On November 28, 2016, the U.S. Department of Health and Human Services’ Office of Inspector General (OIG) issued OIG Advisory Opinion 16-12, concerning whether a clinical laboratory may provide free labeling of test tubes and specimen collection containers to dialysis facilities.1 The OIG publishes such advisory opinions in response to written requests to review an existing or proposed business arrangement in light of the OIG’s fraud and abuse authorities. Favorable advisory opinions protect the requestor(s) from administrative penalties so long as the arrangement is implemented and maintained as described in the request submitted for the OIG’s review. Unfavorable advisory opinions are also directly applicable only to the actual requestor(s) under the specific facts described in the opinion. Although not binding or controlling on the healthcare industry at large, all of the OIG’s advisory opinions have the potential to provide relevant and important insight into the OIG’s current enforcement priorities and interpretations of laws and regulations, as well as critical guidance in an area that lacks extensive case law.
Advisory Opinion 16-12 addresses whether the Requestor, a laboratory that provides testing services to dialysis patients, may provide free labeling of test tubes and specimen collection containers to some, but not all, of the dialysis facilities with which it does business (the “Proposed Arrangement”). If not provided for by another source, such labeling of test tubes and specimen collection containers is performed internally by the dialysis facilities’ own personnel at the dialysis facilities’ expense. Under the Proposed Arrangement, the Requestor would offer such free services on a case-by-case basis to certain dialysis facilities. According to the Requestor, the Proposed Arrangement would help the Requestor compete with other laboratories which, according to the Requestor’s submission to the OIG, already provide such free labeling services to dialysis facilities. The Requestor represented that its decision whether to offer the free labeling would depend on whether such an offer would help obtain the business of the particular dialysis facility.2
A. Advisory Opinion 08-06 and Subsequent Change to ESRD Reimbursement
The facts of the Proposed Arrangement at issue in Advisory Opinion 16-12 are identical to the facts contained in previous OIG Advisory Opinion No. 08-06, which was solicited by the same Requestor in 2008.3 The primary difference between the two advisory opinions is that, subsequent to Advisory Opinion 08-06, the Centers for Medicaid & Medicare Services (CMS) made changes to the way it reimburses for services related to treating end-stage renal disease (ESRD).4 In making these changes, CMS acknowledged that physicians in ESRD settings sometimes order valuable and necessary laboratory tests that are not directly related to treating ESRD, and therefore had not been covered in the bundled reimbursement.5 Thus, the change in ESRD reimbursement included a mechanism whereby CMS would provide supplemental reimbursement to independent laboratories, hospital-based laboratories, and ESRD facilities for such laboratory services not already covered by the ESRD bundled payment. Under the previous system, “separate payments for administrative tasks associated with laboratory tests, such as labeling test tubes and specimen collection containers,” were prohibited.6
B. The OIG’s Focus on Clinical Laboratories
Utilization of clinical laboratory services has seen a tremendous increase as more options for services, such as various genetic and toxicology testing, become available.7 The OIG has taken notice of such increased utilization and has specifically listed clinical laboratory services as a target focus area in its annual work plans in 2015, 2016, and 2017.8 The OIG has a longstanding position that “the provision of free or below-market goods or services to actual or potential referral sources” is viewed as suspect for potentially violating the Anti-Kickback Statute (AKS).9 The OIG has further articulated that “when a laboratory offers or gives an item or service for free or less than fair market value to a referral source, an inference arises that the item or service is offered to induce the referral business.”10 Such an inducement could violate the AKS, which makes it a criminal offense to knowingly and willfully offer, solicit, pay, or receive any remuneration in exchange for federal healthcare program business.11 Importantly, the term “remuneration” under the statute is not limited to a direct exchange of money, but extends to the conferral of any tangible benefit.
The OIG’s Analysis in Advisory Opinion 16-12
Upon reviewing the Requestor’s submission, the OIG concluded that the Proposed Arrangement posed “more than a minimal risk of fraud and abuse.”12 According to the OIG, under the Proposed Arrangement the Requestor would provide a tangible benefit directly to dialysis facilities because “most, if not all, of the services the Requestor would provide…would substitute for services the dialysis facilities otherwise would be required to perform at their own expense,” and such an expense is not reimbursable by CMS regardless of it occurring at an ESRD facility. By alleviating a non-reimbursable duty that the dialysis facilities would otherwise be required to perform, the Requestor would be providing remuneration to those facilities, thereby leading to the inference that the Requestor was trying to influence the dialysis facilities’ laboratory preferences. The OIG noted that such an inference is “consistent with, and supported by, the Requestor’s representation that the labeling services would be offered to the dialysis facilities when necessary to retain or obtain their business.”13
Finally, though technically not binding on any entity other than the Requestor, Advisory Opinion 16-12 states that similar arrangements involving Requestor’s competitors may “run afoul” of the AKS. It is important to note that the OIG’s advisory opinion is not a definitive finding that the Proposed Arrangement actually violates the AKS because such a violation requires specific intent, which the OIG acknowledged is fact-specific and beyond the scope of such an opinion.14 Thus, while such arrangements would likely result in a negative inference regarding intent from the OIG, a laboratory or dialysis facility currently involved in such an arrangement could possibly rebut the inference with facts demonstrating the lack of such unlawful intent, although this would be a steep, uphill battle.
Advisory Opinion 16-12 is the latest example in a continuing trend of government enforcement in the laboratory space. In 2015, several laboratories settled multi-million dollar False Claims Act (FCA) matters with the U.S. Department of Justice (DOJ) involving CMS reimbursement for laboratory services.15 For example, in April 2015 Health Diagnostic Laboratory (HDL) agreed to pay $47 million to settle allegations that it had paid physicians a “processing and handling fee” worth between $10 to $17 per referral when the physicians ordered certain blood tests, allegedly in violation of the AKS and the FCA.16 In October 2015, Millennium Health agreed to pay $256 million for allegedly providing free drug screen cups to clinics in exchange for physicians ordering drug screens and genetic tests the government believed to be medically unnecessary, also allegedly in violation of the AKS and the FCA.17 Finally, in addition to the OIG’s advisory opinion, CMS has also stated in its own guidance that a laboratory providing free items or services to a physician could also violate the Stark law.18
Based on the guidance and settlements discussed above, laboratories should remain extremely cautious of providing any benefit to a referral source, and referral sources, such as providers, should be careful when accepting one, as any such benefit could potentially be viewed as an unlawful inducement in violation of federal fraud and abuse laws.
Scott R. Grubman is a partner with the law firm of Chilivis, Cochran, Larkins & Bever, LLP (CCLB) in Atlanta, Georgia. Mr. Grubman is a former Assistant U.S. Attorney and DOJ Trial Attorney, who focuses his practice on the representation of healthcare providers of all types and sizes in connection with government investigations and False Claims Act litigation. He may be reached at firstname.lastname@example.org or (404) 262-6505.
Gregory A. Tanner is an associate at CCLB, where he handles both litigation and regulatory matters on behalf of healthcare clients. He may be reached at email@example.com.
OIG Advisory Opinion No. 16-12, (Nov. 28, 2016) https://oig.hhs.gov/fraud/docs/advisoryopinions/2016/AdvOpn16-12.pdf.
This comment, along with other aspects of Advisory Opinion 16-12, makes it fairly apparent that the Requestor did not actually intend to implement the Proposed Arrangement, but instead intentionally solicited an unfavorable opinion for the purpose of drawing attention to, and potentially stymieing, such suspect practices currently used by the Requestor’s competitors. Although not a common strategy, this is not the first time that a Requestor has purposely solicited an unfavorable opinion. For example, in 2012, the OIG issued Advisory Opinion 12-06, which was solicited by the American Society of Anesthesiologists as an unfavorable opinion related to the “company model” of anesthesia arrangements.
The full OIG Advisory Opinion No. 08-06 can be accessed at https://oig.hhs.gov/fraud/docs/advisoryopinions/2008/AdvOpn08-06.pdf.
75 Fed. Reg. 49,029 (Aug. 12, 2010).
An example of such a situation would arise if an ESRD beneficiary showed signs of a potential disorder, such as a gastrointestinal bleed or pneumonia, and the physician ordered a complete blood count (CBC) test to help diagnose the condition. CMS would pay for the non-ESRD CBC as a separate payment from the ESRD bundle. See 75 Fed. Reg. 49,029, 49,054 (Aug. 12, 2010).
OIG Advisory Opinion No. 08-06, at 3.
See Thomas M. Burton, “Is Lab Testing the ‘Wild West’ of Medicine?,” Wall St. J. (Dec. 10, 2015), http://www.wsj.com/ articles/is-lab-testing-the-wild-west-of-medicine-1449800707; Laura G. Hoey & Deborah K. Gardner, “Taming the ‘Wild West’: Enforcement Trends and Reimbursement Issues Facing Independent Clinical Laboratories,” Bloomberg BNA’s Health Law Reporter, 25 HLR 501 (Apr. 14, 2016).
See Office of Inspector General, U.S. Dep’t of Health & Human Services, Work Plan: Fiscal Year 2017, at 15, https://oig.hhs.gov/reports-and-publications/archives/workplan/2017/HHS%20OIG%20Work%20Plan%202017.pdf; Office of Inspector General, U.S. Dep’t of Health & Human Services, Work Plan: Fiscal Year 2016, at 18, 47, https://oig.hhs.gov/reports-and-publications/archives/workplan/2016/oig-work-plan-2016.pdf; Office of Inspector General, U.S. Dep’t of Health & Human Services, Work Plan: Fiscal Year 2015, at 16, https://oig.hhs.gov/reports-and-publications/archives/workplan/2015/fy15-work-plan.pdf.
The OIG first articulated this position in 1994 via a Special Fraud Alert; see https://oig.hhs.gov/fraud/docs/alertsandbulletins/121994.html, reprinted at 59 Fed. Reg. 65,372, 65,377 (Dec. 19, 1994).
42 U.S.C. § 1320a-7b.
OIG Advisory Opinion No. 16-12, at 5.
Also important to the OIG’s analysis was whether any of the AKS regulatory safe harbors would apply to the Proposed Arrangement. The OIG found that the only safe harbor that could potentially apply to the Proposed Arrangement – the safe harbor for personal services and management contracts – did not apply because the dialysis facilities would not pay any compensation to the Requestor for the labeling services, despite the fact that the labeling services would have value to the dialysis facilities.
OIG Advisory Opinion No. 16-12, at 2, 6.
The FCA creates liability for anyone who, among other things, knowingly submits false or fraudulent claims for payment to the federal government. See 31 U.S.C. §§ 3729 – 3733.
DOJ Press Release, “Two Cardiovascular Disease Testing Laboratories to Pay $48.5 Million to Settle Claims of Paying Kickbacks and Conducting Unnecessary Testing” (April 9, 2015), https://www.justice.gov/opa/pr/two-cardiovascular-disease-testing-laboratories-pay-485-million-settle-claims-paying.
DOJ Press Release, “Millennium Health Agrees to Pay $256 Million to Resolve Allegations of Unnecessary Drug and Genetic Testing and Illegal Remuneration to Physicians” (Oct. 19, 2015), https://www.justice.gov/opa/pr/millennium-health-agrees-pay-256-million-resolve-allegations-unnecessary-drug-and-genetic.
See e.g., 66 Fed. Reg. 856, 948 (stating that when a laboratory pays for a phlebotomist to work in a physician’s practice, any clerical or medical services performed by the phlebotomist that are not directly related to the collection or processing of laboratory specimens for the laboratory could create a compensation arrangement possibly in violation of the Stark law).