The Office of Inspector General of the Department of Health and Human Services (the “OIG”) recently released Advisory Opinion 15-041, in which the OIG concluded that certain exclusive arrangements between a laboratory and various physician practices could potentially violate the Anti-Kickback Statute (“AKS”) and result in exclusion from federal healthcare programs for excessive charges. According to the laboratory that requested the opinion (the “Requestor”), physicians had expressed a desire to work with a single laboratory in an exclusive arrangement because of the convenience of receiving all test results with consistent reference ranges and because of the efficiency gained from maintaining a single interface with one laboratory.

However, as the exclusive laboratory provider under the arrangements in question, the Requestor would be out-of-network for, and ineligible to receive payment from, payers covering approximately 10 to 40 percent of the practices’ patients. Accordingly, for these patients, the Requestor proposed to waive the laboratory fees and not bill the patient, the physician practices or the payers. The Requestor would continue to bill all other patients, regardless of whether privately insured or covered under a federal healthcare program.

The OIG opined that the proposed arrangement could potentially generate prohibited remuneration under the AKS. Even though the Requestor asserted that the physician practices would not receive any financial benefit, in part because none of the samples would be drawn in physician offices, and thus the physician practices would not bill for the draw or the testing, the OIG concluded that certain factors surrounding the proposed arrangement would amount to remuneration to the physician practices. The OIG concluded that the proposed arrangement would reduce “administrative and possibly financial burdens associates with using multiple laboratories.” The OIG noted that the physician practices would gain “convenience” and “efficiency” by using a single laboratory for the delivery of laboratory results. Further, the OIG stated that the proposed arrangement would allow the physician practices to avoid paying monthly maintenance fees that would be associated with electronic test results that the practices currently maintained with other laboratories. The OIG noted that “the Requestor has not presented discernable quality or safety improvements that would be gained by reducing these [administrative and financial] burdens [on the physician practices] or any other safeguards that would make this remuneration low risk under the anti-kickback statute; in fact, the Requestor’s proposed actions could result in inappropriate steering of patients, including Federal health care program beneficiaries.” The OIG therefore could not rule out with sufficient confidence the possibility that, for particular agreements with physician practices, the Requestor would be offering remuneration to induce the referral of federal healthcare program beneficiaries under the proposed arrangement.

Though not specially requested, the OIG also provided an opinion about a potential violation of Medicare’s “substantially in excess” provision. This provision is “a permissive exclusion authority designated to prevent individuals and entities from charging the Medicare and Medicaid program substantially more than their usual charges to other pay[e]rs for the same items or services.” While the OIG has not finalized the definitions of what constitutes “substantially in excess” or “usual charges,” consistent with its previous guidance, the OIG noted that concerns that this law may be violated may arise if the provider is discounting “close to half of its non-Medicaid business.” The OIG found that the proposed arrangement could potentially cause more than half of the Requestor’s non-Medicare/Medicaid patients to receive free services. Important to the OIG’s decision was that the exclusive arrangements in question were not merely “an example of negotiating discounts with certain private pay[e]rs that may result in rates slightly less than the rate Medicare pays.” Instead, noted the OIG, the proposed arrangements “would completely relieve patients and their [plans] of any obligation to pay in order to pull through all of the Federal health care program business, which would be charged at the full rate.” The bottom line, according to the OIG, was that “[t]he Requestor has provided no reason to offer free services other than to remove an obstacle to the physician practices referring all of their laboratory business to the Requestor.”

Advisory Opinion 15-04 is another reminder of potential legal risks that can arise out of exclusive agreements. Although convenience and efficiency in healthcare are goals that are promoted by the Affordable Care Act, the OIG has, in Advisory Opinion 15-04, highlighted such concepts as potential remuneration to referral sources. Also noteworthy is the OIG’s continuing articulated suspicion of any arrangement that discounts (or, in this case, renders for free) non-Medicare business in order to “pull through” Medicare business payable at the full rate. Perhaps this continuing concern is what prompted the OIG to discuss the “substantially in excess” provision, even though this provision was not part of the request for the advisory opinion.