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OIG Disapproves Lab Fee Arrangement

on Thursday, 15 May 2014 in Health Law Alert: Erin E. Busch, Editor

On April 8, 2014, the Office of Inspector General (OIG) issued an Advisory Opinion disapproving a proposed fee structure in an electronic laboratory ordering arrangement. On the same day the OIG took the unusual step of withdrawing a prior 2011 favorable Advisory Opinion that had approved a fee structure with similar elements . Both actions involved indirect remuneration and levels of remuneration that individually were de minimis but in the aggregate could be substantial and influence referrals. The actions offer important lessons to the industry that go far beyond the facts at issue.

In Advisory Opinion 14-03 a national laboratory company (the “Lab”) offered its customers free use of its proprietary, web-based electronic ordering software. Physicians and other customers could use the software to electronically order tests and receive test results. Electronic orders automatically downloaded into the Lab’s order and record system, but test results did not automatically download into customers’ EHRs, although the interface allowing this was present for some customers. Most of the Lab’s customers used the Lab’s software to order lab tests.

Proposed Arrangement

A national cloud EHR vendor proposed an alternate arrangement (which the Lab was apparently being pressured to join) under which:

  • The EHR vendor’s customers could directly order lab services from the Lab using the EHR vendor’s product, and results would automatically download into the customer’s EHR.
  • The EHR vendor established a $1 fee per test ordered .
  • The laboratory could pay the $1 per test fee to the EHR vendor and in return would be listed in the EHR software as an “in-network” laboratory provider.
  • Physician customers of the EHR vendor who selected an in-network lab provider paid no fee to transmit lab orders.
  • Physician customers of the EHR vendor who selected an “out-of-network” lab provider paid the $1 fee themselves.

Thus, the proposed arrangement allowed the Lab to pay the $1 fee on behalf of the physician customers when they ordered lab testing from the Lab. The EHR vendor was the toll collector and the arrangement was probably designed to serve a business model of the EHR vendor. One senses that the Lab, which requested the opinion, expected an unfavorable opinion from the OIG.

1 Final Notice of Termination of OIG Advisory Opinion 11-18.
2 The $1 fee per test diminished with volume, but the fact isn’t material to the decision.

OIG Analysis

The OIG focused on the remuneration which the Lab would pay and what it would get in return. The OIG saw the arrangement as involving indirect remuneration from the Lab to ordering physicians with a potential to influence physician referrals. Reciting the “one purpose” test (if even one purpose of remuneration is to induce referrals….) the OIG concluded:

  • The arrangement implicates the anti-kickback statute because referring physicians are relieved of a financial obligation when they refer laboratory test orders to the Lab. The fee they would otherwise pay to the EHR vendor is paid by the Lab. Paying the lab order fee to the vendor was viewed as remuneration to the referring physicians.
  • While the per-test amount is minimal, the facts indicated that laboratory tests are ordered with frequency and therefore the aggregate amounts would be sufficient to induce referral behavior from referring physicians (and other potential customers).
  • A similar, although not identical, service was available through the laboratory’s free proprietary software product, the main difference being that for many physician customers the results were not automatically downloaded into the physician’s EHR.

The OIG concluded:
“Furthermore, based on [Lab’s] certifications, there appears to be no reason for it to pay the Per Order Fees, other than to secure referrals. Requestor certified that, historically, the great majority of its physician-customers used [it’s proprietary] Software to submit electronic test orders.”

Interestingly, the EHR vendor’s product did offer a benefit to requesting physicians in addition to the chance to be relieved of the fee. It downloaded the results into the physician’s EHR. However, the OIG focused on what benefit the laboratory company received in return for its payment of the fee. Concluding that the Lab’s existing proprietary electronic order system already populated the Lab’s records and that the EHR vendor’s product did the same, but no more, the OIG concluded the benefit to the Lab would be referrals, which naturally triggers anti-kickback concerns.

“The Arrangement therefore appears to permit Requestor to do indirectly what it cannot do directly; that is, to pay compensation to the Referring Physicians, by relieving them of a financial obligation, in return for the Referring Physicians’ laboratory test referrals.”

Besides the obvious disapproval of the particular financial arrangement proposed by the EHR vendor and potentially necessary for the lab to retain its referral base, the Advisory Opinion and the withdrawal of the prior Advisory Opinion offer several important lessons:

  1. The anti-kickback status makes it a felony to offer or pay, solicit or receive remuneration, directly or indirectly, in cash or in kind, in return for certain referral activity. The Advisory Opinion is a strong reminder to look beyond direct remuneration and direct relationships and even through intermediate vendors to see if the effect and therefore a purpose of remuneration is to induce referrals.
  2. The Advisory Opinion reaffirms that relieving physicians from a financial obligation can constitute remuneration to them. We had previously seen this issue raised in the context of hospitals and other providers/suppliers taking over the pre-certification responsibility for referred procedures from community physicians. Even though the principal benefit of assuming the pre-certification obligation (the benefit of getting it right the first time) accrues to the party receiving the referral, there is indication the OIG would focus on the benefit to the referring physician of not having to perform the task and might find remuneration. The issue arises in other contexts as well.
  3. Dollar amounts per encounter need not be high to trigger anti-kickback concerns. Here the OIG expressly noted that the $1 or less fee per test, standing alone, might not induce any particular behavior, but became problematic because physicians order tests with frequency. The OIG focused on the aggregate value to referring physicians.
  4. The federal government is taking many aggressive actions to incent adoption of electronic health records, electric test ordering and electronic information exchange. With the new Advisory Opinion and withdrawal of the earlier Advisory Opinion the OIG reminds us that wrapping a transaction into the vocabulary of favored electronic platforms and systems will not prevent old fashioned anti-kickback analysis.

Alex M. “Kelly” Clarke

1700 Farnam Street | Suite 1500 | Omaha, NE 68102 | 402.344.0500