Can a Tennessee clinical lab pay an EHR software company to install software for a physician's office that refers specimens to the lab?

Subject

Opinion No. 13-51, Donations of Electronic Health Records Software, July 2, 2013

Plain-English summary

Federal law has had a "safe harbor" under the federal anti-kickback statute that permits clinical labs to pay for electronic health records (EHR) software for referring physicians under defined conditions. Tennessee has its own anti-kickback rule in the Tennessee Medical Laboratory Act (TMLA), Tenn. Code Ann. § 68-29-129(7), which is broader than the federal safe harbor.

Sen. Reginald Tate followed up on the AG's earlier Opinion 13-16 (Mar. 4, 2013), which addressed direct EHR-software donations to a referring physician, by asking two indirect-arrangement questions.

Can a Tennessee lab pay an EHR vendor directly to install and maintain software for a specific Tennessee physician's office, where that physician refers (or will refer) specimens to the lab? No. Tenn. Code Ann. § 68-29-129(7) prohibits soliciting referrals or contracting to perform lab examinations "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." The AG had already concluded in Opinion 13-16 that a direct EHR-software donation to a referring physician violates that prohibition. Routing the payment through the EHR vendor is the same arrangement, just indirect. Haynes v. City of Pigeon Forge, 883 S.W.2d 619, 622 (Tenn. Ct. App. 1994): "[O]ne cannot do indirectly what cannot be done directly." The statute's reach to "implied" offers and "other unearned remuneration" is broad enough to capture the third-party payment structure.

Can the lab make the same kind of payment to or for the benefit of a physician practice located in another state, where that state's law permits it? Yes, as long as the donation does not benefit any Tennessee practice the same physician may also have. The TMLA's purpose is to "safeguard the people of this state" (§ 68-29-102(a)). Its reach is confined to transactions occurring within Tennessee. This is also consistent with the federal Full Faith and Credit Clause, U.S. Const. art. IV, § 1, which requires Tennessee to give effect to the public acts of other states. Franchise Tax Bd. of California v. Hyatt, 538 U.S. 488 (2003).

The opinion does not address the federal anti-kickback statute or the federal EHR safe harbor that was scheduled to sunset on December 31, 2013. It only addresses Tennessee's anti-kickback rule for medical labs.

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.

The federal EHR safe harbor referenced here has been extended and modified multiple times since 2013, most recently by HHS Office of Inspector General regulations updating the EHR safe harbor at 42 C.F.R. § 1001.952(y). State anti-kickback enforcement also has evolved alongside changes in CMS Stark Law guidance. Any current EHR-donation arrangement should be vetted against current federal and Tennessee law, not the 2013 framework.

Background and statutory framework

Tennessee Medical Laboratory Act. Codified at Tenn. Code Ann. §§ 68-19-101 to -138 (the opinion text shows the AG used both "Tenn. Code Ann. §§ 68-19-101 to -138" and "Tenn. Code Ann. § 68-29-104" in the same paragraph; this reflects a labeling inconsistency in the original Tennessee Code that the AG carried forward). The TMLA's purpose statement is at § 68-29-102(a):

[T]o protect the public health, safety, and welfare of the people of this state from the hazards of improper performance by medical laboratories. Medical laboratories provide essential services to the patient by furnishing the medical practitioner with vital information that is essential to a determination of the nature, cause, extent, and condition involved, and the people of this state are entitled to receive the highest level of competency, reliability, and accuracy that may be expected from medical laboratories. Unreliable and inaccurate reports may cause unnecessary anxiety, suffering, financial burdens, and even contribute directly to death. It is the intent of this chapter to safeguard the people of this state by regulating the operation of medical laboratories.

Anti-kickback provision. Tenn. Code Ann. § 68-29-129(7) bars a person from:

[s]olicit[ing] the referral of specimens to such person's or any other medical laboratory or contract[ing] 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.

Earlier opinion. Opinion 13-16 (Mar. 4, 2013) addressed direct EHR-software donations and concluded that the TMLA "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."

Federal context. The opinion acknowledges that federal law has a safe harbor under the federal anti-kickback statute that permitted certain EHR donations under defined circumstances. The federal safe harbor was scheduled to sunset on December 31, 2013. The federal safe harbor does not preempt state anti-kickback law. Tennessee enacted § 68-29-129(7) on its own authority, and the TMLA applies (with limited exceptions) to all medical laboratories and laboratory personnel within Tennessee. § 68-29-104.

Statutory construction.

• Sallee v. Barrett, 171 S.W.3d 822, 828 (Tenn. 2005), quoting State v. Turner, 913 S.W.2d 158, 160 (Tenn. 1995): in construing statutes, courts seek a reasonable construction "in light of the purposes, objectives, and spirit of the statute based on good sound reasoning."
• Haynes v. City of Pigeon Forge, 883 S.W.2d 619, 622 (Tenn. Ct. App. 1994): "[O]ne cannot do indirectly what cannot be done directly."
• Garrison v. Bickford, 377 S.W.3d 659, 663 (Tenn. 2012), quoting U.S. Bank, N.A. v. Tenn. Farmers Mut. Ins. Co., 277 S.W.3d 381, 386 (Tenn. 2009): courts "must ascertain and give effect to the legislative intent without restricting or expanding the statute's intended meaning."

Extraterritorial limit. The TMLA's purpose statement focuses on "the people of this state," which the AG read as a geographic limit. Out-of-state physician practices are not "the people of this state," and the AG concluded the TMLA does not reach donations directed entirely to out-of-state activity.

Full Faith and Credit. U.S. Const. art. IV, § 1 requires each state to give full faith and credit to the public acts of every other state. Franchise Tax Bd. of California v. Hyatt, 538 U.S. 488, 494-99 (2003); Trustmark Nat. Bank v. Miller, 209 S.W.3d 54, 56-57 (Tenn. Ct. App. 2006). The AG read this as additional support for confining the TMLA's reach to in-state transactions.

Common questions

Why does paying the EHR vendor look the same as paying the doctor?

Because the economic effect is the same. The physician's practice gets software it would otherwise have to pay for, courtesy of the lab. The intermediary doesn't change the inducement; it just changes the paperwork. Tennessee's anti-kickback rule reaches "implied" offers and "other unearned remuneration," which is broad enough to cover indirect routes.

What if the lab pays for software that only happens to benefit a doctor who is already a referrer, with no formal connection between the payment and the referrals?

The opinion addressed exactly that fact pattern in the question wording: "where the physician who 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 AG concluded the arrangement is still prohibited because the structural connection (lab funds physician's tooling; physician sends specimens to lab) is the kickback hazard the statute targets.

Can a Tennessee lab donate to a charity, a hospital, or a community clinic that doesn't refer specimens?

The opinion doesn't address that scenario directly. The statutory prohibition is keyed to soliciting "the referral of specimens" and arrangements that imply rebates to "persons submitting specimens." A donation outside any referral relationship is not what § 68-29-129(7) targets. But context matters: if the recipient is positioned to refer specimens to the lab, or the donation is structured to influence future referrals, the statute could apply.

Our Memphis-based lab works with a doctor who has a Mississippi clinic and a Memphis clinic. Can we donate EHR software just to the Mississippi side?

The AG conditioned the cross-state allowance on the donation "not benefit[ing] any practice the physician has in Tennessee." If the EHR system spans both clinics (one shared instance, shared license, shared maintenance), the Tennessee practice benefits, and the donation would violate § 68-29-129(7). A clean separation, two licenses, two contracts, the Mississippi clinic clearly the sole beneficiary, is necessary to fit within the AG's reading.

Does compliance with the federal EHR safe harbor protect us under Tennessee law?

No. The AG specifically noted that the federal safe harbor "does not extend to preempt State anti-kickback laws." Tennessee enacted its own broader rule. A donation that satisfies federal safe harbor conditions can still violate Tenn. Code Ann. § 68-29-129(7) if it falls within the statute's reach.

What are the consequences of violating the TMLA's anti-kickback rule?

The opinion doesn't list specific penalties. Look to the TMLA's penalty and disciplinary provisions for the consequences (license discipline, civil penalties, possible criminal exposure). A violation can also trigger collateral consequences with payers and federal regulators.

Citations

Tenn. Code Ann. § 68-29-129(7) (anti-kickback rule); §§ 68-19-101 to -138 (TMLA); § 68-29-104 (TMLA applicability); § 68-29-102(a) (purpose statement). U.S. Const. art. IV, § 1 (Full Faith and Credit). Cases: Haynes v. City of Pigeon Forge, 883 S.W.2d 619 (Tenn. Ct. App. 1994); Sallee v. Barrett, 171 S.W.3d 822 (Tenn. 2005); State v. Turner, 913 S.W.2d 158 (Tenn. 1995); Garrison v. Bickford, 377 S.W.3d 659 (Tenn. 2012); U.S. Bank, N.A. v. Tenn. Farmers Mut. Ins. Co., 277 S.W.3d 381 (Tenn. 2009); Franchise Tax Bd. of California v. Hyatt, 538 U.S. 488 (2003); Trustmark Nat. Bank v. Miller, 209 S.W.3d 54 (Tenn. Ct. App. 2006). Prior AG opinion: Op. 13-16 (Mar. 4, 2013).

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2013/op13-051.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

July 2, 2013

Opinion No. 13-51

Donations of Electronic Health Records Software

QUESTIONS

1. If a clinical laboratory licensed by the State of Tennessee pays money to an electronic medical records software company so that the company may license and install electronic health record software and furnish related products and maintenance services for a specific physician practice that may refer clinical specimens to the donating medical laboratory company for medical laboratory examinations, does such arrangement violate Tenn. Code Ann. § 68-29-129(7)?

2. May a clinical laboratory licensed by the State of Tennessee lawfully make a direct or indirect monetary donation to or for the benefit of a physician's practice in another state in which such donation is permitted in order to cover the cost of software designed to manage the out-of-state physician's Electronic Health Records ("EHR"), where the physician who 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?

OPINIONS

1. Yes. As explained in Tenn. Att'y Gen. Op. 13-16 (Mar. 4, 2013), Tenn. Code Ann. § 68-29-129(7) prohibits a medical laboratory licensed in Tennessee from soliciting any referral of specimens to any 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 prohibition would extend to the factual situation described in this question.

2. Yes, so long as the donation does not benefit any practice the physician has in Tennessee.

ANALYSIS

1. The Tennessee Medical Laboratory Act ("TMLA"), codified at Tenn. Code Ann. §§ 68-19-101 to -138, provides that it is a violation of the TMLA 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.

Tenn. Code Ann. § 68-29-129(7) (emphasis added).

This Office has previously opined that this provision of the TMLA "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." Tenn. Att'y Gen. Op. 13-16 at 1-2 (Mar. 4, 2013). The question posed essentially asks if the laboratory can do indirectly what Tenn. Code Ann. § 68-29-129(7) prohibits to be done directly; i.e. pay the EHR software company to license and install EHR software for a physician's office that will either continue an existing referral arrangement with the laboratory or initiate an arrangement for referral of specimens to the laboratory for analysis. The statute is sufficiently broadly worded to prevent both direct and indirect inducements since its terms prohibit any "implied" offer of rebate or any "other unearned remunerations" by the laboratory to the physician's office. Tenn. Code Ann. § 68-29-129(7). See, e.g., Haynes v. City of Pigeon Forge, 883 S.W.2d 619, 622 (Tenn. Ct. App. 1994) (stating it "is a well settled principle of law that one cannot do indirectly what cannot be done directly"). See also Sallee v. Barrett, 171 S.W.3d 822, 828 (Tenn. 2005) (quoting State v. Turner, 913 S.W.2d 158, 160 (Tenn. 1995)) (recognizing that in construing statutes courts "must seek a reasonable construction in light of the purposes, objectives, and spirit of the statute based on good sound reasoning").

2. The TMLA does not preclude a clinical laboratory licensed by the State of Tennessee from making a monetary donation to or for the benefit of a physician's practice in another state where such donation is permitted in order to cover the cost of software designed to manage the out-of-state physician's EHR, so long as the donation does not benefit any practice the physician may have in Tennessee. In this situation, the TMLA would not prevent the physician's office that receives the EHR donation from either continuing an existing referral arrangement with the donating laboratory or subsequently initiating an arrangement for the referral of specimens to the donating laboratory for analysis.

As this Office explained in its earlier opinion, the 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 the federal anti-kickback statute. Tenn. Att'y Gen. Op. 13-16 at 1-2. However, since the legal authority for the EHR safe harbor does not extend to preempt State anti-kickback laws, by enacting Tenn. Code Ann. § 68-29-129(7) the General Assembly made such conduct illegal in Tennessee and, with certain enumerated exceptions, the TMLA applies to all medical laboratories and medical laboratory personnel within the State of Tennessee. Tenn. Code Ann. § 68-29-104. See Tenn. Att'y Gen. Op. 13-16 at 1-2.

The prohibition of Tenn. Code Ann. § 68-29-129(7), however, by its terms only extends to donations by a laboratory operating in Tennessee to a physician practice located in Tennessee. TMLA's purpose is defined as follows:

to protect the public health, safety, and welfare of the people of this state from the hazards of improper performance by medical laboratories. Medical laboratories provide essential services to the patient by furnishing the medical practitioner with vital information that is essential to a determination of the nature, cause, extent, and condition involved, and the people of this state are entitled to receive the highest level of competency, reliability, and accuracy that may be expected from medical laboratories. Unreliable and inaccurate reports may cause unnecessary anxiety, suffering, financial burdens, and even contribute directly to death. It is the intent of this chapter to safeguard the people of this state by regulating the operation of medical laboratories.

Tenn. Code Ann. § 68-29-102(a) (emphasis added).

The reach of the TMLA is thus necessarily confined to transactions occurring within the borders of Tennessee, given TMLA is intended to safeguard "the people of this state." Id. See Garrison v. Bickford, 377 S.W.3d 659, 663 (Tenn. 2012) (quoting U.S. Bank, N.A. v. Tenn. Farmers Mut. Ins. Co., 277 S.W.3d 381, 386 (Tenn. 2009)) (stating rule of statutory construction that courts "must ascertain and give effect to the legislative intent without restricting or expanding the statute's intended meaning"). This limitation also conforms with the federal constitutional full faith and credit clause, which requires each state to give full faith and credit to "the public acts. . . of every other state." U.S. Const. art. IV, § 1. See Franchise Tax Bd. Of California v. Hyatt, 538 U.S. 488, 494-99 (2003); Trustmark Nat. Bank v. Miller, 209 S.W.3d 54, 56-7 (Tenn. Ct. App. 2006).

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

SARA E. SEDGWICK
Senior Counsel

Requested by:

The Honorable Reginald Tate
State Senator, 33rd Senatorial District
320 War Memorial Building
Nashville, Tennessee 37243