Can a Tennessee clinical laboratory pay 85% of a doctor's electronic health records software cost if that doctor sends specimens to the lab for analysis?

Subject

Opinion No. 13-16, Donations for Electronic Health Records Software by Clinical Laboratories, March 4, 2013

Plain-English summary

A Tennessee state senator asked whether a clinical laboratory could lawfully donate up to 85% of the cost of electronic health records (EHR) software to a referring physician's office under the Tennessee Medical Laboratory Act (TMLA). Federal law has a "safe harbor" at 42 C.F.R. § 1001.952(y) that protects similar EHR donations from federal anti-kickback liability. The question was whether Tennessee allows the same arrangement.

The AG said no. Tenn. Code Ann. § 68-29-129(7), the anti-kickback provision in the TMLA, makes it a violation for any person to "[s]olicit the referral of specimens to such person's or any other medical laboratory or contract to perform medical laboratory examinations of specimens in a manner that offers or implies an offer of rebates to a person or persons submitting specimens, other fee-splitting inducements, participation in any fee-splitting arrangements, or other unearned remuneration." That's broader than the federal prohibition. The phrase "or implies an offer" reaches arrangements that don't say "kickback" out loud but function like one. "Unearned remuneration" picks up benefits that aren't tied to actual services performed by the recipient. An 85% EHR donation to a physician who refers specimens to the donating laboratory fits both descriptions.

On preemption, the AG explained that the federal EHR safe harbor doesn't override state anti-kickback law. The Federal Register notice introducing the safe harbor (71 Fed. Reg. 45114) acknowledges that the safe harbor's authority derives from the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which doesn't carry preemptive authority over state anti-kickback statutes. The opinion cited a 2012 Washington Attorney General opinion (Wash. Att'y Gen. Op. 7, 2012 WL 7148193) that reached the same result on Washington's similar statute.

The second question (whether subsequent referrals from a recipient physician would constitute a violation) was pretermitted by the answer to the first; if the donation itself is unlawful, there's no need to ask about what follows.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Federal EHR safe harbor rules and Tennessee's Medical Laboratory Act have both been revisited multiple times. The federal safe harbor at 42 C.F.R. § 1001.952(y) has had its sunset extended and modified. Tennessee statutes have also been amended. Any current arrangement should be evaluated under the current text of both federal and state law and may benefit from a current opinion from the Tennessee Medical Laboratory Board or counsel.

Background and statutory framework

The Tennessee Medical Laboratory Act (Tenn. Code Ann. §§ 68-29-101 to -138) is a licensing and regulatory statute. Its declared purpose under § 68-29-102(a) is "to protect the public health, safety, and welfare of the people of this state from the hazards of improper performance by medical laboratories." Section 68-29-129 lists various prohibited acts.

The anti-kickback provision in subsection (7) reaches three distinct types of conduct:

1. "[O]ffers or implies an offer of rebates to a person or persons submitting specimens." Even an implied offer is enough.
2. "[O]ther fee-splitting inducements, participation in any fee-splitting arrangements." Splitting laboratory fees with referring providers is prohibited.
3. "[O]ther unearned remuneration." A catch-all that picks up benefits that aren't tied to legitimately compensated services.

The AG read each category broadly. A direct cash payment is plainly a rebate. A subsidy that defrays a physician's overhead (here, EHR software) functions as fee-splitting because it shifts cost back to the laboratory while the physician continues to make referrals. And both are "unearned remuneration" if not tied to specific services the physician renders to the laboratory. The "implied offer" language matters: even if the laboratory and physician don't explicitly link the EHR subsidy to referral volume, the timing and structure of the arrangement could readily imply such a link.

On preemption, the federal EHR safe harbor lives at 42 C.F.R. § 1001.952(y). It was a Department of Health and Human Services regulation that protected certain EHR donations from federal anti-kickback liability under 42 U.S.C. § 1320a-7b. The legal authority for the safe harbor came from the 2003 Medicare Modernization Act and the broader OIG safe-harbor authority. That federal authority operates within the federal anti-kickback statute; it doesn't carry an express preemption clause for state anti-kickback laws. The Washington AG had reached the same conclusion shortly before this Tennessee opinion. The general rule is that state anti-kickback statutes can be stricter than federal law without raising preemption concerns, since states have traditional police-power authority over healthcare practice within their borders.

Common questions

What's the difference between Tennessee's law and federal law here?

Federal law (the federal anti-kickback statute) was modified by regulation to add a safe harbor for EHR donations in 2006. That federal safe harbor lets certain EHR arrangements proceed without federal liability if they meet defined conditions. Tennessee's TMLA anti-kickback provision is statutorily different and broader. It uses "implies an offer" language and a catch-all "other unearned remuneration" phrase that the federal safe harbor doesn't override. So an arrangement that's safe from federal prosecution under § 1001.952(y) can still be a Tennessee violation.

Does this opinion apply to other healthcare donations, like office equipment or staff time?

The opinion is specifically about clinical laboratories and the TMLA. The same anti-kickback principles inform other state-level prohibitions on improper inducements (such as those in Tennessee's pharmacy and health-facility licensing statutes), but the exact statutory text varies. Each healthcare-vertical-specific anti-kickback rule has to be read on its own terms.

What about the federal Stark Law?

Stark (42 U.S.C. § 1395nn) is a separate prohibition on physician self-referral for designated health services payable by Medicare. It has its own EHR exception. The AG's opinion was about state anti-kickback law under the TMLA, not Stark. A donation that complies with the Stark EHR exception still has to be evaluated separately against Tennessee's statute.

Could the laboratory and the physician structure the EHR donation differently to comply?

The opinion didn't offer a roadmap. The two structural problems with the proposed arrangement were (a) the financial benefit flowed from the lab to a referring physician and (b) the referring physician continued to (or began to) send specimens to the donating lab. Removing one of those features (for example, by having the lab make a non-discriminatory contribution to a community health information exchange, or by structuring the relationship around a paid services contract) might change the analysis. Anyone designing such an arrangement should obtain individualized legal advice and ideally consult the Tennessee Medical Laboratory Board.

What enforcement is available against a violation?

Tennessee's Medical Laboratory Board investigates and disciplines TMLA violations through the regulatory mechanisms in the chapter. The AG's opinion notes the second question (whether subsequent specimen referrals would be a violation) was pretermitted, but the underlying analysis is that the prohibited "soliciting" and inducing conduct is itself the violation; subsequent referrals are evidence of the inducement, not a separate cause of action.

Citations

• Tenn. Code Ann. §§ 68-29-101 to -138 (Tennessee Medical Laboratory Act)
• Tenn. Code Ann. § 68-29-102(a) (TMLA purpose)
• Tenn. Code Ann. § 68-29-129(7) (anti-kickback / specimen-referral provision)
• 42 C.F.R. § 1001.952(y) (federal EHR donation safe harbor under anti-kickback statute)
• 71 Fed. Reg. 45114 (final rule explaining safe harbor authority)
• OIG Advisory Opinion No. 12-19 (Nov. 30, 2012) (federal EHR donation guidance)
• Garrison v. Bickford, 377 S.W.3d 659 (Tenn. 2012) (plain-meaning statutory construction)
• Wash. Att'y Gen. Op. 7, 2012 WL 7148193 (Nov. 20, 2012) (parallel state-law conclusion)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2013/op13-016.pdf

Original opinion text

S T A T E O F T E N N E S S E E
OFFICE OF THE
ATTORNEY GENERAL
PO BOX 20207
NASHVILLE, TENNESSEE 37202

March 4, 2013

Opinion No. 13-16

Donations for Electronic Health Records Software by Clinical Laboratories

QUESTIONS

1. Pursuant to Tenn. Code Ann. § 68-29-129(7), may a clinical laboratory licensed by the State of Tennessee lawfully make a monetary donation to a physician to cover up to 85% of the cost of software designed to manage the physician's electronic health records (EHR) when the physician's office that receives the EHR donation either continues an existing referral arrangement with the donating laboratory or subsequently initiates an arrangement for referral of specimens to the donating laboratory for analysis?

2. If such donations are permissible under Tenn. Code Ann. § 68-29-129(7), would either an increase in specimen referrals or a subsequent initiation of specimen referrals by the physician recipient who orders laboratory services from the donating laboratory be a violation or a potential violation of the above section and thus be subject to investigation by the Tennessee Medical Laboratory Board?

OPINIONS

1. No. Tenn. Code Ann. § 68-29-129(7), which is part of the Tennessee Medical Laboratory Act, prohibits any person from soliciting the referral of specimens to such person's (or to any other) medical laboratory or from contracting to perform medical laboratory examinations of specimens "in a manner that offers or implies an offer of rebates to a person or persons submitting specimens, other fee-splitting inducements, participation in any fee-splitting arrangements, or other unearned remuneration." This provision would prohibit a licensed medical laboratory from making any monetary donation to a physician to cover the cost of software designed to manage the physician's electronic health records (EHR) when the physician's office that receives the EHR donation either continues an existing referral arrangement with the donating laboratory or subsequently initiates an arrangement for referral of specimens to the donating laboratory for analysis.

2. The response to question one pretermits the need to answer question two.

ANALYSIS

1. The Tennessee Medical Laboratory Act, codified at Tenn. Code Ann. §§ 68-29-101 to -138 (hereinafter "TMLA") is intended, among other things, "to protect the public health, safety, and welfare of the people of this state from the hazards of improper performance by medical laboratories." Tenn. Code Ann. § 68-29-102(a). The TMLA at Tenn. Code Ann. § 68-29-129 enumerates various prohibited acts. Specifically, Tenn. Code Ann. § 68-29-129(7) provides that it is a violation of the TMLA for any person to:

Solicit the referral of specimens to such person's or any other medical laboratory or contract to perform medical laboratory examinations of specimens in a manner that offers or implies an offer of rebates to a person or persons submitting specimens, other fee-splitting inducements, participation in any fee-splitting arrangements, or other unearned remuneration.

(emphasis added).

The prohibition of Tenn. Code Ann. § 68-29-129(7) is unambiguous, and thus the plain meaning of the statute must be followed. See, e.g., Garrison v. Bickford, 377 S.W.3d 659, 663 (Tenn. 2012) (stating the rule of statutory construction that, if the language of a statute is unambiguous, then a court is required to "apply the plain meaning of the words used in the statute" and to presume that the General Assembly intends to give each word its full effect). This "anti-kickback" provision prohibits any explicit or implicit financial incentive to solicit a referral of specimens to a medical laboratory by a person or to contract to perform medical laboratory examinations of specimens. Thus even the implication of an offer by a medical laboratory or other entity listed under Tenn. Code Ann. § 68-29-129(7) of a rebate, fee-splitting inducement, fee-splitting arrangement or "other unearned remuneration" to a person or persons submitting specimens is prohibited. Accordingly, a medical laboratory licensed by the State of Tennessee may not lawfully make a monetary donation to a physician to cover the cost of software designed to manage the physician's electronic health records (EHR) when the physician's office that receives the EHR donation either continues an existing referral arrangement with the donating laboratory or subsequently initiates an arrangement for referral of specimens to the donating laboratory for analysis.

The qualified federal "safe harbor" for EHR donations by clinical laboratories at 42 CFR § 1001.952(y) does not preempt state anti-kickback laws such as Tenn. Code Ann. § 68-29-129(7). This federal safe harbor rule, which is scheduled to sunset on December 31, 2013, does allow certain medical professionals to receive EHR software donations under defined circumstances without violating a federal anti-kickback statute. 42 C.F.R. § 1001.952(y). See also OIG Advisory Opinion No. 12-19, 2012 WL 7148095 (Nov. 30, 2012). However, the legal authority for the EHR safe harbor does not extend to preempt State anti-kickback laws. See 71 Fed. Reg. 45114 (stating that the legal authority for the EHR donation safe harbor is derived from section 1128B(b)(3)(E) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173, which does not provide authority to preempt state anti-kickback laws). See also Wash. Att'y Gen. Op. 7, 2012 WL 7148193 at *5 (Nov. 20, 2012) (reaching same conclusion in finding that Washington's anti-kickback provisions were not preempted by federal law).

2. The second question is pretermitted by the above response to question one.

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

SARA E. SEDGWICK
Senior Counsel

Requested by:

Doug Overbey
State Senator, 8th Senatorial District
4 Legislative Plaza
Nashville, Tennessee 37243