November 17, 2023 | By Amanda Waesch
This past September 2023, the Office of Inspector General for the U.S. Department of Health and Human Services (OIG) issued Advisory Opinion 23-06 (AO).1 The Opinion involved a proposed arrangement between an independent pathology laboratory and third-party physician laboratories for the purchase of the technical component of anatomic pathology services.
Reimbursement for anatomic pathology laboratory services involves two distinct components: a “technical” component, involving the physical preparation of the specimen for pathologist review, and a “professional” component, involving analysis of the slide by the pathologist. Under the proposed arrangement, the physician laboratory would complete the technical component of the anatomic pathology service and then refer the prepared specimen to the independent laboratory to complete the professional component. Once both components were finished, the independent laboratory would bill commercial payors for both the technical and professional components as an in-network provider, even though the laboratory only completed one component themselves. Finally, the independent laboratory would pay the referring physician laboratory a fair market value per-specimen fee for the technical component of the anatomic pathology service. After reviewing this proposed arrangement, the OIG concluded that it would implicate the Federal Anti-Kickback Statute (AKS) and constitute grounds for sanctions if entered with the requisite intent.
Three important details underscore the OIG’s conclusion that independent laboratories should steer clear of arrangements like the one at issue in the Advisory Opinion.
First, the arrangement allowed the independent laboratory to pay the physician laboratory for services they would otherwise not be able to bill for due to their out-of-network status.
Second, if the independent laboratory did not enter into the arrangement, it would lose out on a significant volume of referrals and federal healthcare program business from physician laboratories.
Third, the proposed arrangement lacked commercial reasonableness.
Even though the independent laboratory paid fair market value for the technical component of the services, the laboratory had the ability to perform both components and would save money and time doing so rather than paying a third party to perform the technical component. Further, the proposed arrangement did not satisfy any safe harbor, including the safe harbor for personal services and management contracts. Absent an applicable safe harbor, proposed arrangements are evaluated under the Anti-Kickback Statute by examining the totality of the circumstances to determine whether a “nexus” exists between the proposed arrangement and referrals for services reimbursable by Federal healthcare programs.
Here, a nexus likely existed between the proposed arrangement at issue and referrals for services reimbursable by Federal healthcare programs because 1) the proposed arrangement had no commercially reasonable purpose for the independent laboratory and 2) the independent laboratory would receive more referrals of Federal healthcare program business from other physician laboratories because of the arrangement. Moving forward, all laboratories (independent and physician-owned) should exercise caution if they intend to enter into arrangements resembling the one at issue in the Advisory Opinion.
To be compliant with federal law, in-network independent laboratories that can perform both components of anatomic pathology services effectively should perform both components without referring the technical component out to another laboratory. The in-network laboratories will not only save time and money performing both components themselves, but they will not risk violating federal law by billing for a component performed by an out-of-network laboratory. Relatedly, out-of-network physician laboratories should not enter into arrangements where they are paid for anatomic pathology services that they cannot independently bill for. If the laboratory cannot bill for the service on their own, then they should not perform the service. To do so means potentially violating the Anti-Kickback Statute and paying hefty penalties.
1 Office of Inspector General, Advisory Opinion No. 23-06 (Sept. 25, 2023).
Your next steps:
- Reach out to Ms. Waesch with your specific questions on contractual relationships
- Before signing an agreement with another organization or individual to provide joint services, contact NAMAS to inquire about coding and reimbursement of the services
- Research the Anit-Mark Up Lesgilation on a federal level, and also what your MAC guidance is as well.