OIG Releases Advisory Opinion on Physician Investments in Pathology Laboratory Management Services Company

The U.S. Department of Health and Human Services, Office of Inspector General (OIG) recently issued an Advisory Opinion (AO 11-15) on a proposed arrangement relating to a physician investment in a pathology laboratory management services company.

The proposed arrangement addressed is essentially a converse of joint ventures previously scrutinized by the OIG.  Rather than contracting with an existing laboratory provider to establish a “shell” laboratory for which the physician-owned entity would bill federal health care programs, the physician-owned entity (LLC) proposed to provide clinical laboratory management services, administrative and marketing personnel, rental space, furniture, and equipment to an existing laboratory (Path Lab) that would, in turn, bill federal health care programs.

Absent a safe harbor protection, the OIG concluded that the proposed arrangement posed more than a minimum risk of fraud and abuse under the Anti-Kickback Statute because the usage fees would take into account the volume or value of business generated by the Physician Investors, resulting in risks of overutilization, distorted medical decision-making, and increased program costs.  Ultimately, the OIG concluded that the proposed arrangement appeared to have no business purpose other than to permit the physician investors to profit from the business they generated for the Path Lab through their referrals billable to the Federal health care programs.

This post was contributed by Charles Dunham.