In June 2014, the Office of Inspector General of the Department of Health and Human Services (OIG) issued a special fraud alert (Alert) addressing two trends related to payment arrangements between laboratories and referring physicians--Specimen Processing Arrangements and Registry Arrangements.
The OIG believes that these arrangements present a substantial risk of violation of the Anti-Kickback Statute, which makes it a criminal offense knowingly and willingly to offer or pay remuneration, if even one purpose is to induce federal health care program referrals. Moreover, an anti-kickback violation can be the basis of a False Claims Act violation, exposing all parties to monetary remedies.
Curiously, shortly after the OIG published the Alert, a federal district court, in U.S. v. Symphony Diagnostic, noted that the OIG does not establish rules of law. Rather, OIG pronouncements describe arrangements that trigger further investigation. They do not render arrangements illegal per se.
Nevertheless, physicians receiving payments from laboratories or other diagnostic service providers should be aware of the details of the 2014 Alert, as well as the U.S. v. Symphony Diagnostics case.
A. Specimen Processing Arrangements
Specimen Processing Arrangements are arrangements involving direct or indirect payments from laboratories to referring physicians for certain duties, including specimen collection, centrifuging, maintenance and packaging for transport. Such payments are commonly made on a per-specimen or per-patient encounter basis, and often for expensive and specialized tests. The Alert sets out a non-exhaustive list of characteristics of these arrangements that the OIG believes could be viewed as evidence of an unlawful purpose under the Anti-Kickback Statute, including:
1. The payment is for services for which payment is also made by a third party;
2. The payment is made to the ordering physician rather than the physician's group practice, which may bear the cost of collecting and processing the specimen;
3. The payment is made on a per-specimen, per-test, per-patient or other volume or value basis;
4. The payment is conditioned on a required minimum volume or test panel;
5. The payment is made to a physician or his or her group practice, but specimen processing is actually performed by a third-party phlebotomist; and
6. The payment exceeds the fair market value of the duties or services actually performed. The OIG also cautioned that merely carving out federal health care beneficiaries from an arrangement does not make it less suspect, particularly where the arrangement contains disguised remuneration intended to generate referrals.
B. Registry Arrangements
Registry Arrangements typically involve payments from laboratories to physicians for certain duties, including submitting patient data, answering patient questions and reviewing reports. While the OIG recognizes that payments to a physician for services related to data collection and reporting may be reasonable in limited circumstances, the Alert identifies certain characteristics that may be viewed as evidence of unlawful purpose under the Anti-Kickback Statute, including:
1. The payment is conditioned on, or the laboratory recommends or encourages, the physician to perform tests with a stated frequency;
2. The laboratory collects data from and bills for duplicative or otherwise unnecessary or unreasonable tests;
3. The payment is made on a per-patient or other volume or value basis;
4. The payment is not equivalent to the fair market value of the physician's services actually rendered;
5. The payment is unsupported by adequate and timely documentation;
6. The arrangement is only available for proprietary tests or tests performed exclusively by the laboratory;
7. The test is performed by multiple labs, but the Registry lab collects data only from the tests it performs; and
8. The laboratory's requisition form makes it more difficult for the physician to make an independent medical necessity decision.
C. U.S. v. Symphony Diagnostic
The case concerned allegations of a qui tam relator, a former employee, that a mobile x-ray company engaged in large scale violations of the False Claims Act by violating the Anti-Kickback Statute. The relator alleged that the company was charging skilled nursing facilities (SNFs) impermissibly low prices for its Medicare Part A mobile x-ray services to obtain Medicare Part B mobile x-ray referrals from the SNFs, an arrangement referred to as "swapping."
Despite conceding that the company always tried to price its Part A services above its variable cost to perform Part A services, the relator alleged that the company violated the Anti-Kickback Statute by pricing its Part A services below the sum of its variable and fixed costs.
The court was not persuaded that it was legally bound to accept "total costs" or "fully loaded costs" as the only acceptable measure of costs under the Anti-Kickback Statute, recognizing that incremental cost analysis may be a permissible measure of costs under the Anti-Kickback Statute.
Nevertheless, the relator also argued that the court should give deference to OIG advisory opinions that found pricing arrangements below total cost to be "suspect."
The court explained, however, that "OIG advisory opinions do not establish rules of decision, and are not to receive judicial deference." At most, the OIG finding a practice to be "suspect" would trigger further investigation, not render the practice per se illegal, and ultimately the court dismissed the case against the mobile x-ray company.
While OIG advisory opinions and Alerts may not be dispositive, prudent physicians and diagnostic service providers should carefully review their arrangements, taking account of characteristics that might render them "suspect" and, thereby perhaps trigger further investigation and sanction. Also, physicians and laboratories should remember that liability for violating the Anti-Kickback Statute can be ascribed to all parties to an unlawful arrangement.