The Office of Inspector General, Department of Health and Human Services posted an unusual negative Advisory Opinion (AO 18-14) on a drug company’s proposal to provide free drugs to hospitals for use with pediatric patients suffering from a form of epilepsy. Of particular interest is OIG’s reliance on a longstanding, but rarely used, authority to justify finding and relying on public information about the drug at issue, including pricing information, to support its unfavorable conclusion. This advisory opinion might counsel future opinion requestors to withdraw their opinion request once OIG indicates the opinion will be unfavorable.
A recent $48.5 million False Claims Act (FCA) settlement between two laboratory companies and the federal government highlights the increased scrutiny of laboratory-physician compensation arrangements for potential Anti-Kickback Statute (AKS) violations. Both companies deny any wrongdoing and maintain that they cooperated fully with the government investigation. The investigations and settlements follow guidance published last year by the U.S. Department of Health and Human Services Office of the Inspector General (OIG) expressing concern over these types of arrangements. These recent actions demonstrate the government’s sustained interest in examining laboratories’ financial relationships with physicians.
The FCA settlement arose from alleged payments by Health Diagnostic Laboratory Inc. (HDL) and Singulex Inc. ($17 and $10, respectively) to physicians in connection with processing and handling blood draw samples. In HDL’s settlement agreement, the government also contended that the following conduct violated the AKS: 1) routine waiver of patient’s cost-sharing obligations (such as co-payments and deductibles); 2) use of speaker programs, advisory boards, consulting agreements, and other goods, services and gifts to physicians; and 3) commission payments to BlueWave Healthcare Consultants Inc., a company contracted to sell HDL’s blood-testing services to physicians. HDL and Singulex expressly denied any wrongdoing and agreed to pay $47 million and $1.5 million, respectively, as well as to enter into separate Corporate Integrity Agreements with the OIG. HDL’s settlement payment is made in installments over the next five years plus interest. Of note, HDL’s total payment may increase up to $100 million in the event HDL sells certain real estate, is sold or merged into another company, or meets certain excess net revenue targets. The case continues for other defendants – the U.S. Department of Justice has intervened in the FCA suits against BlueWave, its two individual owners, HDL’s co-founder and former Chief Executive Officer Tonya Mallory, and Berkeley HeartLab Inc.
This investigation follows the OIG’s June 2014 Special Fraud Alert specifically addressing lab payments to physicians for specimen collection processing and handling. The FCA investigation and the June 2014 alert are just some of the latest examples of governmental focus on lab arrangements with physicians. For instance, the OIG issued Advisory Opinion 15-04, warning of the AKS implications associated with an exclusive referral arrangement that would provide physicians with free laboratory testing for patients referred by affiliated physicians whose commercial insurance only covered testing by a different lab company.
The potential for governmental investigation of lab-physician relationships should factor into a lab’s risk analysis for entering into business relationships with physicians. The OIG guidance shows a continued concern with, and focus on, financial relationships between labs and physicians. The government’s enforcement activity shows an appetite for examining those relationships. One outstanding question is whether the government’s enforcement interest will also extend to some of the physicians since the AKS can reach both sides of a relationship.
See Press Release, Dep’t of Justice U.S. Attorney’s Office District of South Carolina, Two Cardiovascular Disease Testing Laboratories To Pay $48.5 Million To Settle Claims of Paying Kickbacks and Conducting Unnecessary Testing, available here.