Negative OIG Advisory Opinion Regarding Exclusive Arrangements Between Labs and Physician Practices

Written By Nate Trexler

On March 25, the Department of Health and Human Services Office of Inspector General (“OIG”) released Advisory Opinion 15-04 in which it concluded that an exclusive arrangement between a laboratory (“Requestor Lab”) and physician practices could generate prohibited remuneration under the anti-kickback statute.  Furthermore, the OIG concluded that the proposed arrangement could violate the prohibition on charging Federal health care programs substantially in excess of usual charges, for which a provider may be excluded from participation in Federal health care programs.
 

The Requestor Lab proposed to enter into agreements with physician practices to provide all laboratory services for the practices’ patients and waive all the fees where Requestor Lab is out-of-network.  According to the Requestor Lab, some physician practices desire to work with a single laboratory “for ease of communication and consistency in the reporting of test results.”  For example, different laboratories utilize different methods of reporting test results and require different interfaces for reporting tests to the lab.  However, some patients’ insurers require the use of a specific lab and will not reimburse any other lab under out-of-network benefits (“Exclusive Plans”).

Under the proposed arrangement, where a test is ordered for an Exclusive Plan patient, the Requestor Lab would not charge the patient, physician practice, or secondary insurer for the test.  The laboratory would bill all other patients not under an Exclusive Plan, including Federal health care program beneficiaries.  The Requestor Lab stated that neither the physician nor the practice would receive any financial benefit from the laboratory’s provision of services at no charge to the patients with Exclusive Plans.  The physicians would not draw the samples, and thus could not bill for the blood draw or the testing.  The Requestor Lab would provide a free limited-use EMR interface for submitting orders and receiving results, which the OIG had previously determined is not remuneration under the anti-kickback statute.

The OIG concluded that the proposed arrangement could potentially generate prohibited remuneration under the anti-kickback statute.  Even though the Requestor Lab certified that physicians and physician practices would receive no financial benefit, the OIG concluded that a combination of factors would amount to remuneration to the physicians in exchange for their referrals for services to the Requestor Lab.  The OIG found that the Requestor Lab would reduce administrative and possibly financial burdens (e.g., electronic record interface fees) associated with using multiple laboratories, and, as such, the OIG could not conclude that there was no possibility that the laboratory was not offering remuneration to induce the referral of Federal health care program business.

In addition to the anti-kickback statute analysis, the OIG noted that it has the authority to exclude providers from participation in Federal health care programs that it concludes have submitted or caused to be submitted bills or requests for payment to Medicare or Medicaid containing charges for items or services furnished “substantially in excess” of usual charges, unless good cause is shown.  The OIG concluded that the proposed arrangement could result in a two-tiered pricing structure, where a substantial number of patients (those insured by Exclusive Plans) would receive services for free, regardless of financial need, and where other patients, including Federal health care program beneficiaries, would be charged.  The OIG noted that the only reason for the proposed arrangement was to remove the obstacle that prevented the physician practices from referring all laboratory business to the laboratory.  While the OIG could not conclude whether the laboratory would violate the substantially in excess provision, it opined that the risk was too high to grant the arrangement prospective immunity under the advisory opinion.

Advisory Opinion 15-04 continues the OIG’s long-standing skepticism of physician-laboratory arrangements.

Delaware Drug-related Regulatory Updates

Written By Joanne Ceballos

Drug-related revisions to the regulations governing nurses and pharmacists practicing in Delaware took effect on March 11, 2015.  For nurses, “unprofessional conduct” that may lead to disciplinary action now expressly includes diverting, possessing, obtaining, supplying or administering illegal drugs.  For pharmacists, a new regulation expressly requires that dispensed medications returned to a pharmacy “by the public” must be disposed of in accordance with Delaware and federal controlled substances laws, and “proposed disposal methods must be authorized by the Delaware Office of Controlled Substances and federal authority.”

There are also changes to both the nursing and pharmacy regulations with respect to educational/training requirements.  For nurses, one Continuing Medical Education hour (60 minutes) now equals one contact hour (as opposed to 1.2 contact hours).  For pharmacists who administer immunizations and other injectable medications, the required CPR certification must be obtained through hands-on education as opposed to an online course.

U.S. Supreme Court Affirms: State Licensing Boards Without Active State Supervision Susceptible to Antitrust Suits for Anticompetitive Behavior

Written By Nate Trexler

On February 25, the US Supreme Court released its decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, reaffirming the rule that state professional licensing boards controlled by active market participants that are not “actively supervised” by the State do not enjoy state-action immunity from antitrust enforcement.  As a result, both regulators and regulated health care professionals may find a need to reevaluate state licensing board activity.

 

Like most states, including Delaware, the North Carolina legislature created a board—the State Board of Dental Examiners—to regulate the “practice of dentistry.”  By state law, a majority of the Board was comprised of practicing dentists.  In 2003, North Carolina dentists started to complain to the Board about nondentists offering teeth whitening services at lower costs.  The Board appointed a dentist member to lead an investigation into nondentists offering these services.  The investigation led the Board to issue cease-and-desist letters to these nondentists, warning that the unlicensed practice of dentistry was a crime and either strongly implying or expressly stating that teeth whitening constituted “the practice of dentistry.”  The Board also convinced the North Carolina Board of Cosmetic Art Examiners to warn cosmetologists against providing such services and even wrote letters to shopping mall operators to advise them to remove teeth whitening kiosks because that activity violated the North Carolina Dental Practice Act.  The Act did not specify that teeth whitening constituted the practice of dentistry.  As intended, nondentists ceased offering teeth whitening services in North Carolina.

In 2010, the Federal Trade Commission “FTC”) filed an administrative complaint charging the Board with violating Federal antitrust law.  Essentially, the FTC alleged that the Board’s resolute action to exclude nondentists from the market for teeth whitening services was anticompetitive and an unfair method of competition.  An Administrative Law Judge (“ALJ”) rejected the Board’s argument that the Board was immune from antitrust enforcement under the state action immunity doctrine.  Ultimately, the case was decided on the merits in favor of the FTC, and the FTC ordered the Board to stop sending cease and desist letters and to issue notices to all earlier recipients explaining the Board’s proper scope of authority.  The Board filed a petition for review to the Fourth Circuit, which subsequently affirmed the FTC’s decision.  The Supreme Court granted certiorari on the issue of whether the Board enjoyed state action immunity.

The Supreme Court restated the standard for state action immunity set forth in Parker v. Brown, which provides that antitrust laws confer immunity on the anticompetitive conduct of States that are acting in their sovereign capacity.  The Board argued that its members were conferred with the power of the State by virtue of the State creating the Board to regulate the practice of dentistry.  The Court disagreed that creation of the Board was enough.  Where a nonsovereign actor is controlled by active market participants, such as the Board, the actor will only enjoy Parker immunity if: (1) the action is clearly articulated and affirmatively expressed as state policy; and (2) the policy is “actively supervised” by the State.  The second requirement was at the heart of the parties’ arguments.

In its holding, the Court made clear that where a State empowers a licensing board run by a majority of members that practice the profession they regulate, “the need for supervision is manifest.”  Where a board is essentially controlled by active market participants, there is a risk that private interests may lead to anticompetitive regulation.  The Board did not claim that the State of North Carolina exercised any supervision over its conduct regarding teeth whitening.  The Court held that because there was no active supervision of the Board’s actions, the Board was not immune to antitrust laws.

In its decision, the Court established the parameters for what a State must do in order for its agencies controlled by active market participants to enjoy immunity from antitrust laws.  At the very least, the inquiry is whether the State provides “realistic assurance” that an agency’s anticompetitive conduct promotes state policy, rather than the actor’s self-interest.  The Court stated that to satisfy the requirement, a “supervisor,” who may not be an active market participant, must look at a board’s decision and review its substance, and act on the power, if necessary, to veto or modify decisions to ensure such decisions achieve state policy.

The Court’s decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission should prompt states to review the composition and conduct of their licensing boards.  Where a board is controlled by a majority of individuals who practice the profession they seek to regulate, states should seek to actively supervise the board decisions if immunity is desired.