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OIG Advisory Opinion Examines Radiology Arrangement Regarding Transcription Fees Paid to Third Party

The Department of Health and Human Services’ Office of Inspector General (“OIG”) recently released OIG Advisory Opinion No. 15-15, in which the OIG determined that an arrangement involving an acute care hospital (“Hospital”), radiology practice and family medicine clinic (“Clinic”) would not generate prohibited remuneration under section 1129B(b) of the Social Security Act, the Federal anti-kickback statute (“AKS”).

Under the arrangement, the Clinic refers patients and certain diagnostic tests to the Hospital, and thus the Clinic’s physicians are referral sources for the Hospital. The radiology practice contracts with the Hospital to supervise radiology services and provide professional interpretations of all radiologic imaging taken at the Hospital, and members of the radiology practice can influence referrals to the Hospital. The Clinic includes technologists who provide radiologic imaging services for the Clinic’s patients, and the Clinic transmits the resulting images to the radiology practice to interpret the images and is thus a referral source for the radiology practice. The radiology practice’s radiologists interpret the images and dictate reports, but send the dictated reports to the Hospital and the Hospital’s employees transcribe the reports on behalf of the radiologists, who send the final reports back to the Clinic. The radiology practice pays the Hospital a “flat rate per line of transcription” fee that is fair market value for the service, and the Clinic pays no portion of any transcription cost. The Clinic bills third-party payors, including Medicare and Medicaid, for the technical component, and the radiology practice bills these payors for the professional component of the radiology services. The OIG also noted that the Hospital is located in a sparsely populated region, the Clinic is in a rural community in that region, and that the radiology practice is the only radiology practice within a 100-mile radius of the Clinic or Hospital.

Crucial to the OIG’s finding, the Centers for Medicare & Medicaid Services’ (“CMS”) Medicare Claims Processing Manual provides that with regards to the professional component of a radiology service, the interpretation of the diagnostic procedure includes a written report. Further, CMS advised the OIG that transcription costs are considered indirect expenses under the methodology establishing resource-based practice expense relative value units (RVUs), meaning that such costs are not separately identified but are included in both the professional and technical components for each service. As such, CMS’ position is that when the technical component and professional component are provided and billed by different entities, the two providers may determine who will pay for transcription costs.

The OIG highlighted that both the Clinic and radiology practice are referral sources for the Hospital, and the Clinic is a referral source for the radiology practice. Under the AKS, when a party in a position to benefit from referrals provides remuneration to a referral source, including the relief of administrative expenses, there is risk that such remuneration is to influence referrals.

First, the OIG determined that no remuneration passed from the Hospital to the Clinic, as the Hospital billed the radiology practice for transcription services, the Hospital is entitled to reimbursement for such services, and it is logical that the Hospital would bill the radiology practice for these services.

Second, since the Clinic would not pay for transcription costs, the OIG determined whether the radiology practice’s payment for such costs constituted remuneration from the radiology practice to the Clinic. The OIG stated that if the transcription costs were reimbursed solely under the technical component, the risk of prohibited remuneration under the AKS would be substantial. However, given CMS’ position that Medicare’s payment for both the technical component and professional component includes reimbursement for indirect expenses, and to the extent these expenses include transcription costs, the parties both receive reimbursement for the same expense and thus the risk of prohibited remuneration between the parties arises when one party bears the costs instead of the other. Despite this risk, the OIG determined that prohibited remuneration would not pass between the radiology practice and Clinic. The OIG’s decision was based on the fact that Medicare’s Payment Conditions for Radiology Services state with regard to the professional component, “[t]he interpretation of a diagnostic procedure includes a written report.” Thus, since the written report is part of the professional component, the radiology practice’s payment for transcription of its own reports would not constitute remuneration to the Clinic.

Wachler & Associates represents healthcare providers, suppliers and other individuals nationwide in substantially all areas of health law, including compliance with the AKS, the federal Stark law, and other federal and state laws related to healthcare fraud and abuse. Our firm regularly structures arrangements to comply these laws and other regulatory guidance. If you or your health care entity has any questions related to the AKS, Stark law, or any other authorities governing relationships between healthcare providers and referral sources, or healthcare regulatory compliance in general, please contact an experienced health law attorney at (248) 544-0888 or via email at wapc@wachler.com. You may also subscribe to our health law blog by adding your email at the top right of this page.