When setting up business arrangements with healthcare providers and entities, a common approach for physicians to take is to simply avoid including any federal business. This might mean agreeing to engage in a clinical study that doesn’t allow Medicare patients, or entering into lease arrangements for private paying patients only. There is a clear mindset among physicians, and very often those that represent them, that carving out federal program beneficiaries from an arrangement will immediately eliminate any concern associated with violating fraud and abuse laws. Not only is this inaccurate, but it can often lead to violations of state laws that mimic federal regulations.
Although the government has previously taken the position that excluding federal patients from business arrangements cannot guarantee compliance with federal law, the Office of Inspector General (OIG) has again made this position clear in recently issued OIG Advisory Opinion 13-03.
In its opinion, the OIG reviewed a scenario where a clinical laboratory (“Parent Lab”) proposed to establish a management company to contract with physician groups to help them set up their own clinical laboratories. Under the proposed arrangement, each participating physician group would only refer non-federal healthcare patients to their on-site laboratory. Medicare and Medicaid patient specimens would be sent to the Parent Lab or another laboratory outside the medical practice. Sounds like a clean arrangement, doesn’t it?
In its analysis of the facts, the OIG concluded that this arrangement could actually implicate or potentially violate the federal Anti-Kickback Statute because, in assisting a physician group to establish its own laboratory for non-federal business, the Parent Lab was likely inducing the physician practices to refer their federal healthcare business to the Parent Lab. In fact, the OIG presumed that obtaining the federal business was part of the actual intent of the Parent Lab from the start. The OIG argued in its analysis that physician groups that participated in such arrangements would be inclined to refer to the Parent Lab in an effort to secure more favorable contracts and pricing for the federal healthcare business referrals, and might feel obligated to send all of their federal healthcare patient specimens to the Parent Lab, even if medically unnecessary.
Physicians involved in an arrangement (or considering one) where federal business is carved out, need to consider whether the arrangement really eliminates any need to consider the Anti-Kickback Statute or other federal healthcare laws. Additionally, there is often a focus on federal patients even when the arrangement would still violate state laws.
With this in mind, I recommend physicians consider the following:
1. Does your arrangement expressly carve-out federal program beneficiaries? If it does carve out federal patients, will referral of federal patients still be made to another party involved (directly or indirectly) in the arrangement? Is better pricing offered to the federal patients as compared to private patients? What is the true motive for entering into the relationship?
2. If you think the arrangement does not involve any type of remuneration, are you certain? In the OIG opinion, it was determined that the Parent Lab was offering physician groups remuneration in the form of “business opportunity,” meaning physician groups essentially would have a laboratory “handed” to them and all they would have to do is move in and begin operations. Accordingly, it is important to remember that remuneration exists in many different forms and does not always involve outright payment for referrals. If the arrangement has the potential to reward a provider by offering an opportunity for increased referrals or profit, then it may implicate the Anti-Kickback Statute even if unrelated to federal healthcare patients.
In light of the OIG opinion and the ever-expanding reach of healthcare regulations, physicians are well-advised to think critically about any type of arrangement that isolates payment and referrals for federal healthcare payers and programs.
As always, it is important to consult with knowledgeable legal counsel who can assist you in detecting such unforeseen legal consequences, before the regulators start asking questions.