OIG Advisory Opinion Determines “Carve Out” Arrangement Limited to Commercially Insured Patients May Violate the Anti-Kickback Statute

On September 25, 2023, the U.S. Department of Health and Human Services Office of Inspector General (“OIG”) issued an unfavorable Advisory Opinion No. 23-06 related to a proposed arrangement involving purchasing the technical component of anatomic pathology services paid for by commercial payors, concluding that the arrangement could generate prohibited remuneration under the federal Anti-Kickback Statute (“AKS”).

The Proposed Arrangement

The proposed arrangement involves a potential referral relationship between two laboratories for anatomic pathology services. Anatomical pathology identifies abnormalities within an organ’s structure to diagnose disease and is commonly used in treating tumors, kidney, liver, and auto-immune disorders. Reimbursement for anatomic pathology covers two parts: (1) the costs relating to the physical preparation of the specimen (the “technical component”); and (2) the costs relating to the examination, analysis, or interpretation of the specimen (the “professional component”). The services can be furnished and billed in three different ways. First, a laboratory can furnish the technical and professional components and submit a claim for the “global” service. Second, the technical and professional components can be furnished and billed separately by different laboratories. Third, the technical and professional components can be furnished by different laboratories and billed by one of the furnishing laboratories subject to specific rules and limitations.

The laboratory seeking the advisory opinion (the “Requestor”) is an anatomic pathology laboratory that typically furnishes both components and submits global claims. Most of the Requestor’s business comes from physician referrals. Under the proposed arrangement, the Requestor would contract with other laboratories (the “referring laboratory”) to furnish the professional component of the pathology services and submit claims to its in-network commercial insurers. Under the terms of the arrangement, (1) the referring laboratory would perform the technical component and sell the sample to the Requestor; and (2) the Requestor would furnish the professional component and submit the claim to an insurer for the entire service. The price for the technical component is paid on a per-specimen basis and represents the fair market value of the referring laboratory’s specimen preparation.

The referring laboratories could employ or be owned by a physician referral source or owned and operated without physician involvement. Many of the referring laboratories would have the capabilities to perform the global service. However, the referring laboratories may not be considered an “in-network” provider and cannot submit claims to certain commercial insurers. The proposed arrangement would allow the referring laboratories to access the Requestor’s insurance network by selling the technical component.

The proposed arrangement would be limited to commercially insured patients only. The agreement would not require the referring laboratory to send its federal healthcare program business to the Requestor. The proposal is typically referred to as a “carve-out” arrangement. However, the Requestor noted that the referring physicians and laboratories may nonetheless refer federal healthcare program business to the Requestor outside of the arrangement.

Analysis

The OIG determined that the proposal presented an elevated risk for fraud and abuse under the AKS because it would involve the payment of remuneration to a laboratory in a position to refer services payable by a federal healthcare program.

In reaching this conclusion, the OIG found the proposal implicated the AKS even though the arrangement only addressed the referral of commercially insured patients. The opinion reinforces prior agency guidance that carve-out arrangements are not dispositive and may still present fraud and abuse risks to federal healthcare programs if implemented without the appropriate safeguards. OIG stated it has a “longstanding concern” about “questionable financial arrangements” that “implicate, and may violate, the AKS by disguising remuneration for Federal health care program business through the payment of amounts purportedly related to non-Federal health care program business.”

The OIG’s conclusion placed significant weight on specific representations in the Requestor’s submission. First, the OIG highlighted that the referring laboratories would be allowed to refer federal healthcare program business outside of the carve-out and that the Requestor predicted it was unlikely to receive any business from a referring laboratory if it did not participate in the arrangement. The OIG inferred from the Requestor’s representations that the proposed arrangement would increase the likelihood of federal program referrals. As a result, the OIG could not conclude the absence of a nexus between the remuneration for the technical component and the referral of federal healthcare program business to the Requestor.

Second, the OIG agreed with the Requestor’s certification that the arrangement could not be structured to meet all elements of the personal service or outcomes-based payment arrangements safe-harbors, despite the written agreement and fair market value remuneration. The Requestor was unable to certify that the aggregate services contracted for would not exceed those that are necessary to accomplish the commercially reasonable business purpose of the services. Stated plainly, the Requestor could not certify that the proposal was commercially reasonable. The OIG went a step further, noting that it could not “discern any commercially reasonable business purpose” for the proposed arrangement “other than the possibility that such payment may induce referrals of patients, including Federal health care program beneficiaries.”

Based on the Requestor’s certifications, the OIG found that the arrangement appeared to be designed to influence the referral of federal healthcare program business. As a result, the arrangement presented a significant risk of harm to the federal healthcare programs because federal beneficiary referrals would likely be made to the laboratory that offers the most remuneration for the technical component. Such an arrangement increases the likelihood of patient steering and results in unfair competition by favoring laboratories in the competitive marketplace that are willing and able to pay for the technical component.

The OIG’s unfavorable determination is the furthest the agency has gone to find a federal healthcare program risk for an arrangement addressing services that only involve commercial payors and private pay patients. While instructive, as with all OIG advisory opinions, the conclusion is limited to the specific facts and parties in the request.

Takeaway

While the advisory opinion is consistent with OIG’s historical concerns regarding carve-out arrangements, there is room to question the specific analysis. While not stated in the opinion, the Requestor is likely the competitor of a laboratory engaged in a similar arrangement. In light of the likely probability of that fact, it is not unreasonable to scrutinize the analysis where one motivation of the requesting party is to engineer an unfavorable result. For example, the analysis raises the poignant question of whether a similarly structured arrangement would be favorable if the requesting party certified to the commercial reasonableness of the arrangement? Would the OIG continue to maintain that it’s unable to discern any commercially reasonable purpose if a contrary certification with supportive facts was made? Similarly, was the requesting party’s representation that “if it did not enter into the Proposed Arrangement, it likely would not receive a significant volume of referrals of Federal health care program business” a valid concern? At a minimum, the concern was speculative, given that the arrangement was not in effect at the time of the submission.

While questions remain, there is no doubt that a carve-out arrangement can implicate the AKS and increase the overall compliance risk profile to unacceptable levels. A low-risk carve-out arrangement must be carefully designed and implemented with appropriate safeguards to prevent the improper referral of federal healthcare program beneficiaries.

To read the full advisory opinion please click here. For more information, please contact AGG Healthcare attorneys David Blank or Charmaine Mech.