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Summary

On October 23, 2013, Centers for Medicare & Medicaid Services (CMS) issued a Stark law advisory opinion regarding the free provision of disposable single-use cervical biopsy brushes (“Devices”) by a laboratory to referring physicians for use in obtaining a biopsy of visible exocervical lesions. CMS determined that the provision of the Devices by a laboratory free of charge to referring physicians constitutes the provision of remuneration to referring physicians and therefore, the proposed arrangement (the “Arrangement”) constitutes a compensation arrangement that implicates the Stark physician self-referral law. Although the Advisory Opinion does not analyze the Arrangement in light of possible exceptions to the Stark law self-referral prohibition, there is no Stark law exception with which the Arrangement would appear to comply.

Facts

Under the proposed Arrangement, the laboratory provides patented, sterile, disposable, single-use, and cervical biopsy devices used to obtain tissue from areas of the cervix appearing to be abnormal during vaginal examinations. The Device is a brush biopsy and is intended as an alternative to the traditional punch biopsy, which pierces and removes tissue to obtain a sample for testing. Referring physicians use the Device to biopsy areas of the cervix and the tissue is then sent to the laboratory to test for abnormal precancerous conditions and cervical cancer.

Analysis

The Stark law prohibits a physician from making a referral for certain services, including pathology and laboratory services covered by the Medicare program, to an entity with which the physician has an ownership or compensation relationship, unless the relationship falls within a specific exception. In addition, the law prohibits the laboratory from submitting claims to Medicare that are furnished as a result of a prohibited ownership or compensation relationship.

The Stark law defines a “compensation arrangement” as “any arrangement involving any remuneration” between a physician and an entity furnishing designated health services, including anatomic pathology services. In coming to its conclusion that the provision of the Device without charge to a referring physician constitutes a compensation arrangement, CMS considered, among other things, the intended purpose of the Device and whether it is “routinely used as part of a surgical or medical procedure.” After analyzing these factors, CMS concluded that the Device is “routinely” (if not predominantly) used as part of a surgical procedure for which the referring physician is compensated as part of his or her professional surgical billings. CMS determined that the Device is a “surgical item, device or supply” used by the physician to perform his or her surgical procedure, and is not used solely as a collection device for the pathology specimen. Therefore, the proposed Arrangement would result in remuneration to referring physician, because the physician would no longer be responsible for the cost of providing the instrumentation necessary for the performance of his or her surgical services.

Importantly, and unlike the Medicare and Medicaid anti-kickback law, the Stark law does not contain an “intent” factor. An ownership or compensation relationship that implicates the Stark law must comply with all of the criteria of a Stark exception or the arrangement will be illegal, subjecting both the laboratory and the referring physician to the substantial penalties that can be imposed under the Stark law. The penalties for violation of the Stark law include denial of payment for the services, civil monetary penalties of up to $15,000 for each service, as well as exclusion from the Medicare and Medicaid programs. In addition, any claims submitted for services covered by the Medicare program in violation of the Stark law can be considered false claims under the federal False Claims Act, and would then be subject to additional penalties of triple the amount of the claim plus $11,000 per claim.

Because CMS concluded that the Arrangement constitutes a compensation relationship between the laboratory and the referring physician for purposes of the Stark law, both the laboratory and the physician will be in violation of the Stark law unless the Arrangement complies with an applicable exception under the Stark law. The Stark law does not contain an exception that would clearly protect the provision of the Devices without charge by a laboratory to referring physicians. Therefore, it is highly advisable for laboratories and referring physicians to avoid the Arrangement.

 

If you have any questions regarding this Advisory Opinion, please contact:

Jane Pine Wood
508-385-5227
jwood@mcdonaldhopkins.com

Jenny McGovern
312.642.6151
jmcgovern@mcdonaldhopkins.com 

Healthcare Practice

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.

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