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In a recent opinion (Opinion 13-03) from the Office of Inspector General (OIG) of the Department of Health and Human Services, the OIG expressed concerns regarding a laboratory services arrangement and the federal Medicare and Medicaid kickback statute. This opinion can be found here.

A laboratory requested the advisory opinion from the OIG about a prospective plan. Under the proposed arrangement, the laboratory’s owners would form a management company. The management company would be in the business of assisting physician groups in setting up their own laboratories. The management company would lease (or arrange for the leasing of) laboratory suites to each physician group, as well as laboratory personnel and equipment necessary to operate the laboratory. The management company would also enter into a management agreement with each physician group to manage the laboratory on behalf of the group.

Importantly, the laboratories owned by the physician groups would not perform any testing covered by government payors, such as the Medicare and Medicaid programs. Rather, the physician-owners of the laboratories would refer their government laboratory work to other laboratories. The laboratory requesting the opinion explained that it might receive referrals from the physician groups, but the physician groups would not be required to refer any laboratory testing to the laboratory.

In its request for the advisory opinion, the laboratory represented that the lease agreement and management agreement with each practice would comply with an applicable safe harbor under the Medicare and Medicaid anti-kickback law. Each lease agreement and management agreement would recite fixed, fair market value compensation to be paid to the management company for the leased items, personnel and services.

In its opinion, the OIG explained that it is a crime under the federal kickback statute to knowingly and willfully offer, pay, solicit, or receive anything of value for referring services that are reimbursed by a federal health program. This statute carries with it up to a $25,000 fine and up to five years in prison. Furthermore, violation of the statute carries additional civil monetary penalties.

The OIG stated that although the laboratory services provided in each physician group’s own laboratory did not present a kickback issue because no government testing would be involved, the potential for physicians to order government services through the management company’s affiliated laboratory was of concern. The OIG reasoned that a physician may feel obligated to use the management company’s affiliated laboratory for its government testing referrals. Although the requestor of the opinion represented that all lease agreements and management agreements would reflect fair market value pricing, the OIG remained concerned that in order to enter into a desirable business arrangement with the management company, a physician group might be more willing to refer its government testing to the affiliated laboratory.

It is important to note the OIG highlighted its concerns about any arrangements that appear to avoid anti-kickback laws by excluding services that are covered by federally-funded programs. The OIG explained that an arrangement does not escape scrutiny under the anti-kickback law simply because it excludes the government work.

For more information, please contact:

Jane Pine Wood

McDonald Hopkins has a large and diverse healthcare practice, which is national in scope. The firm represents a wide variety of healthcare providers, facilities, vendors, technology companies and associations. Our diverse experience enables us to give our clients a unique perspective on the issues that may confront them in the rapidly evolving healthcare environment.