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OIG Questions Laboratory Management Arrangement in Advisory Opinion 11-17

Written by Karen Lovitch and Stephanie Willis

The OIG addressed yet another proposed laboratory management arrangement in OIG Advisory Opinion 11-17, which concerns a proposal by a laboratory management services company (“Requestor”) to enter into exclusive contracts with various primary care physicians and physician practices (collectively, “Physicians”) to operate allergy testing laboratories in the Physicians’ medical offices (the “Arrangement”).

Under the Arrangement, the Physicians would provide:

(1) office space for operating the laboratory;
(2) administrative staff for patient scheduling and other administrative tasks;
(3) general medical office supplies and furniture;
(4) general liability and malpractice insurance; and
(5) physician supervision and interpretation of laboratory results.

In return, the Requestor would furnish all of the necessary laboratory personnel and technicians, equipment, supplies, training, billing and collection services, as well as patient education materials.  The Requestor, which is not affiliated with any federal health care program supplier or provider and which has no experience in the allergy testing business, would also review patient files to identify candidates for the services.  Unlike the proposed arrangement at issue in OIG Advisory Opinion 11-15, this one did not involve physician ownership in the management company.

The Physicians would bill all payors for services provided pursuant to the Arrangement and would pay the Requestor a fee equal to 60% of the Physicians’ gross collections.   The Requestor represented that this amount constitutes fair market value.

After determining that the Arrangement failed to meet any of the applicable safe harbors under the Anti-Kickback Statute, the OIG analyzed the facts and circumstances and concluded that the Arrangement did not pose a sufficiently low risk of violating the Anti-Kickback Statute for two reasons.

First, the percentage fee payment would not be tied to actual and necessary services provided by Requestor to the Physicians, and such arrangements “are inherently problematic . . . because they relate to the volume and value of business generated between the parties.”  The OIG’s skepticism toward the percentage compensation is not surprising given that it has previously questioned similar payment arrangements in connection with management and marketing services (see, for example, OIG Advisory Opinions 98-1, 98-4, and 11-15).

Second, allowing the Requestor to review the Physicians’ patient files to identify candidates for allergy testing services could encourage overutilization, in light of the percentage fee payment structure, and the ordering of medically unnecessary tests.  The OIG was especially concerned that the Requestor, a non-physician with no experience running an allergy testing laboratory, could unduly influence the test ordering patterns of the Physicians, who may not have specialized allergy immunotherapy experience.

Parties to current and future laboratory management arrangements should carefully review this and other relevant OIG Advisory Opinions and consider the steps necessary to avoid running afoul of the Anti-Kickback Statute.

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Karen S. Lovitch

Chair, Health Law Practice & Co-Chair, Health Care Enforcement Defense Practice

Karen advises industry clients on regulatory, transactional, operational, and enforcement matters. She has deep experience handling FCA investigations and qui tam litigation for laboratories and diagnostics companies.