Global Life Sciences: U.S. Healthcare Update
Clinical laboratories should take heed of recently released Advisory Opinion 15-04 (March 25, 2015, see the Opinion here) from the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG). In the Opinion, OIG warns that a laboratory’s waiver of fees for certain patients of its physician-practice clients could be considered prohibited remuneration under the federal Anti-Kickback Statute (AKS), and lead to permissive exclusion for violation of the “substantially in excess” provision of the Social Security Act (also known as the federal “usual charge” rule).
A multi-regional laboratory (the Requesting Laboratory) proposed to enter into agreements with physician practices whereby the physicians would send all of their patients, including patients who are beneficiaries of federal health care programs (FHCPs), to the Requesting Laboratory in order to enhance ease of communication and consistency in test result reporting. The Requesting Laboratory typically bills both private and FHCP plans in accordance with fee schedules or contracted rates. Under the proposed arrangement, the Requesting Laboratory would provide a limited use interface to participating physicians for transmitting test results and would refrain from billing the physicians’ patients when it was “out-of-network” for that patient’s health plan (Exclusive Plans). The arrangement would only involve patients with FHCP coverage as their secondary, rather than primary, insurance.
OIG concluded that the arrangement raises risk of improper remuneration under the AKS. First, participating referring physicians might derive benefit from the convenience and efficiency of working with a single laboratory and receiving all results in a uniform format from a single interface. Second, OIG expressed concern that the arrangement could result in expense relief to referring physicians resulting from the free limited-use interface from Requesting Laboratory which would replace the various interfaces that physicians would otherwise pay for due to monthly maintenance fees charged by some vendors. OIG suggested there was no quality or safety improvement resulting from removing administrative and financial burdens, nor were there other safeguards to make the remuneration low risk under the AKS. To the contrary, OIG viewed the program as having the potential to result in inappropriate patient steering.
Substantially in Excess
OIG also evaluated whether the proposed arrangement might violate the “substantially in excess” provision under Section 1128(b)(6)(A) of the Social Security Act. OIG applied its prior guidance that “a provider need not even worry about [the “substantially in excess” provision] unless it is discounting close to half of its non-Medicare or non-Medicaid business” and found it plausible under the proposed arrangement that more than half of the non-FHCP patients would receive free services while FHCPs would be charged standard rates. This in effect could provide a two-tier pricing structure with a substantial number of insured patients (those in Exclusive Plans) improperly receiving free services, raising risk under the “substantially in excess” prohibition.
Trend Toward Increased Enforcement
Although this Advisory Opinion generally reflects OIG’s historical fraud and abuse reasoning, it is noteworthy because:
- The Advisory Opinion is negative, and follows last year’s Special Fraud Alert and recent enforcement activity addressing payments to physicians by laboratories; and
- Since a 2003 proposed rule interpreting the federal “substantially in excess” law was withdrawn by HHS in 2007 due to difficulty in defining key terms such as “substantially in excess” and “usual charge,” HHS has done little in terms of guidance or enforcement under this law (in contrast, state “usual charge” enforcement has resulted in substantial settlements for some laboratories).
It remains to be seen whether the Advisory Opinion is evidence of OIG’s prioritized scrutiny of laboratories or renewed interest in enforcing the federal “substantially in excess” law.
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