The Department of Health and Human Services, Office of Inspector General (“OIG”), recently issued an advisory opinion in which the OIG concluded that an arrangement between a primary care physician and an allergy testing and immunotherapy laboratory company (“Company”) could potentially generate prohibitive remuneration under the Federal Anti-Kickback Statute possibly resulting in administrative sanctions. Under the arrangement, the Company and the physician would enter into an exclusive contract for the Company to provide allergy testing and immunotherapy laboratory services and related items within the physician’s medical offices. The Company would provide all necessary laboratory personnel, equipment, supplies, training, and billing and collection services to the physicians. The Company would also assist the physicians with marketing allergy services by providing patient education materials and reviewing patient files to identify candidates for laboratory services. In return, the physicians would provide space within their offices to operate the laboratory, administrative staff to schedule patients, general medical office supplies and furniture, general liability and malpractice insurance, as well as physician supervision and interpretation of laboratory results. The physician would bill for the laboratory items and services under the physician’s provider identification number and pay the Company a fee equal to 60% of the physician’s gross collections from allergy testing and immunotherapy items and services.

The OIG analyzed the arrangement with regard to the Federal Anti-Kickback Statute. The Anti-Kickback Statute is violated when a person knowingly and willingly offers, pays, solicits, or receives any remuneration to induce or reward referrals for items and services reimbursable by a federal healthcare program such as Medicare and Medicaid. A violation of the Anti-Kickback Statute is a felony punishable by a maximum fine of $25,000, imprisonment of up to five (5) years, or both. Further, any person convicted of violating the Anti-Kickback Statute is automatically excluded from all federal healthcare programs. There are, however, some “safe harbors” or exceptions for various payment and business practices identified by the government that would not be prosecuted.

The OIG found that the proposed arrangement would not qualify for a safe harbor protection under the Anti-Kickback Statute because: 1) the services would be provided on an as-needed basis, and 2) to meet a safe harbor, the aggregate compensation to be paid under the contract must be set forth in advance and not take into account the volume or value of any business generated between the parties. Because the physician pays the Company a percentage of the gross “collections” of the allergy tests and immunotherapy items and services, the charges would not be set in advance and would be based, in part, on volume. The OIG found that percentage compensation arrangements are “inherently problematic” under the Anti-Kickback Statute because they relate to the volume and value of business generated between the parties, rather than the fair market value of the services provided. The OIG was also concerned that review of patient files to identify candidates for allergy testing services is a marketing activity that could encourage physicians to order medically unnecessary tests, possibly risking patient harm. Additionally, the fee structure could also create over utilization.

The Company asserted that the arrangement would comply with the “in-office ancillary services exception to the physician’s self referral law,” the Stark Law. However, the OIG stated that even if the arrangement were to comply with the Stark Law, the compliance would not affect the OIG’s analysis under the Anti-Kickback Statute as the statutes are independent legal authorities and “each transaction or arrangement must be separately evaluated under both statutes.” The OIG concluded that the proposed arrangement could potentially generate remuneration under the Anti-Kickback Statute and the OIG could potentially impose administrative sanctions.