A CLOSER LOOK Federal regulators are suspicious of exclusive arrangements between path labs and gastro providers.

Do your gastroenterologists outsource their laboratory services? If so, you'd best ensure that their billing arrangements are on the level, because a recent advisory opinion from federal watchdogs has put a common endoscopy center business practice under the microscope.

Arrangements under scrutiny
In a rare negative advisory opinion (osmag.net/Ah2yVT), the Department of Health & Human Services' Office of Inspector General (OIG) says that an exclusive pathology arrangement between a physician practice and a laboratory may violate the federal Anti-Kickback Statute. In particular, the OIG warned, labs that systematically waive payments for patients whose insurers don't contract with the lab may be engaging in illegal remuneration.

Why would a lab waive its charges for services rendered? Simply put, it allows one-stop shopping for gastro practices. The multi-regional medical laboratory that requested the OIG's opinion proposed to enter into exclusive contracts with physician practices and provide all of their necessary clinical lab and pathology services, unless patients opted to obtain the services from a different company. The lab explained that some practices prefer to work with a single lab, as it enables easier communication and consistency in the reporting of results.

Under this proposal, physicians would agree to refer all of their lab testing to the contracted lab, and the lab would submit the claims for all referred patients to the insurance plans in which the lab participates, including Medicare and Medicaid. However, the lab noted, some patients are covered by insurance plans that designate different labs as exclusive providers and don't permit patients to go out of network. In these cases, the lab would not charge the patients. The agreement between the lab and the practices it served would include a statement by the physicians attesting that they are not receiving benefits of any kind in exchange for referring patients to the lab, and that patients would be given a choice of labs in order to avoid the appearance of patient steering.

That statement, however, did not dispel the OIG's suspicions. Its advisory opinion finds the proposed exclusive arrangements problematic because through them the lab provides free services for certain patients in order to secure all of the business from physician practices, including their federal healthcare program business.

The OIG has long regarded the provision of free or below-market-value services to referral sources as suspect and potentially in violation of the Anti-Kickback Statute. In this instance, physicians would be receiving indirect remuneration due to the efficiencies of using a single lab for all their service needs, and could also benefit by not having to pay maintenance fees for interfaces with multiple labs.

In addition, the OIG's opinion sees the proposed arrangements as a potential violation of the "substantially in excess" provisions of the Social Security Act, which can result in the exclusion of providers from Medicare and Medicaid. The purpose of the "substantially in excess" provisions is to prevent healthcare providers from charging the Medicare and Medicaid programs more than the provider typically charges other payers.

To evaluate if a provider is charging federally-funded programs "substantially in excess" of its usual charges, the OIG typically seeks to determine if the provider is discounting close to half of its non-Medicare and Medicaid business. In the proposed exclusive arrangements that were the subject of the advisory opinion, the OIG determined that this was a plausible outcome.

Take caution in contracts
A few precautions can help to keep gastroenterology practices' and endoscopy centers' pathology billing arrangements above board and out of regulators' Anti-Kickback Statute scrutiny.

First, when entering into exclusive contracts with secondary providers, avoid including such conditions as the systematic waiver or reduction of fees for services to certain classes of patients, or provisions that call for payments to be made from the secondary provider to the practice or center.

While an ideal exclusive arrangement with a lab would require the lab to participate in all payer programs with which the practice or center participates, this is not always practical or possible. At a minimum, there should be an understanding between the 2 parties that the lab will make some effort to seek payment for the services it renders to all the patients of the practice or center.

The OIG's advisory opinion also cautions providers to be mindful of the fees actually charged to private insurance patients, in order to avoid a situation in which the fees charged to Medicare and Medicaid patients are "substantially in excess" of those charged to third-party payers. While "substantially in excess" charges against practices and centers are rare, the penalties for overcharging federally funded programs in comparison to the facility's usual and customary charges are severe.

Gastro practices and endo centers should always exercise caution in awarding exclusive contracts to secondary providers such as lab service companies. Before entering into any such exclusive agreement, physicians and facility administrators should consult with their legal counsel or an attorney who is experienced in healthcare and business laws and regulations.