, Mom and Dad pass. Their children enjoy the fruits of their labors, and, by the time the grandchildren are adults, Mom and Dad's savvy investments are gone.
Older posts
Newer posts