OIG Rejects Laboratory’s Offer to Provide Free Labeling to Dialysis Facilities

The U.S. Office of the Inspector General (“OIG”) recently issued Advisory Opinion No. 16-12 (the “Opinion”) regarding a proposed arrangement between a laboratory and a dialysis facility. Briefly stated, the laboratory proposed to offer the dialysis facility free labeling of test tubes and specimen collection containers, a task which is typically performed by the dialysis facility’s staff and at the facility’s expense, when the facility sends specimens to the laboratory for testing (the “Proposed Arrangement”). The laboratory proposed to offer these same services to other select dialysis facilities based on whether such services would be necessary to obtain or retain a particular dialysis facility’s business. Competitors of the laboratory currently offer such labeling services to dialysis facilities and select which facilities to offer them to based upon the same standards. The laboratory was concerned that the Proposed Arrangement might generate prohibited remuneration under the Anti-Kickback Statute (“AKS”) and OIG concluded that it was a warranted concern.

OIG based its decision on the conclusions developed in its 1994 Special Fraud Alert, “Arrangements for the Provision of Clinical Lab Services” (the “Special Fraud Alert”).[1] The Special Fraud Alert explained that when a laboratory “offers or gives to a source of referrals anything of value not paid for at fair market value, the inference may be made that the thing of value is offered to induce the referral of business.”[2] Generally, a dialysis facility would have to perform the labeling of test tubes and specimen collection containers at their own expense. The Prospective Payment System for End Stage Renal Disease (“ESRD”) reimburses dialysis facilities for all ESRD-related tests, but not for a dialysis facility’s administrative costs related to those tests, such as the labeling of test tubes and specimen collection containers. The Proposed Arrangement would therefore alleviate the dialysis facility’s financial burden of performing such services itself. Accordingly, OIG opined that the Proposed Arrangement would provide a tangible benefit to the dialysis facility, which creates an inference that the offer to provide such services would be made to influence the dialysis facility’s selection of the laboratory. This inference was only strengthened by the laboratory’s insistence that it would only offer these services to select dialysis facilities based on whether it was necessary to obtain or retain a particular dialysis facility’s business. OIG found that by offering such incentives to dialysis facilities, the laboratory would likely capture valuable referral streams from the select dialysis facilities, as dialysis patients generally require laboratory tests continuously throughout their lifetime. Thus, OIG concluded that the Proposed Arrangement is likely an inducement for dialysis facilities to utilize the laboratory’s services, at the present and in the future, and as such would likely be seen as prohibited remuneration in exchange for referrals under the AKS.

[1] 59 Fed. Reg. 65,372, 65,377 (Dec. 19, 1994).

[2] Id.