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Path Lab Proposal Shot Down by OIG

by admin on November 7, 2011 No comments

The Office of Inspector General of the Department of Health and Human Services recently (October 11, 2011) shook its head at a proposal involving a pathology lab management services business that was to be owned by physicians. The proposed arrangement had the following features:

1. A path lab management business (“Manager”) would be formed and the business would be owned by doctors;
2. The Manager would provide a list of management services to a path lab;
3. The path lab (“Lab”) would not be owned by the doctors that own the Manager;
4. The Manager would provide a fixed amount of hours of services each year and would receive a percentage of the Lab’s income (fixed percentage in advance) and that fee would approximate the Lab’s use of the Manager’s services for the year;
5. The physician Manager investors would be in a position to refer to the Lab;
6. The ownership interests of the physician investors in the Manager would exceed forty percent (40%);
7. More than forty percent (40%) of the Lab’s revenues would come from the physician investors.

The OIG decided that the proposed arrangement posed more than a minimal risk of violating the Anti Kickback statute. The OIG also said the manager cannot refer its own patients or generate business in connection with the proposed arrangement. The OIG focused on the following points in its advisory opinion:

1. The Manager’s “usage fees” to the Lab are percentage based and not flat and set in advance;
2. The ownership interests of the doctor investors in the Manager would exceed what is specified in the so called “small entity” Safe Harbor;
3. The physician owners of the Manager have no experience in managing a lab, but are in a position to generate referrals to it.

Though the regulatory Safe Harbors (to the Anti Kickback Statute) are illustrative of permissible arrangements, the OIG is clearly sticking very close to them. where federal or state healthcare program dollars are involved, physician investors would do well to make sure they are Safe Harbor compliant.


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