College of American Pathologists
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New OIG guidance on Part A "a step backward"

August 2004
Carl Graziano

New supplemental federal guidance on fraud and abuse compliance for hospitals threatens to dilute longstanding warnings against paying pathologists and other hospital-based physicians less than fair market value for their services to hospitals.

The June 8 guidance came as unwelcome—and unexpected—news for the College, which had asked the Department of Health and Human Services Office of Inspector General to take a tougher stance on arrangements that pay pathologists little or no compensation for their Medicare Part A services to hospitals.

While stronger language never was certain, no one expected the pendulum to swing in the other direction. But it seems to have done just that, with a new statement that requiring a physician to provide administrative or clinical services at no charge to a hospital—"in an appropriate context"—would not violate anti-kickback laws.

"Unfortunately, this new language could provide legal cover to hospitals that pressure pathologists into accepting little or no compensation for direction of the clinical laboratory," says Thomas A. Gaffey, MD, chair of the College’s Practice Management Committee. "It really represents a step backward."

Some observers speculate that the OIG eased its earlier admonitions on token or no payment for Part A services to clarify that failing to pay physicians for occasional institutional duties—service on a tumor board, for example—would not implicate anti-kickback statutes.

"But the way the statement is written, it would seem to capture any administrative service a pathologist might provide to a hospital," says Dr. Gaffey, of Mayo Medical Laboratories, Rochester, Minn. "We hope to help the OIG understand how the new statement could have the unintended effect of making matters worse with respect to unacceptable Part A payment arrangements."

The College has long sought tough language from the OIG on Part A payment to hospital-based physicians, who sometimes face pressure to accept token or no payment for directing a clinical laboratory as a condition of practicing at a hospital.

College advocacy led the OIG to conclude in a 1991 Management Advisory Report, "Financial Arrangements Between Hospitals and Hospital-Based Physicians," that agreements requiring pathologists to accept less than fair market value for management and supervision services could be construed as payments intended to induce referrals. The OIG maintained that position in its original hospital compliance guidance, released in February 1998. That document refers to the 1991 report and identifies financial arrangements between hospitals and hospital-based physicians as a "risk area" hospitals should emphasize as they develop compliance plans.

But in the June 8 Draft Supplemental Compliance Program Guidance for Hospitals, the OIG took a different tack. It said, "In an appropriate context, an arrangement that requires a hospital based physician or physician group to perform reasonable administrative or clinical duties directly related to their hospital-based professional services at no charge to the hospital or its patients would not violate the anti-kickback statute. Whether a particular arrangement with hospital-based physicians runs afoul of the anti-kickback statute would depend on the specific facts and circumstances, including the intent of the parties."

The College mobilized quickly in response to the new statement, asking its members to provide examples of hospitals’ attempts to pay less than fair market value for pathologists’ services. The information gathered will be used in case studies to support stronger language on Part A payment. The College also asked its members to write the OIG in opposition to the new language, and the CAP submitted its own comments July 21.

Referring to the "appropriate context" passage in the supplemental guidance, the CAP wrote: "We fear that if not altered, the language . . . will inadvertently facilitate the compromising of ethics of medical care and may also have an adverse effect on quality. This wording does nothing to clarify matters; on the contrary, it obfuscates requirements and takes a step in the wrong direction.

"Given the paucity of enforcement on anti-kickback violations vis-à-vis hospital payments for physician professional work for Medicare Part A beneficiaries," the CAP continued, "it will undoubtedly be seized upon by some hospitals as justification to not pay their required share for pathologists’ Part A professional services. The language should be changed to read: ’Token or no payment for Part A supervision and management services in exchange for the ability to bill Part B services violates the anti-kickback statute.’"

The draft supplemental compliance document does continue to acknowledge that compensating physicians for less than the fair market value of goods or services provided to hospitals or requiring them to pay more than fair market value for services provided by the hospitals may violate anti-kickback statutes. But, in prefacing its comments on exceptions to this rule, the OIG says, "We are aware that hospitals have long provided for the delivery of certain hospital-based physician services through the grant of a contract to physician or physician group akin to a franchise, which shifts management, staffing, and other administrative functions, and in some cases limited clinical duties, to physicians at no cost to the hospitals. Such arrangements are of value to the hospital as well as the physicians, value that may well have nothing to do with the value or volume of referrals flowing from the hospital to the hospital-based physicians."

Carl Graziano is CAP manager of government communications.