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CAP Home > CAP Reference Resources and Publications > CAP TODAY > CAP TODAY 2005 Archive > Out of joint OIG takes dim view of pod lab setup
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  Out of joint OIG takes dim
  view of pod lab setup

title
  cap today

January 2005
Feature Story

In an opinion limited to a single case but likely to reverberate through the entire pathology community, federal investigators have told an anatomic pathology provider that joint ventures with physician groups could violate federal anti-kickback laws.

The Dec. 17 advisory opinion from the Department of Health and Human Services Office of Inspector General reinforces the CAP’s efforts to challenge the proliferation of contractual joint ventures in which a clinical practice shares in revenue generated by pathology services for its patients.

The advisory opinion’s release is timely—it came only days after a Dec. 14 meeting between the CAP and OIG in which contractual joint ventures were discussed. The College team included Thomas M. Sodeman, MD, CAP president-elect; Jack R. Bierig, the College’s general counsel; James C. Dechene, a partner with Bierig at Sidley Austin Brown & Wood; John Scott, CAP vice president for government affairs; and George Roman, CAP assistant director for professional affairs.

The CAP team presented information gathered about suspect joint ventures College members have encountered and described how contractual joint ventures unfairly compete with traditional pathology practices. The College was scheduled to hold additional meetings with CMS officials and key members of Congress in January to discuss concerns about these joint ventures.

Contractual joint ventures have been the focus of scrutiny by the College, other pathology organizations, and the federal government during the past year. The CAP believes they raise troubling legal and ethical issues and could negatively affect patient care.

The OIG issued its advisory opinion in response to a request from the operator of what are commonly called "pod" or "condominium" laboratories. Under this model—one of several types employed under contractual joint ventures—a third party establishes a centralized collection of cubicle laboratories, each for the exclusive use of a different group practice. A single pathologist rotates among all, working as an independent contractor for each group. The group typically pays a management fee to the third party and a per-slide fee to the pathologist, and retains any profit from global billing for the pathology services.

Under the arrangement described in the advisory opinion, the opinion’s requester offers services exclusively to physician groups specializing in urology, gastroenterology, or dermatology. The physician groups pay a flat monthly fee, including a fee for the pathologist’s services; a per-specimen fee; and, if applicable, a fee for billing and collection services equal to five percent of the pod laboratory’s total revenue.

In its analysis, the OIG describes the arrangement as "very similar" to one presented as an example in an April 2003 special advisory bulletin on contractual joint ventures, which lists seven "indicia" of suspect contractual joint ventures.

The OIG, in its advisory opinion, said the requester’s joint venture appears to meet several of the criteria. The government rejects the requester’s assertion that the arrangement fails to meet the "little or no bona fide business risk" standard because the client physician groups are responsible for a monthly fee regardless of their use of the laboratory.

Like the fictional client in the special advisory bulletin example, "the Physician Group’s actual financial and business risk would be nonexistent or minimal, because it would have complete control over the amount of business it would send to the Path Lab and could make substantial referrals to the Path Lab," the OIG says. "In fact, while our conclusion would be the same even absent the historical correlation, by basing the Monthly Fee for each Physician Group on historical utilization data for that Physician Group, the parties can easily ensure that the business generated by the Physician Group would be sufficient to meet or exceed the Monthly Fee.

"Similarly," the OIG added, "the Management Agreement’s Per Specimen Fee and the percentage billing fee (based on net revenues) create virtually no financial risk for the Physician Group, because the fees would be based on actual utilization and billing of services."

Following are other elements of the special advisory bulletin that are present in the arrangement proposed in the advisory opinion:

  • The requester, through a conventional anatomic pathology practice with which it is affiliated, could directly provide pathology services in its own right, billing insurers and patients in its name and retaining all available reimbursements.
  • Payments to both the requester and the physician groups would vary based on the volume of referrals to the laboratory.
  • The requester and physician groups would share in the economic benefit of the physician group’s pod laboratory.

"Accordingly, based on the facts presented here," the OIG said, "we are unable to exclude the possibility that the parties’ contractual relationship is designed to permit the Requestor to do indirectly what it cannot do directly; that is, pay the Physician Groups a share of the profits from their laboratory referrals." The OIG described such profit-sharing as "impermissible remuneration."

If the intent of the proposed arrangements was to give physician groups remuneration through the pod laboratories in exchange for referrals to those laboratories or the requester’s affiliated anatomic pathology practice, "the anti-kickback statute would be violated," the OIG wrote. It added, "Indeed, there is a significant risk that the Proposed Arrangement would be an improper contractual joint venture that would be used as a vehicle to reward the Physician Groups for their referrals."

Further, the OIG said, "Where remuneration is paid purposefully to induce or reward referrals for items or services payable by a Federal health care program, the anti-kickback statute is violated. By its terms, the statute ascribes criminal liability to parties on both sides of an impermissible ’kickback’ transaction."

Responding to the requester’s claim that the proposed contractual joint venture would conform to the "in-office ancillary services" exception under "Stark" self-referral prohibitions, the OIG dismissed the link as irrelevant. "Even if some features of the Proposed Arrangement were to comply with the Stark Law, such compliance would not affect our analysis under the anti-kickback statute," the OIG said. "The Stark Law and the anti-kickback statute are independent legal authorities and each must be evaluated separately."

In reaching its conclusion that the proposed contractual joint venture could generate prohibited remuneration under anti-kickback statutes, the OIG cautions that a definitive judgment requires a determination of intent. The OIG also notes its standard disclaimers for all advisory opinions: that they apply only to the facts presented and the parties involved, are nonbinding, and may not be introduced into evidence in an action involving the parties.

The OIG has included a review of contractual joint ventures in its 2005 work plan and continues to express keen interest in the potential for these joint ventures to violate federal laws. The College will continue to work with members of Congress and federal regulatory agencies to protect the interests of patients and pathologists.

Carl Graziano is CAP manager of government communications.

 

 

 

 

   
 
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