Concerns for Preferred Provider Agreements

By Matt Fisher, Esq
Twitter: @matt_r_fisher

Advisory Opinion 15-04 issued by the Office of the Inspector General (“OIG”) on March 25, 2015 offers some warnings when entering into preferred provider agreements. The new Advisory Opinion arose in the context of laboratory services, but the principles discussed are easily applicable to any preferred provider arrangement. The advice and insight are important in light of the increasing desire among providers to identify and enter into preferred provider agreements.

In the Advisory Opinion, the Requestor was a laboratory that provides clinical laboratory, anatomic pathology and forensic pathology services to hospitals, physicians practices and others. The Requestor operates in multiples states and has approximately 45 patient centers where blood is drawn and tested. The Requestor indicated that it has received inquiries from certain physician practices that would like to work with only one laboratory. As represented by the Requestor, the physician practices want to work with only one laboratory in order to receive consistent results, both in terms of content and format.

The Requestor also indicated that it provides an interface that interacts with each physician practice’s electronic medical record. The Requestor stated, consistent with previous OIG advice that it does not charge a physician practice for the interface. However, different electronic medical record vendors ay charge a fee to allow the interface to connect.

Lastly, the Requestor certified that about 70% of the physician practices interested in an exclusive arrangement had patients with insurance that required the patient to see a designated laboratory. The so-called “Exclusive Plans” constituted anywhere from 10-40% of each physician practice’s total number of patients.

Under the proposed arrangements that formed the basis of he Requestor’s submission, all laboratory services needed by a physician practice would be performed by Requestor. The services would be performed even for those patients with an Exclusive Plan. If a patient had an Exclusive Plan and the Requestor was not the designated laboratory, then the Requestor would perform services for those patients for free. The Requestor would also require each physician practice to disclose to its patients the nature of the relationship, but indicate that no benefits, financial or otherwise, were or would be given to the physician practice.

In reviewing the proposal, the OIG found the proposed arrangement to be suspect. The OIG pointed to its longstanding position that offering free or below-market goods or services are suspect and can result in violations of the Anti-Kickback Statute. Even if the Requestor would get the physician practices to certify that no financial benefit was being provided, that statement may not be wholly accurate. The OIG focused upon the confluence of two elements that made the arrangement suspect. First, the physician practices clearly would find some benefit, whether financial or otherwise, from the proposed arrangement. The Requestor identified that the physician practices wanted to work with one laboratory in order to increase efficiency and get consistent test results. From the OIG’s perspective, this is a form of a benefit. Second, although the Requestor would provide its interface for free, the Requestor revealed that some physician practices are charged by various electronic medical record vendors to enable a laboratory’s interface. Therefore, if a physician practice could limit its relationship to only one laboratory, then the physician practice would see administrative cost savings.

A second basis for the OIG’s concern concerned the “substantially in excess” aspect of the Anti-Kickback Statute. Under the “substantially in excess” provision, a provider cannot charge Medicare or other federal healthcare programs amounts that are substantially in excess of what patients covered by other insurance plans are charged. In the proposed arrangement, the OIG found the potentially high number of patients receiving free services to be an issue. If so many non-Medicare patients received free care, why shouldn’t Medicare patients and the government get the same benefit? Of particular note is the OIG’s statement that the Requestor provided no reason to be offering the free services other than to gain access to all of a physician practice’s patients, which would clearly be of substantial value to the Requestor.

Given the factual background, the OIG’s final position on the proposed arrangement should not be all that surprising. A fair number of patients were going to receive services for free, which makes an easy assumption for the government that one of the arrangement’s purposes, and maybe only, was to obtain referrals and access to other patients for billing. Even if the assertions of increased efficiency and consistency were accurate, only one purpose of arrangement needs to be suspect in order to put an arrangement at risk under the Anti-Kickback Statute.

When considering a preferred provider agreement, it is necessary to keep in mind certain general concepts when structuring such an arrangement. For example, patients cannot be obligated to see a particular provider, which was a requirement satisfied by the Requestor. Offers of free service should not be made in order to access other patients. While a referred patient occasionally treated for free may not raise eyebrows, any significant number of patients getting free services will be suspect. Further, parties should most likely not discount prices, especially prices for patients with private insurance in order to get Medicare or other government covered patients.

Whatever type of arrangement is being considered, it is helpful to keep regulatory considerations in mind as a potential arrangement is being explored and structured. It can be difficult when parties reach a business agreement, only to have to completely alter those terms once it is vetted under regulatory requirements.

About the author: Matthew Fisher is the chair of the Health Law Group at Mirick, O’Connell, DeMallie & Lougee, LLP, in Worcester, MA. Matt advises his clients in all aspects of healthcare regulatory compliance, including HIPAA, the Stark Law and the Anti-Kickback Statute. This article was originally published on Mirick O’Connell’s Health Law Blog and is republished here with permission.