Healthcare IT News: OIG Does An About-Face On Referral Service Pricing

by Holland & Knight LLP


  • The Department of Health and Human Services Office of Inspector General (OIG) recently terminated a favorable 2011 advisory opinion regarding a healthcare IT company's "per-click" pricing model for its provider referral management software.
  • In its reversal – which merits the attention of HCIT companies when structuring customer pricing – the OIG said a risk of inducing improper payments or referrals does exist with respect to high-volume referrals, including laboratory tests.

On April 8, 2014, the Department of Health and Human Services Office of Inspector General (the OIG) took the unusual step of terminating a favorable advisory opinion it had issued in November 2011 regarding a healthcare IT (HCIT) company's "per-click" pricing model for its provider referral management software. The 2011 advisory opinion was one of a very few opinions concerning the structuring of referral service pricing arrangements, and perhaps the only opinion concerning the kind of technology-based provider-to-provider referral software that provider networks are increasingly relying upon for enhanced efficiency and cost control.

Implications for Structuring Customer Pricing

The OIG's decision to terminate the 2011 advisory opinion is not a condemnation of technology-driven solutions to referral management. Indeed, in its termination notice, the OIG states that it "continues to believe that the efficient exchange of health information between health professionals is a laudable goal." However, its decision eliminates an important piece of guidance and warrants close attention by HCIT companies when structuring customer pricing.

Under the pricing arrangement at issue in the 2011 advisory opinion, the HCIT company would charge a monthly subscription fee for EHR and certain referral management applications, but would also charge a transaction-based, per-click fee for each referral to pay for the services that company provided in connection with the transaction. When both the referring provider and the provider receiving the referral had entered into agreements with the HCIT company, effectively making them in-network providers, the per-click fee would be paid by the provider receiving the referral. However, when the provider receiving the referral was not an in-network provider, the referring provider had to pay the fee; furthermore, the discount on its monthly subscription fee would be reduced by as much as $1.00 per transaction until it disappeared entirely.

In its 2011 advisory opinion, the OIG found that although this arrangement implicated the Anti-Kickback Statute ("AKS") and did not fit within the referral services safeharbor, the arrangement did not pose a significant risk of inducing improper payments or referrals. Among other factors underlying this determination was the OIG's conclusion that the small reduction in the referring provider's discount ($1.00) when referring to out-of-network provider would not tend to induce physicians to refer business away from them. However, in terminating the advisory opinion, the OIG reversed itself on this conclusion. It stated that it had found that such a risk does exist with respect to high-volume referrals, such as with laboratory tests. With regard to high-volume referrals, the OIG concluded that the $1.00 loss of discount would add up and would ultimately induce physicians to steer their business only to in-network providers.

A Related Advisory Opinion

There appears to be a backstory to this decision. On the same day that the OIG terminated the 2011 opinion, it issued another advisory opinion to a testing lab that was asking whether it could enter into an agreement with the same HCIT company from the 2011 advisory opinion to become an "in-network" provider without running afoul of the AKS. In the factual background of the opinion, the OIG noted that the lab had been told by referring physicians that they would only continue to refer tests to the lab if it joined the network. The OIG concluded that entering into such an arrangement with the HCIT company would potentially run afoul of the AKS. Specifically, the OIG noted that referring physicians were required to pay the $1.00 transmission fee when referring tests to out-of-network providers, which the OIG concluded could influence physicians' referral decisions in the case of high-volume services, such as lab tests. The OIG concluded that this posed "more than a minimal risk of fraud and abuse under the anti-kickback statute."

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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