On June 13, 2013, the Office for the Inspector General (“OIG”) released Advisory Opinion 13-03 concerning a clinical laboratory service company’s proposal to assist physician practices in creating their own laboratories. The OIG concluded that the proposal could result in prohibited remuneration under the Anti-Kickback Statute (the “AKS”).
An independent clinical laboratory (“Parent Laboratory”) submitted the request for the advisory opinion to the OIG. Parent Laboratory stated that it would create a new legal entity (“Management Company”) to contract with physician groups in order to help the physician groups establish their own clinical laboratories (“Physician Group Laboratories”). The Management Company would provide space, equipment, management, support and would also offer to lease personnel, equipment and licenses for certain of Parent Laboratory’s proprietary operational methods.
Parent Laboratory certified that the physician groups would only use the Physician Group Laboratories for non-federal health care program beneficiaries, i.e. private insurance patients only. If the physician groups needed laboratory testing for a federal health care program beneficiary, then that sample could be sent to any lab for testing, including Parent Laboratory.
If the physician groups wanted Management Company to provide any equipment, personnel, licenses or other items, then the physician group and Management Company would enter into a separate agreement. Parent Laboratory certified that the separate agreement would satisfy safe harbor requirements, including having a term of at least one year, specifying a fixed amount owed and being consistent with fair market value.
In determining that the proposed arrangement could lead to violations of the AKS, the OIG first considered whether the carve out of federal health care business could be dispositive. The OIG quickly concluded that the carve out was insufficient, especially in light of its long held stance that a carve out can merely be used to mask otherwise impermissible remuneration.
Getting to the heart of the issue, the OIG focused upon the lack of business risk being assumed by the physician groups under the proposed arrangement. The physician groups would essentially have a clinical laboratory packaged for them and all they would have to do is move in and begin operations. There was no clear downside. Additionally, the OIG was concerned that the physician groups would not differentiate between Parent Laboratory and Management Company, or feel indebted to Parent Laboratory. The OIG saw a clear risk that such feelings could lead to increased referrals. The OIG also expressed concern that the physician groups would increase usage of laboratory services overall because the groups would have a direct financial interest.
As the OIG’s advisory opinion demonstrates, any time a joint venture or packaged concept is presented, all players in the arrangement should bear real business risk. Additionally, the arrangement should not be established in such a way that one side is providing such disproportionate benefit that it would be hard to avoid the conclusion that it expected to receive referrals in return.
The advisory opinion summarized above highlights the importance of consulting with your health care legal counsel and conducting a careful AKS analysis before entering into any kind of relationship with an actual or possible referral source.