Contractual Safeguards That Fall Short of a Safe Harbor

3 min

According to a recent Advisory Opinion from the Department of Health and Human Services (HHS) Office of Inspector General (OIG), a proposed fee arrangement could run afoul of the Federal anti-kickback statute, 42 USC §1320a-7b(b) (AKS), if it allows for clinical laboratories to compensate hospitals for patient referrals for such laboratory services.1

As a general matter, it is a criminal offense under the AKS to knowingly or willingly offer or receive any payment or remuneration for the referral of a person to provide services to that person, if such services are reimbursable by a Federal health care program. The AKS is interpreted broadly against the totality of facts and circumstances. Congress has passed several safe harbors that exclude certain activities from implicating the AKS (Safe Harbor); qualifying for Safe Harbor protection requires that all criteria in the Safe Harbor be met.

The OIG analyzed a proposed fee arrangement where hospitals would enter into contracts with clinical laboratories and the hospital's phlebotomists would collect, process, and handle certain specimens later sent to the contracted clinical lab (Partner Lab) for testing. In addition to the Partner Lab billing the third-party payor or Federal health care program for the testing services, the Partner Lab would also compensate the hospital for the referral on a "per-patient-encounter" basis – so long as the testing was not performed on the hospital's current inpatients or registered outpatients.

First, the OIG noted that the "per-patient-encounter" compensation structure did not fall within the Safe Harbor for certain outcomes-based payment arrangements because, to apply, the methodology for determining compensation paid for services cannot be "based off of the volume or value of any referrals" generated between the parties. Second, the OIG recognized that the proposal encompassed several safeguards, such as the hospital's representations that none of its physicians would be: (a) required or directed to refer patients to a Partner Lab; or (b) paid by the hospital if they did refer patients to a Partner Lab. Further, the hospital would always have the "choice" to decide whether to even use the Partner Lab in instances when a named laboratory was not specified on a patient's order.

But even these safeguards would not pass muster to avoid "more than minimal risk of fraud and abuse" under the AKS. The OIG surmised that, even with the choice of selecting any clinical laboratory, this arrangement would financially incentivize the hospital to send patients to the Partner Lab for services. And because some patients may be beneficiaries of a Federal health care program, referring these patients to a Partner Lab in anticipation of referral compensation would squarely violate the AKS.

While the OIG has found in certain circumstances that arrangements between referring parties that don't fit squarely into a Safe Harbor may still be permissible under the AKS, in this recent circumstance, it apparently could not identify sufficient safeguards or mitigating factors to conclude that the arrangement would not violate the AKS. In that respect, this recent Advisory Opinion is just another cautionary tale for parties with patient referral arrangements. It reminds providers with these arrangements of the necessity to appropriately scrutinize all of the facts and circumstances surrounding their relationship, or proposed relationship, to ensure that they are not running into AKS territory.

[1] HHS OIG Advisory Opinion No. 22-09, posted April 28, 2022: