STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5229

September 30, 1977

PHYSICIANS AND SURGEONS:

Referral of patient's specimens to a clinical laboratory which a physician owns or in which he has a financial interest.

CLINICAL LABORATORIES:

Referral of patients' specimens to a clinical laboratory which a physician owns or in which he has a financial interest.

A referral by a physician of a specimen of his patient to a clinical laboratory which the physician owns or in which he has a financial interest is a violation of the law only if the remuneration received from the interest is in fact a kick-back, a rebate or a form of fee splitting.

Honorable Raymond W. Hood

State Representative

The Capitol

Lansing, Michigan 48901

You have requested my opinions as to whether it is illegal for a physician to refer specimens of his patients to a clinical laboratory of which he is the owner or in which he has a financial interest. ⁽¹⁾

1968 PA 235; MCLA 325.81 et seq; MSA 14.375(1) et seq, provides for the licensing and supervision of clinical laboratory tests by the Director of Public Health.

1968 PA 235, supra, Sec. 1(b) defines a clinical laboratory to mean:

1968 PA 235, supra Sec. 1(d) further states that an owner of a clinical laboratory shall mean 'a person, partnership, association or corporation which owns and controls a clinical laboratory.'

1968 PA 235, supra, Sec. 2(1)(a) states that:

It is therefore clear that there is no statutory prohibition which would prevent a physician from having an ownership interest in a clinical laboratory. This observation does not, however, address the question of whether a physician with an ownership interest in a clinical laboratory will violate the law by referring specimens of his patients to the clinical laboratory of which he is the owner or in which has a financial interest.

To address this question it is necessary to consider 1972 PA 358, Secs. 1 and 2; MCLA 445.161, 445.162; MSA 14.375, 14.376, which provide:

Thus, the first section of 1972 PA 358, supra, prohibits a physician from surcharging a patient for work performed by a clinical laboratory and the second section prohibits a physician from receiving a fee or other remuneration from a clinical laboratory for submitting specimens.

The Medical Practice Act, 1973 PA 185; MCLA 338.1801 et seq; MSA 14.542(1) et seq, Sec. 11, provides as follows:

Thus, a physician licensed pursuant to 1973 PA 185, supra, is subject to disciplinary action if he engages in conduct constituting a division of fees or a kickback.

The osteopathic act, 1903 PA 162; MCLA 338.101a et seq; MSA 14.571(1) et seq, Sec. 9, provides as follows:

Unlike the Medical Practice Act, 1973 PA 185, supra, Sec. 11(f), the osteopathic act, 1903 PA 162, supra, does not specifically proscribe the division of fees or acceptance of kickbacks. However, an osteopathic physician is subject to disciplinary action if he singly or in concert with others obtains a fee which is represented to be a legitimate charge while the fact that the fee represents an unlawful referral fee or kickback is concealed.

Federal law also prohibits such practices with respect to payments made for services provided under the Social Security Act, Medicare provisions (Health Insurance for the Aged Act, 42 USCA 1395 et seq. This act provides in 42 USCA 1395nn as follows:

'shall be guilty of a misdemeanor and upon conviction thereof shall be fined not more than $10,000 or imprisoned for not more than one year, or both.'

Similar sanctions are provided for under Medicaid provisions of the Social Security Act, 42 USCA 1396, et seq, 42 USCA 139h.

Having noted that the law prohibits a physician from receiving a rebate in any form from a clinical laboratory for referring the specimens of patients, it must now be determined whether the financial benefits that a physician may receive as a return for his investment in a clinical laboratory may be deemed to be a form of rebate, kickback or fee-splitting.

Clearly, a physician may operate a clinical laboratory as part of his medical practice and may impose a charge for performing an analysis of specimens of the patient. However, if the physician desires to perform his own clinical analysis, he will need to invest a considerable sum of money to acquire expensive, sophisticated analytical equipment. Undoubtedly if all physicians made this choice, the cost of medical services would rise to even greater heights because of this needless duplication of equipment costs. Therefore, if a group of physicians desires to pool their resources and jointly purchase the same equipment which each physician may use, the economic benefits to the physician and to his patients could be substantial. If the pooling of financial investment by groups of physicians to acquire expensive clinical equipment is lawful, it is difficult to conclude, in the absence of an explicit statutory prohibition, that an arrangement between medical colleagues to own, control and use a clinical laboratory to analyze the specimens of their respective patients is illegal.

Therefore, if it is deemed improper for a physician to own and control the clinical laboratory to analyze specimens of his patients, the statute prohibiting such an arrangement must so provide. My examination of the statutes, as indicated above, reveals that although there is a statutory prohibition against kickbacks, rebates and fee-splitting by physicians, there is no statutory prohibition against referring patients' specimens to a clinical laboratory in which a physician has a financial interest.

However, if a clinical laboratory enters into an arrangement with a physician whereby the physician will receive a remuneration intended to be a kickback, rebate or a form of fee-splitting, the arrangement is illegal; but if the physician's ownership or financial interest in the clinical laboratory is bona fide, it is not. One of the indicia by which the bona fides of the arrangement may be determined is whether the remuneration received by the physician is tied to the number of referrals made by him or is tied to a percentage of the income of the clinical laboratory attributable to his referrals; I believe that such an arrangement is illegal.

I recognize that one of the reasons why members of the public view with suspicion any arrangement by which a physician receives a financial benefit from making referral of a specimen of his patient to a clinical laboratory is that they believe a physician will thereby be tempted to over-utilize the laboratory services and thereby increase his income. This concern must be addressed to the legislature.

In summary, it is my opinion that a referral by a physician of a specimen of his patient to a clinical laboratory in which the physician owns or has a financial interest is a violation of the law only if the interest is in fact a kickback, a rebate or a form of fee-splitting. Conversely, where a physician has a bona fide ownership interest or a bona fide financial interest in a clinical laboratory and the physician's rate of income on his investment in a clinical laboratory is not tied to the number of referrals made by him nor to a percentage of the income derived from these referrals, there is no violation of the law.

Frank J. Kelley