OIG Issues Unfavorable Advisory Opinion for “Carve Out” Deal

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AdrienneFinal1ClintonMikelFinalColorBy Adrienne Dresevic, Esq. and Clinton Mikel, Esq.

July 2013—On June 13, 2013, the Office of Inspector General (OIG) published Advisory Opinion 13-03, which examined an independent clinical laboratory’s proposal to provide support and assistance to physician groups to develop the physician groups’ own clinical laboratories – the physician groups’ owned laboratories would explicitly not service federal healthcare program beneficiaries.

In their unfavorable opinion, the OIG found that the proposal’s attempt to “carve out” federal healthcare program beneficiaries did not necessarily immunize the proposal from violating the Federal Anti-Kickback Statute (AKS) and that it had the potential to create illegal remuneration.

Though OIG Advisory Opinion 13-03 directly addresses a clinical laboratory services arrangement, the OIG’s reasoning and analysis apply equally to other healthcare providers, including imaging providers, who are seeking to structure similar deals and limit their exposure to the AKS. Advisory Opinion 13-03 should be considered by imaging providers when evaluating and structuring potential business ventures.

The Arrangement

In Advisory Opinion 13-03, the OIG considered an independent clinical laboratory’s (the “Requestor”) proposal to assist various physician groups in the development of their own clinical laboratories. Under the terms of the proposal, the Requestor would create a Management Entity that would enter into various contractual agreements with the physician groups to develop and operate the groups’ clinical laboratories, and would lease them space to operate the same. The participating physician groups would have the option to lease personnel and equipment from the Requestor, as well as the option to license proprietary methods of operation for specimen accessioning, workflow, quality assurance, and test reporting. Each physician group would have exclusive use of their leased laboratory space and would be responsible for its own billing, data collection, and quality control. The Requestor would provide support, access to a common business center (e.g., copier, fax machine, etc.), and custodial and waste collection services. Contracts would be made through arms-length negotiation, made at fair-market value (FMV), and would be for terms of more than one year.

Importantly, the physician groups would contractually agree that their laboratories would only provide testing for patients who were not federal healthcare beneficiaries. The physician groups’ laboratories would refer tests for federal beneficiaries, or esoteric tests not performed at their groups’ clinical laboratories, to other clinical laboratories of the physician groups’ choosing – though the physician groups would be free to refer to whomever they desired, they could direct their referrals for Federal Medicare business to the Requestor’s laboratories and/or the laboratories of its affiliates.

OIG Analysis

The AKS prohibits individuals from knowingly or willfully offering, paying, seeking, or receiving remuneration for a referral or solicitation of a referral that is payable by a federal healthcare program. Violations of the AKS include significant civil and criminal penalties as well as exclusion from the Medicare and Medicaid programs.

While the Requestor’s proposal attempts to avoid AKS liability by “carving out” referrals for federal healthcare program beneficiaries, as Advisory Opinion 13-03 makes clear, the OIG does not believe such an arrangement necessarily immunizes such arrangements from violating the AKS. In particular, the OIG was concerned that this proposal would create a new revenue stream for the physician groups without a great deal of risk, and that such an arrangement, even with the carve out, could serve as an inducement to increase the number of federal beneficiary referrals to the Requestor by the physician groups. The OIG believed that such an increase could likely be due to a number of factors, such as:

  • Reasons of convenience;
  • Attempts by a physician group to show its commitment to the Requestor;
  • Attempts by a physician group to receive more favorable pricing on private pay services; and/or
  • A physician group’s failure to distinguish clearly between the physician groups’ private laboratories and Requestor’s laboratory.

For the reasons stated above, the OIG believed that the proposal had the potential to affect a physician’s professional judgment, which could lead to significant over-utilization of clinical laboratory services for both private pay and federal healthcare beneficiaries.

Advisory Opinion 13-03 continues a line of OIG opinions wherein they have expressed skepticism regarding “carve out” deals.


As Advisory Opinion 13-03 indicates, carve out provisions will not automatically immunize providers from liability under the AKS or other federal and state fraud and abuse laws. However, like all Advisory Opinions, the OIG has not rendered “carve out” deals specifically illegal under the AKS, but rather indicates that the OIG will not bless the relationship, and that the OIG feels the relationship has sufficient indicia that it could be abusive such that the OIG might prosecute the same.

Ultimately, Advisory Opinion 13-03 should remind imaging providers of the complexity of fraud and abuse laws, and that any new and existing business arrangements, whether they include carve out provisions or not, should be reviewed by competent legal counsel to ensure that they are structured in such a way as to minimize the provider’s exposure to the AKS and other federal and state fraud and abuse laws.

Adrienne Dresevic, Esq. graduated Magna Cum Laude from Wayne State University Law School. Practicing healthcare law, she concentrates in Stark and fraud/abuse, representing various diagnostic imaging providers, eg, IDTFs, mobile leasing entities, and radiology and multi-specialty group practices.

Clinton Mikel, Esq. graduated from the University of Michigan Law School. Practicing healthcare law, he concentrates in Stark, fraud/abuse, telehealth/telemedicine, compliance, and the corporate and financial aspects of healthcare practice.

The authors are members of The Health Law Partners, P.C. and may be reached at (248) 996-8510 or (212) 734-0128, or at www.thehlp.com.

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