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The Government Clarifies that the Provision of Free POCT Cups to Physicians Violates the Stark Law and Anti-Kickback Statute: Ameritox, Ltd. v. Millennium Laboratories, Inc.

The government recently took the unusual step of filing an amicus brief in a civil case involving Stark Law and Anti-Kickback Statute (“AKS“) issues. See, Ameritox, Ltd. v. Millennium Laboratories, Inc., Case No. 14-14281 (U.S. Court of Appeals for the 11th Circuit). The amicus brief provides insight into – and clarification of – the government’s position on free point-of-care testing cups (“POCT cups“) provided to physicians and whether this meets the definition of remuneration under the Stark Law and AKS.

By way of brief background, Ameritox, Ltd. (“Ameritox“), a company that provides physicians with urine drug monitoring and reporting services, filed an action against Millennium Laboratories, Inc. (“Millennium“), under the Lanham Act and various state-law tort theories, alleging that Millennium engaged in unfair competition and tortiously interfered with Ameritox’s business relationships by providing POCT cups to physicians in violation of the Stark Law and AKS. POCT cups are specimen collection cups with immunoassay testing strips embedded in the cup. This enables physicians to promptly (at the point-of-care) screen the urine of patients who may be taking illegal drugs or who are prescribing drugs that are subject to abuse or diversion. A jury found in favor of Ameritox, and Millennium appealed. The government submitted an amicus brief opposing Millennium’s appeal.

The factual antecedents of this case can be traced to the April 2010 decision by CMS to reduce POCT cup reimbursement to $20 per cup. Following this reimbursement adjustment, Millennium initiated the practice of entering into “cup agreements” with physicians under which Millennium agreed to provide POCT cups to physicians free of charge if the physicians agreed: (i) not to bill any insurer for the urine testing service; and (ii) to return each test cup to Millennium for lab testing of the urine specimen. If the physicians failed to comply with these requirements, then Millennium would charge them for the price of the cups. These arrangements were held to violate the Stark Law and AKS, and the government filed its amicus brief, in significant part, to challenge the arguments being made by Millennium relating to Stark and AKS.

Stark Law:

The Stark Law, in sum, prohibits a physician from referring federal health care program beneficiaries for designated health services (such as, clinical laboratory services) to an entity with which the physician or an immediate family member has a direct or indirect financial relationship, unless an exception applies. A financial relationship includes a compensation arrangement involving remuneration between the physician and the entity furnishing the designated health service. Remuneration is broadly defined as including any remuneration, in cash or in kind, that is not specifically excluded from the definition.

At issue in the Millennium case is whether the provision of free POCT cups to physicians falls within the Stark Law’s “laboratory supplies” exception to the definition of remuneration. This exception carves out of the definition of remuneration “[t]he provision of items, devices, or supplies that are used solely to (i) collect, transport, process or store specimens for the entity providing the item, device, or supply, or (ii) order or communicate the result of tests or procedures for such entity.” The government takes the position that the POCT cups do not fall within this carve-out because, unlike ordinary specimen cups, POCT cups include immunoassay test strips that provide a valuable diagnostic tool for physicians, which is wholly independent from functions necessary for Millennium’s purposes.

The carve-out requires that the supplies be used solely for transportation, collection, processing or storage purposes. The government disagrees with Millennium that, in order to meet the carve-out, the laboratory supplies need only be used primarily for transportation, collection, processing or storage purposes. According to the government, the use of the word “primarily” in the 2001 final rule preamble (upon which Millennium relies) cannot trump the use of the word “solely” in the actual text of the statute and regulation. Further, the government relies on the district court’s finding that the test strips are not used or required in connection with processing the specimen for Millennium, nor do they communicate the preliminary results for Millennium. Rather, the test strips are used for the physician’s own purposes and inure to the benefit of the physician.

Additionally, the government dismisses Millennium’s argument that the provision of free POCT cups cannot constitute remuneration because the physicians agreed not to bill for them. In its amicus brief, the government clarifies that a physician agreeing not to bill for the tests has no bearing on whether or not the POCT cups constitute remuneration. Rather, under the Stark Law (and the AKS, see below), billing for a service is not necessary to be considered remuneration (e.g., non-billable gifts, such as cash, and cost-avoiding items and services, such as free drug testing strips, are remuneration).

Finally, the government clarifies that it does not preclude the possibility that items, devices or supplies provided by a laboratory or other entity that fall within the “laboratory supplies” carve-out can confer certain incidental benefits on physicians. The relevant question in this case is not simply whether there is a benefit to a physician, but whether the supply provided performs a function distinct from the functions covered by the carve-out. The POCT cups plainly fail that test because the testing strips are not relevant in any way for Millennium’s legitimate collection, transportation, processing or storage of specimens for its own testing.

Anti-Kickback Statute:

The government applies a consistent rationale for its arguments on the AKS issues. In general, the AKS prohibits transactions intended to induce or reward referrals for items or services reimbursed by the federal health care program.

First, the government dismisses Millennium’s argument that the Office of Inspector General (“OIG“) has taken the position that free items and services that are “integrally related” to the offering provider’s or supplier’s services are not remuneration under the AKS. The government points to a number of OIG advisory opinions in support of its argument that to be “integrally related” to the offering provider’s services the free items or services must be capable of being used only as part of the underlying service – without having any independent value outside of the underlying service.

The government provides a number of examples of items or services that have no independent value apart from the underlying services, such as: (i) free computer interfaces used only to transmit laboratory test results (OIG Advisory Op. 12-20); (ii) when a provider of imaging services obtains pre-authorizations from insurers for the requestor’s own services (OIG Advisory Op. 10-20); and (iii) when a pharmacy provides community homes with access to a software program that enabled homes to communicate with the pharmacy regarding pharmacy orders (OIG Advisory Op. 12-19). Based on these opinions, the government acknowledges that “some incidental benefits to physicians may be permissible so long as they are directly related to the provider’s services and do not extend beyond those services.” Similar to its Stark Law argument, the government argues that the free POCT cups fail this test because they confer significant benefits on physicians that extend beyond, and are unrelated to, Millennium’s laboratory testing services (which do not depend on POC testing in any way).

Second, the government challenges Millennium’s assertion that the free POCT cups do not constitute remuneration if the physicians do not bill for them. In support of its argument, Millennium offers a footnote in the “OIG Special Fraud Alert: Laboratory Payments to Referring Physicians,” which states that “fee or below-market point of care urine testing cups to health care providers who use the cups to perform billable in-office testing” might violate the AKS. The government characterizing this footnote as a “fleeting reference to billable services” that is unpersuasive when considering that the Special Fraud Alert, taken as a whole, reaffirms the position that “whenever 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.” With that statement, the government clarifies its position that the fact the physician does not bill for the item or service does not, by itself, negate this inference.

Conclusion:

Essentially, if an entity provides a physician with an item that enables the physician to perform a service that would otherwise cost the physician money to perform (i.e., purchasing test strips in order to perform point-of-care testing), then the entity relieves the physician of that burden (i.e., provides a benefit to the physician, and thus meets the broad definition of remuneration). Unless the provision of free items or services satisfies a carve-out to the definition of remuneration, it is prohibited. It is clear that, as the Millennium case shows, one cannot attempt to structure a particular set of facts to meet an otherwise permissible carve-out, but then append other items which clearly fall outside of the exception to the definition of remuneration. As the government succinctly stated, the provision of free POCT cups “is no different from taping a five dollar bill to the inside of an ordinary specimen cup.”

For more information, please contact Carey Kalmowitz, Esq. (ckalmowitz@thehlp.com), or Adrienne Dresevic, Esq. (adresevic@thehlp.com), at (248) 996-8510 or (212) 734-0128.

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