Lab Company Helping Physicians Establish Laboratories May Violate Anti-Kickback Statute

July 3, 2013

Even though federal healthcare program beneficiaries were excluded, a recent Advisory Opinion by the Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) concluded that a clinical lab company’s proposed management arrangement could potentially generate prohibited remuneration under the anti-kickback statute.

The lab company proposed to establish a new management company that would contract with physician groups to help establish their own clinical labs. The management company would provide the physician groups with lab space, lab management and personnel, equipment and license proprietary methods, as needed. Each physician group would own and operate its lab for purposes of CLIA compliance. The proposed arrangement would not provide testing for federal healthcare program beneficiaries and the physician groups would use color-coded labels to distinguish between private payor patients’ specimens and federal healthcare program beneficiaries’ specimens. The physician group would send federal healthcare program beneficiaries’ specimens to another laboratory.

OIG reiterated its longstanding concern about arrangements under which parties “carve out” referrals for federal healthcare program beneficiaries or business generated by federal healthcare programs. OIG also noted that the lab company could be viewed as offering the physician group “remuneration in the form of a potentially lucrative opportunity to expand into the clinical laboratory business with little or no business risk.” OIG has historically viewed these types of arrangements as “inherently suspect.”[1] OIG also stated that participation in this arrangement might increase the likelihood that the physicians would order tests for Medicare patients from the same lab for reasons of convenience or in an attempt to secure better pricing for private pay services.

Overall, the OIG was concerned that the proposed arrangement would create financial incentives that would affect a physician’s decision-making with respect to all of his or her patients, potentially resulting in overutilization of laboratory services generally and increased costs to the federal healthcare programs.

If you have any questions regarding the Advisory Opinion or potential laboratory arrangements, please contact one of the authors.

1. See Special Fraud Alert: Joint Venture Arrangements (August 1989), reprinted at 59 Fed. Reg. 65,372, 65,374 (Dec. 19, 1994) and Special Advisory Bulletin on Contractual Joint Ventures (April 2003).