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

CLIENT ALERT: Update on Discrimination

October 23, 2018The “#metoo” presence and the recent Kavanaugh confirmation hearings have brought sexual discrimination issues to the forefront of the American mind. Always an incendiary and confusing topic, it also includes various permutations of issues involving sex, sex stereotyping, sexual orientation, and transgender situations.Client Alert

CLIENT ALERT: Ohio Supreme Court Rules that a Subcontractor's Construction Defects are Not a Covered "Occurrence" Under a CGL Policy

October 10, 2018Although a growing number of states have held that CGL policies provide coverage for damages caused by the defective work of subcontractors, the Ohio Supreme Court has refused to join the national trend. In Ohio N. Univ. v. Charles Constr. Servs., Inc., 2018-Ohio-4057, the Ohio Supreme Court recently ruled that a subcontractor’s faulty workmanship is not a covered “occurrence” under a typical CGL policy.Client Alert

CLIENT ALERT: Taxpayer Passport Application will be Denied Due to Unpaid Taxes

July 23, 2018In late 2015, Congress passed The Fixing America’s Surface Transportation Act (FAST) into law. This law allows the IRS and State Department to refuse to issue a Passport if the taxpayer has a seriously delinquent tax debt. The law also permits the IRS and State Department to revoke a taxpayer’s Passport for these same delinquent tax debts. To be considered a seriously delinquent tax debt, the tax debt must total more than $51,000.Client Alert

CLIENT ALERT: New Opportunity Zone Incentives Promise to Spur Economic Development

June 14, 2018Created as part of the recently passed Tax Cuts and Jobs Act, “Opportunity Zones” are designed to encourage long-term investments in underserved communities. By offering tax benefits to private investors who choose to invest their capital at the nexus of need and opportunity, the program supports a broad array of investments and offers opportunity for creative problem-solving strategies to address community needs. The program offers investors tiered tax benefits depending on the term of the investment, including a temporary deferral and partial reduction of unrealized capital gains, as well as the potential to exclude all future appreciation on the investment. The program is designed to tap into the estimated $6T+ of unrealized capital gains held by U.S. individuals and companies by incentivizing investors to re-invest that capital in low-income communities to spur economic development and job creation.Client Alert

CLIENT ALERT: Medicare Trust Fund to Run Out of Funding Beginning in 2026, Likely to See an Increase in Audits, Overpayment Demands and Extrapolations

June 6, 2018Pursuant to a Medicare Trustee Report released on June 5, 2018, the Medicare trust fund will run out of funding beginning in 2026, which is three years earlier than previously expected. Although the Trustee’s report requests that Congress and the President act with urgency to remedy this problem, in the short term, we expect to see an increase in government payer audits, overpayment demands, and extrapolations.
Older posts
Newer posts