- within Litigation and Mediation & Arbitration topic(s)
Highlights
- The U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG) released Advisory Opinion No. 26-02, a favorable opinion concluding that a proposed arrangement in which a management entity would operate an independent clinical laboratory providing services to patients of the manager's affiliated urgent care centers would not generate prohibited remuneration under the Federal Anti-Kickback Statute (AKS) and would not warrant administrative sanctions.
- HHS-OIG found that the arrangement did not implicate the AKS because the requestor certified that no remuneration would flow from the laboratory, directly or indirectly, to the urgent care centers or any providers or suppliers furnishing care at those centers, and no compensation paid to urgent care center providers would be tied to the volume or value of services ordered from the laboratory.
- Despite the favorable result, HHS-OIG cautioned that if any remuneration were paid to referral sources to induce or reward the referral of laboratory specimens to a particular laboratory for federally reimbursable testing, the AKS would be implicated, and such conduct could expose the parties to sanctions.
Background
The management entity requesting the opinion (the requestor) is affiliated with four urgent care centers in a single state, which are operated through various management companies owned by the requestor and one affiliated professional corporation. Due to state law corporate practice of medicine restrictions, the requestor does not own the professional corporation that holds the urgent care clinic licenses; however, the requestor provides oversight and management services to all four urgent care centers and holds ownership interests in the management companies associated with each center.
Under the proposed arrangement, the requestor would own and operate an independent clinical laboratory (the laboratory) through a separate legal entity. The laboratory would not be located on the physical premises of the urgent care centers and would serve the clinical testing needs of the affiliated urgent care centers. The requestor certified that the laboratory would not be owned or operated by any individuals or entities in a position to refer laboratory testing to the laboratory.
The laboratory would directly bill payors, including federal healthcare programs, for laboratory services and would not bill any provider or supplier, including the urgent care centers, for any items or services furnished by the laboratory. All urgent care center patients would be provided with written notice of the relationship between the laboratory and the urgent care centers and would be offered the choice as to whether their laboratory test would be sent to the laboratory or an unaffiliated laboratory.
The requestor also certified that no individuals at the urgent care centers would be required to direct laboratory testing to the laboratory, and the requestor would not track referrals to the laboratory from the urgent care centers. The electronic health record system used at the urgent care centers would allow providers and suppliers to order from several laboratories, including the laboratory, and would not give preference to the laboratory.
The laboratory would not have any phlebotomists or other personnel stationed at the urgent care centers on either a full-time or part-time basis; all specimen collection would be performed by existing clinical staff at the urgent care centers as part of routine patient care.
HHS-OIG's Findings
HHS-OIG concluded that the proposed arrangement, if undertaken, would not generate prohibited remuneration under the AKS. The opinion rested on several key certifications made by the requestor:
First, no part of any compensation received by providers or suppliers at the urgent care centers would be tied to the volume or value of services ordered from the laboratory. Second, no remuneration would flow from the laboratory, directly or indirectly, to the urgent care centers or to any providers or suppliers that provide care at the urgent care centers. Third, the requestor would not, directly or indirectly, pay remuneration to the urgent care centers or their providers from any revenue derived from Laboratory services.
In summary, the requestor certified that neither it nor the laboratory would offer or pay any remuneration to any individual or entity in connection with the referral of specimens to the laboratory.
Because neither the requestor nor the laboratory would pay any remuneration to any individual or entity to induce the referral of specimens to the laboratory for testing, HHS-OIG determined that the AKS would not be implicated.
However, HHS-OIG included a notable cautionary statement, warning that if, as part of a similar arrangement, any remuneration were paid to referral sources to induce or reward the referral of laboratory specimens, the AKS would be implicated, and such conduct would not be low risk.
HHS-OIG specifically noted awareness of several types of abusive arrangements in which management companies own or are affiliated with laboratories and funnel kickbacks, directly or indirectly, to providers and suppliers in exchange for referrals. These kickbacks have taken the form of, among other things, sham investment opportunities, sham consulting arrangements, and the provision of free personnel or equipment. Such arrangements, HHS-OIG cautioned, may result in the harms the AKS is intended to prevent, including improper utilization, medically unnecessary items and services, inappropriate steering, and unfair competition.
Key Takeaways
This advisory opinion is significant for healthcare entities considering vertically integrated laboratory arrangements with affiliated clinical operations, including management services organizations with operations across multiple service lines. The favorable outcome was driven by the strict separation between laboratory revenue and compensation paid to referring providers, as well as robust patient choice safeguards, including written disclosure and the ability to select an unaffiliated laboratory.
Entities contemplating similar arrangements should note the importance of HHS-OIG's cautionary language. Even in the context of a favorable opinion, HHS-OIG flagged ongoing enforcement concerns regarding management company-laboratory affiliations and the potential for disguised kickback arrangements. This underscores the need for healthcare organizations to carefully structure laboratory affiliations to ensure that no direct or indirect remuneration flows to referral sources and that compensation structures are not tied to the volume or value of referred services.
Organizations should also be mindful that this opinion does not address the Stark Law or other applicable regulatory frameworks, which may impose additional requirements on such arrangements.
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