The Department of Health and Human Services Office of Inspector General (OIG) recently issued an advisory opinion highlighting two important—if easy to overlook—areas that health care companies and providers should remain mindful of to ensure compliance with the Anti-Kickback Statute (AKS).¹ First, the OIG specified in the opinion issued Sept. 25, 2023, that even if an arrangement “carves out” (i.e., does not bill) federal health care programs, it remains within the ambit of the AKS if there is some nexus to services billable to federal health care programs. Second, the OIG reiterated that for purposes of qualifying for certain safe harbors exempting an arrangement from AKS scrutiny, the requirements that compensation under the arrangement be consistent with fair market value and that the arrangement have a “commercially reasonable business purpose” are distinct and must both be satisfied.

Background

The OIG issued the advisory opinion in response to requests from operators of anatomic pathology laboratories.² The proposed arrangement at issue involves laboratories preparing samples to be tested and then referring the business to the requesting laboratories to perform the tests. After conducting the tests, the requesting laboratories bill commercial insurers and then pay the referring laboratories a fair market value, per-specimen fee for preparing the samples. The arrangement applies only to services to be paid by commercial insurers and not by federal health care programs (i.e., the arrangement carves out federal payors), though the requesting laboratories noted in their advisory opinion request that the arrangement would likely lead to increased referrals of federal health care program business to the requesting laboratories as well.

The OIG found that the arrangement’s carve-out of federal health care programs does not insulate the requesting laboratories from potential AKS liability. According to the OIG, an arrangement could implicate the AKS because the referring laboratories receiving payments would be in a position to refer laboratory business to the requesting laboratories that was billable to federal health care programs.³ The advisory opinion reflects the long-standing view by the OIG that such carve-outs do not protect otherwise suspect arrangements from scrutiny. The OIG noted that “[s]uch arrangements implicate, and may violate, the Federal anti-kickback statute by disguising remuneration for Federal health care program business through the payment of amounts purportedly related to non-Federal health care program business.” Because there could be a nexus between the proposed arrangement and the referral of services reimbursable by federal health care programs, the OIG concluded that the arrangement would implicate the AKS.

The OIG further concluded that the arrangement does not satisfy the AKS safe harbor for “[p]ersonal services and management contracts and outcomes-based payment arrangements.”⁴ The requirements to satisfy this safe harbor include, among other things, compensation that is consistent with fair market value, and services that do not exceed what is necessary to accomplish a commercially reasonable business purpose.⁵ While the fees the requesting laboratories would pay the referring laboratories to prepare the samples were consistent with fair market value, the arrangements would have overall been more costly and less efficient than if the requesting laboratories handled all aspects of the testing themselves. According to the OIG, the requesting laboratories acknowledged that the arrangement was not commercially reasonable because the requesting laboratories were capable of preparing and testing the samples themselves, doing so would be more efficient and cost-effective, and the referrals were tied to whether the requesting laboratories had in-network contracts with commercial payors. In the absence of an applicable safe harbor, the OIG concluded that the proposed arrangement would function, at least in part, as an opportunity for the requesting laboratories to pay remuneration to the referring laboratories for referral of services that were reimbursable by federal health care programs. Accordingly, the OIG found the arrangement would likely result in an AKS violation.

Key Considerations for Health Care Companies and Providers

• This advisory opinion reaffirms the OIG’s scrutiny of carve-outs for federal health care programs. Carve-outs may not protect companies and providers from potential AKS liability if there is any potential nexus to federal health care programs.
• The opinion also confirms that even if an arrangement includes compensation that is consistent with fair market value, the OIG may still balk if it finds the arrangement is not “commercially reasonable.” This is an important AKS compliance concept—all aspects of a safe harbor must be fully satisfied in order to exclude an arrangement from AKS liability.
• The distinction between fair market value and “commercially reasonable business purpose” is not just implicated by the safe harbor for personal services; it is also an aspect of at least two other common safe harbors: space rental⁶ and equipment rental^.7

Footnotes

1. 42 U.S.C. § 1320a–7b.

2. Consistent with the practice in HHS-OIG advisory opinions, the requesting laboratories were not identified in the opinion.

3. The AKS prohibits arrangements involving the exchange of remuneration (i.e., most things of value) intended (even in part) to induce referrals for any service that is reimbursable under a federal health care program. See 42 U.S.C. § 1320a–7b.

4. See 42 C.F.R. § 1001.952(d). Requirements to satisfy this safe harbor include, among other things, a written agreement for a term of not less than one year, compensation that is consistent with fair market value, and services that do not exceed what is necessary to accomplish a commercially reasonable business purpose. Id.

5. Id.

6. 42 C.F.R. § 1001.952(b).

7. 42 C.F.R. § 1001.952(c).