Physicians increasingly seek to provide comprehensive care and increase revenue by offering clinical laboratory services to their existing patients. While many laboratory arrangements are permissible, Michigan healthcare providers must be aware of federal and state authorities governing their ability to derive revenue from orders for clinical laboratory services.

Physician practices may provide testing for their own patients through a physician-office laboratory, or refer laboratory tests to an independent clinical laboratory. The federal Stark law prohibits a physician from referring Medicare or Medicaid patients for clinical laboratory services to an entity with which the physician or an immediate family member has a financial relationship. Michigan licensure laws applicable to physicians and other healthcare professionals incorporate the Stark law, and thus the Stark law’s prohibitions and exceptions apply to referrals of laboratory tests for all patients in Michigan.

Michigan healthcare providers structure physician-office laboratories to comply with the Stark law’s exception for in-office ancillary services. This exception permits a physician group practice to provide clinical laboratory services to the practice’s patients if the arrangement satisfies certain requirements related to the performance and supervision, location, and billing of the laboratory services. However, due to these requirements, physician groups generally cannot own and refer to a clinical laboratory in Michigan if the laboratory is co-owned by any other individual or entity. With regard to independent clinical laboratories owned by third parties, state and federal self-referral laws will only apply if the referring physician has some type of financial relationship with the laboratory.

Under the federal anti-kickback statute, it is illegal to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, referrals of clinical laboratory services reimbursable by Medicare or Medicaid. The Department of Health and Human Services’ Office of Inspector General (OIG) has published Special Fraud Alerts, advisory opinions, and other guidance related to financial relationships between referring physicians and clinical laboratories. Specifically, the OIG provides that when a laboratory pays a physician more than fair market value for the physician’s services or for services the laboratory does not actually need or for which the physician is otherwise compensated, the anti-kickback statute is implicated. Additionally, the OIG maintains the position that when a laboratory offers or gives an item or service for free or less than fair market value to a referral source, an inference arises that the item or service is offered to induce referrals.
Michigan law also includes anti-kickback provisions within the Public Health Code, Medicaid False Claim Act, Health Care False Claim Act, Penal Code. Specific to clinical laboratory arrangements, Michigan law provides that a person licensed to practice medicine in Michigan shall not receive a fee or other remuneration from a clinical laboratory or an intermediary for a clinical laboratory for submitting specimens from patients to a clinical laboratory.

Accordingly, arrangements between referring physicians and clinical laboratories may implicate state and federal anti-kickback laws. For example, specimen collection or packaging arrangements that involve per-test payments to referring physicians may be viewed by the OIG or state as intended to influence the physicians’ referrals to a laboratory. Similarly, a laboratory’s provision of free or below-market items or services (e.g., free point of care test cups) to a physician may also implicate anti-kickback laws. In sum, federal and state anti-kickback laws must be considered whenever a clinical laboratory provides compensation, items, or services to a referring physician.

An increasingly common arrangement involves laboratory companies that manage low-to-moderate complexity physician-office laboratories on behalf of group practices, but separately own a high-complexity independent clinical laboratory. For high-complexity tests that cannot be processed by the physician-office laboratory, the physician group refers the tests to the management company’s independent clinical laboratory. These arrangement raise significant legal concerns and must be structured to comply with state and federal self-referral and anti-kickback laws.

In 2017, Michigan experienced an uptick in enforcement activity related to violations of federal and state self-referral and anti-kickback laws by clinical laboratories. Accordingly, while laboratory arrangements offer healthcare providers the opportunity to increase revenue through their existing patient base, Michigan providers must carefully consider state and federal law prior to entering into any type of laboratory arrangement.

(1) 42 C.F.R. § 411.353.
(2) MCL 333.16221(e)(iv)(B).
(3) 42 C.F.R. § 411.351.
(4) Id.
(5) 42 USC § 1128B(b).
(6) Department of Health and Human Services’ Office of Inspector General, Special Fraud Alert, “Laboratory Payments to Referring Physicians” (June 25, 2014).
(7) See, e.g., Department of Health and Human Services’ Office of Inspector General, Special Fraud Alert, “Arrangements for the Provision of Clinical Lab Services,” 59 Fed. Reg. 65,372, 65,377 (Dec. 19, 1994).
(8) MCL § 333.16221(d)(ii); MCL § 400.604, MCL § 752.1004; MCL § 750.428.
(9) MCL § 445.162.