September 27, 2018

What Is Remuneration? Consider Ameritox, Ltd. v. Millennium Laboratories, Inc.

Adrienne Dresevic, Carey Kalmowitz and Leslie Rojas, The Health Law Partners, P.C., Southfield, MI

AuthorAuthorAuthorLike other attorneys whose practice is dedicated to healthcare transactional and regulatory compliance matters, we genuinely appreciate the paradigm under which a client seeks our counsel prior to entering into an arrangement that potentially implicates the Physician Self-Referral Law1 (Stark Law) or the Medicare and Medicaid Anti-Kickback Statute2 (AKS).  Without exception, a proactive approach to ensure that the contemplated arrangement is structurally and operationally defensible from a Stark Law and AKS perspective will always be preferable to post-transaction efforts to extricate the client from regulatory issues that might arise from a defectively established relationship.  Nonetheless, clients often have a penchant towards consulting legal counsel primarily when dealing with complex, high-value transactions – and those arrangements that clients view as fitting within the ordinary course of business might be perceived as not rising to a level of sophistication that warrants engaging counsel. Therefore, it is incumbent upon us as healthcare counsel to keep our clients apprised of legal developments which illustrate how seemingly mundane transactions may implicate the Stark Law or AKS – and engender substantial legal risks for clients. One such case is Ameritox, Ltd. v. Millennium Laboratories, Inc.3 (Ameritox case), which is pending appeal in the 11th Circuit.

1. The Ameritox Case

            Ameritox, a urine drug monitoring and reporting company, filed an action against Millennium Laboratories, a national clinical laboratory, alleging that it engaged in unfair competition and tortiously interfered with Ameritox’s business relationships by providing free point-of-care testing cups (POCT cups)4 to physicians in violation of the Stark Law and AKS.5 By way of brief background, Millennium entered into “cup agreements” with physicians to provide free POCT cups if the physicians agreed: “(1) not to bill any insurer (including federal health plans) for the urine testing service and (2) to return each test cup to Millennium for laboratory testing of the urine specimen.”6 Under the “cup agreements,” Millennium would charge the physicians for the price of the POCT cups if the physicians failed to send the specimen to Millennium for further testing.7  Ultimately, a jury found in favor of Ameritox and awarded it nearly $15 million in damages,8 which decision Millennium has appealed.9

The appeal elicited the interest of the healthcare bar due to the Department of Justice’s (DOJ) unusual decision to file an amicus brief in a civil case (i.e., between private litigants) involving Stark Law and AKS issues. In the healthcare fraud and abuse arena, it is more common for the DOJ to intervene in criminal cases or to pursue qui tam actions. However, it is uncommon for the DOJ to insert itself into a civil case involving healthcare fraud and abuse issues as it did in Ameritox. The DOJ’s decision to do so underscores the import it placed on promulgating its interpretation of the remuneration-related principles involved in Ameritox. The DOJ’s brief is noteworthy for the vigor with which the DOJ challenges Millennium’s interpretation of the regulatory guidance on the definition of, and exceptions to, “remuneration” under the Stark Law and AKS.10 

A. The Stark Law Arguments

In pertinent part, the Stark Law prohibits a physician from referring federal healthcare program beneficiaries for designated health services (DHS)11 to an entity with which the physician or an immediate family member has a direct or indirect financial relationship, unless an exception covers the arrangement.12 A “financial relationship” includes the transfer of remuneration, unless an exception applies.13  “Remuneration” is broadly defined as including any remuneration, in cash or in kind, that is not specifically excluded from the definition.14

At issue in the Ameritox case is whether the provision of free POCT cups to physicians falls within the ambit of the Stark Law’s  statutory “laboratory supplies” exception to the definition of remuneration.15 This exception carves out of the definition of remuneration “[t]he provision of items, devices, or supplies that are used solely to (i) collect, transport, process or store specimens for the entity providing the item, device, or supply, or (ii) order or communicate the result of tests or procedures for such entity.”16 The “laboratory supplies” exception only applies to the provision of items that are used solely to collect, transport, process or store specimens, or order or communicate results, for the entity providing the supplies (in this case, Millennium). The DOJ takes the position that the POCT cups do not fall within this carve-out because, unlike ordinary specimen cups, POCT cups include immunoassay test strips that provide a cognizable and quantifiable benefit to the physician, i.e., as a valuable diagnostic tool, which is wholly independent from the functions necessary for Millennium’s collection, transportation, processing or storing of the specimens.17 The DOJ relies on the district court’s finding that the test strips are not used or required in connection with processing the specimen for Millennium, nor do they communicate the preliminary results for Millennium. Rather, the test strips are used for the physician’s own purposes and inure to the benefit of the physician.18 

Further, the carve-out requires that the supplies be used solely for transportation, collection, processing or storage purposes. The DOJ takes issue with Millennium’s position that, in order to meet the carve-out, the laboratory supplies need only be used primarily for transportation, collection, processing or storage purposes. According to the DOJ, the use of the word “primarily” in the 2001 final rule preamble (upon which Millennium relies) cannot take precedence over the use of the word “solely” in the actual text of the statute and regulation.19 This interpretation is consistent with previous government guidance which emphasizes the term “solely” in the plain language of the statute.20  

Additionally, the DOJ dismisses Millennium’s argument that the provision of free POCT cups cannot constitute remuneration because the physicians agreed not to bill any insurer for the urine testing service. Billing for an item or service is not necessary for the item or service to qualify as remuneration (e.g., non-billable gifts, such as cash, and cost-avoiding items and services, such as free drug testing strips, are remuneration). Essentially, insofar as there is a clear and quantifiable benefit to the physicians (e.g., the value of the immunoassay test strips in the POCT cups), as the DOJ analogized, the provision of free POCT cups “is no different from taping a five dollar bill to the inside of an ordinary specimen cup.”21 While this reflects, in part, the federal government’s perspective that physician-laboratory relationships potentially are susceptible to abuse,22 it also highlights the fact that remuneration need not take the form of cash, and that items or services have a value to which a monetary amount can be ascribed.  

In summary, the facts of the Ameritox case implicate the Stark Law insofar as: (i) the physicians referred lab services (which qualify as “DHS” under Stark) to Millennium, which billed Medicare for those services; (ii) the provision of the POCT cups without charge constitutes the conveyance of remuneration from Millennium to the physicians which, in turn, establishes a “financial relationship” between the parties; and (iii) there is no exception that covers this relationship.  In its brief, the DOJ clarifies that it does not preclude the possibility that items, devices or supplies provided by a laboratory or other entity that fall within the “laboratory supplies” carve-out can confer certain incidental benefits on physicians.23 The relevant question in this case is not simply whether there is a benefit to a physician, but whether the item performs a function distinct from the functions covered by the carve-out (i.e., collection, transportation, processing, or storage of specimens for the one who supplied the item).24

B. The Anti-Kickback Statute Arguments

Distilled to its most basic application, the AKS prohibits transactions involving the exchange of remuneration intended to induce or reward referrals for items or services reimbursed by federal healthcare programs.25 The DOJ applies a consistent rationale for its arguments on the AKS issues.

First, the DOJ dismisses Millennium’s argument that the Department of Health and Human Services’ Office of Inspector General (OIG) has taken the position that free items and services that are “integrally related” to the offering provider’s or supplier’s services are not remuneration under the AKS, and, therefore, the POCT cups in this case do not qualify as remuneration.26 According to the DOJ, to be “integrally related” to the offering provider’s services the free items or services must not have any independent value outside of the underlying service.27 The DOJ argues that the POCT cups provided without charge to the physicians fail this test because they confer significant benefits on physicians that extend beyond, and are unrelated to, Millennium’s laboratory testing services.28 

Second, the DOJ challenges Millennium’s assertion that the free POCT cups do not constitute remuneration under the AKS if the physicians do not bill for them. The DOJ argues that whenever a provider “offers or gives to a source of referrals anything of value not paid for at fair market value, the inference may be made that the thing of value is offered to induce the referral of business.”29 With that statement, the DOJ unquestionably clarifies the government’s position that a physician does not need to bill for the item or service for it to be remuneration.

C. Case Summary

In sum, from the DOJ’s perspective, if an entity provides a physician with an item that enables the physician to perform a service that would otherwise cost the physician money to perform (i.e., purchasing test strips in order to perform point-of-care testing), then the entity relieves the physician of that burden, which thus constitutes remuneration. Unless the provision of free items or services satisfies a carve-out to the definition of remuneration, it will be treated as remuneration for Stark Law and AKS purposes. While the industry awaits the 11th Circuit’s decision on appeal,30 attempts to structure a particular set of facts to meet an otherwise permissible carve-out, but which then append other items (e.g., immunoassay testing strips) that clearly fall outside of the exception to the definition of remuneration, will be unavailing in the eyes of the DOJ and will expose the laboratory to potential prosecution.

II. Practical Takeaways

The Ameritox case does not set forth guidance that the government has not promulgated previously. However, the case merits review for the clarity with which the DOJ set forth its interpretation of the breadth of the definition of “remuneration” and the limitedness of the exceptions to such definition.

Of course, as the DOJ points out in its amicus brief, the OIG has opined that “some incidental benefits to physicians may be permissible so long as they are directly related to the provider’s services and do not extend beyond those services.”31 For example, (i) free computer interfaces used only to transmit laboratory test results;32 (ii) insurance pre-authorizations obtained by an imaging provider for the requestor’s own services;33 and (iii) access to a software program provided by a pharmacy to community homes that enable the homes to communicate regarding pharmacy orders meet the requirement that the free items or services do not have any independent value outside of the underlying service.34 Healthcare counsel and their clients should be mindful of these OIG advisory opinions35 and cases like Ameritox for guidance, and impress upon clients that any transaction or arrangement, even those that are transacted on a regular basis in the course of the client’s business, potentially can implicate substantial Stark and AKS risks. The corollary to this principle is that, with proper foresight from, and appropriate structuring by, legal counsel, the prospect of avoiding or mitigating such risks is often obtainable.36

Finally, with respect to the issue of remuneration (as explicated by the DOJ’s amicus brief), attorneys reviewing arrangements for Stark Law and AKS compliance must carefully consider whether the client is providing or receiving any benefit at all, and if so, whether such benefit squarely fits within an exception to the definition of remuneration.  Otherwise, the arrangement must be analyzed to determine whether, if it does not meet an exception or safe harbor, there are cogent positions to rebut the argument that a Stark Law or AKS violation can be established.  The authors have observed (and have been advised by countless other healthcare attorneys) that clients, even those with a reasonable degree of sophistication, harbor the view that an arrangement does not implicate a meaningful level of risk if “the value of the benefit is de minimus” or if “there is no benefit because we are not billing for the item or service.” As the Ameritox case evidences, the definition of remuneration, according to the DOJ’s interpretation, is particularly expansive and, thus, the principles of a Stark Law and AKS analysis must be applied to any transaction involving the exchange of something of value, unless the remuneration at issue fits directly into one of the statutory exceptions to the definition. While the filing of the DOJ’s amicus brief in the Ameritox case does not necessarily precede the filing of amica as a matter of policy and practice moving forward for the DOJ, it is likely that the federal government will apply the principles articulated in its brief to other arrangements in which the question of remuneration is at issue. 

***

Adrienne Dresevic, Esq., is a Founding Shareholder of The Health Law Partners, P.C., a nationally recognized healthcare law firm with offices in Michigan, New York, and Ohio. Practicing in all areas of healthcare law, she devotes a substantial portion of  her practice to providing clients with counsel and analysis regarding compliance, Stark law, Anti-Kickback Statute, and fraud and abuse related issues. Ms. Dresevic is the Chair of the Publications Committee of the American Bar Association Health Law Section. She is licensed to practice law in Michigan and New York, and can be contacted at adresevic@thehlp.com.

Carey F. Kalmowitz, Esq., is a founding member of The Health Law Partners, P.C. He graduated from New York University Law School in 1994. Mr. Kalmowitz practices in all areas of healthcare law, with specific concentration on the corporate and financial aspects of healthcare, including structuring transactions among physician group practices and other healthcare providers, development of diagnostic imaging and other ancillary services joint ventures, physician practice, IDTF and home health provider acquisitions, certificate of need, compliance investigations, and corporate fraud and abuse/Stark analyses. He is a member of the State Bar of Michigan, the Michigan Society of Hospital Attorneys, the American Health Lawyer's Association, and the American Bar Association. Mr. Kalmowitz can be contacted at ckalmowitz@thehlp.com.

Leslie A. Rojas, Esq., is an Associate with The Health Law Partners, P.C., and graduated from Wayne State University Law School. She practices in all areas of healthcare law, with a focus on compliance with federal and state healthcare regulations, health information privacy and technology issues, fraud and abuse issues, and transactional and corporate aspects of healthcare. Ms. Rojas is licensed to practice law in Michigan and Illinois, and can be contacted at lrojas@thehlp.com.

1

42 U.S.C. § 1395nn.

2

42 U.S.C. § 1320a-7b(b).

3

Ameritox, Ltd. v. Millennium Laboratories, Inc., No. 14-14281 (11th Cir., appeal filed Sept. 19, 2014).

4

POCT cups are specimen collection cups with immunoassay testing strips embedded in the cup. This functionality enables physicians to promptly (i.e., at the point-of-care) screen the urine samples of patients who may be taking illegal drugs or who are prescribed drugs that are subject to abuse or diversion.

5

Id.

6

U.S. Amicus Brief, Ameritox, No. 14-14281 at 10 (filed Jan. 21, 2015).

7

Id.

8

Jury Verdict at 9, Ameritox, Ltd. v. Millennium Laboratories, Inc., No. 8:11-cv-00775 (M.D. Fl., June 16, 2014).

9

Ameritox, No. 14-14281.

10

U.S. Amicus Brief, Ameritox, No. 14-14281 (filed Jan. 21, 2015).

11

The term ‘‘designated health services’’ means any of the following items or services: (a) clinical laboratory services; (b) physical therapy services; (c) occupational therapy services; (d) radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; (e) radiation therapy services and supplies; (f) durable medical equipment and supplies; (g) parenteral and enteral nutrients, equipment, and supplies; (h) prosthetics, orthotics, and prosthetic devices and supplies; (i) home health services; (j) outpatient prescription drugs; (k) inpatient and outpatient hospital services; and (l) outpatient speech-language pathology services. 42 U.S.C. § 1395nn(h)(6).

12

42 U.S.C. § 1395nn(a).

13

Id.

14

42 U.S.C. § 1395nn(h)(1).

15

U.S. Amicus Brief at 14, Ameritox, No. 14-14281. The “laboratory supplies” exception may be found at 42 U.S.C. § 1395nn(h)(1)(C)(ii).

16

Id.

17

Id. at 14-15.

18

Id. at 15-16.

19

Id.

20

For example, see the Centers for Medicare & Medicaid Services (CMS) Advisory Opinion No. CMS-AO-2010-01, at 3 (Jun. 2010).

21

Id. at 20.

22

The DOJ’s filing of its amicus brief comes at a time when there is increased governmental scrutiny of physician-laboratory relationships. In fact, the OIG issued a “Special Fraud Alert: Laboratory Payments to Referring Physicians” on June 25, 2014, which addressed suspect physician-laboratory relationships and is available at https://oig.hhs.gov/fraud/docs/alertsandbulletins/2014/OIG_SFA_Laboratory_Payments_06252014.pdf. This heightened scrutiny on physician-laboratory relationships is nothing new. The OIG addressed concerns with these relationships in its December 19, 1994, advisory opinion, available at https://oig.hhs.gov/fraud/docs/alertsandbulletins/121994.html.

23

Id.

24

Id.

25

42 U.S.C. § 1320a-7b(b).

26

In support of this argument, Millennium points to OIG Advisory Op. 12-10 (Aug. 23, 2012).

27

U.S. Amicus Brief at 22-23, Ameritox, No. 14-14281.

28

Id.

29

OIG Special Fraud Alert: Laboratory Payments to Referring Physicians, at 2 (Jun. 25, 2014) (quoting OIG Special Fraud Alert: Arrangements for the Provision of Clinical Laboratory Services (Oct. 1994), reprinted at 59 Fed Reg. 65,372, 65,377 (Dec. 19, 1994)).

30

Oral arguments are scheduled for June 12, 2015.

31

Id.

32

OIG Advisory Op. 12-20 (Dec. 12, 2012).

33

OIG Advisory Op. 10-20 (Sept. 21, 2010).

34

OIG Advisory Op. 12-19 (Nov. 30, 2012).

35

OIG advisory opinions may only be relied upon by the party requesting the opinion and are specific to the facts presented. However, these opinions provide helpful guidance for factually similar situations.

36

For example, in the Ameritox case, counsel for the lab could have recommended that Millennium obtain a valuation opinion on the value of the POCT cups, and then ensured that Millennium only furnished the cups to the physicians who purchased them.

 

Adrienne Dresevic, Carey Kalmowitz and Leslie Rojas, The Health Law Partners, P.C., Southfield, MI