Can a Washington clinical laboratory pay for a doctor's electronic health records software in exchange for the doctor sending lab work to that lab?
Plain-English summary
Then-Attorney General Rob McKenna concluded that a clinical laboratory could not lawfully pay 85% of the cost of a physician's electronic health record (EHR) software, when the lab made those payments only to physicians who maintained or initiated referral arrangements sending specimens to the lab. That arrangement, he wrote, was a textbook violation of RCW 19.68.010, Washington's anti-rebate statute, the state's analog to the federal anti-kickback rules.
The opinion broke RCW 19.68.010 into four operative pieces (paying versus receiving, in connection with patient referrals versus medical supplies/services). The EHR-donation pattern fit the statute either way: if the doctor sent the patient to the lab, the donation was "in connection with" a patient referral; if the doctor only sent specimens, the donation was "in connection with" the supplying of clinical laboratory services. Either path led to a violation. And the federal "safe harbor" rule for EHR donations (42 C.F.R. § 1001.952(y)) did not change the analysis, because Congress had expressly declined to preempt state anti-kickback statutes.
Currency note
This opinion was issued in 2012. 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.
Common questions
Q: What was the EHR-donation arrangement at issue?
A: A clinical laboratory paid for 85% of a physician's electronic health record software. The donations went only to physicians who already had, or who would establish, an arrangement to refer specimens to that laboratory for testing. The question was whether that arrangement violated Washington's anti-rebate statute.
Q: Why did the AG conclude this was a rebate?
A: The opinion read RCW 19.68.010 as having a "Part A" (anyone paying value to a licensed medical professional) and a "Part B" (the licensed professional accepting it), each tied to a "Part 1" (in connection with a patient referral) or "Part 2" (in connection with the furnishing of medical services or supplies). A lab paying a doctor satisfied Parts A and B. Tying the payment to specimen-referral relationships meant it was "in connection with" either a patient referral or the supplying of laboratory services, depending on whether the patient went to the lab or just the specimen did. Either pathway violated the statute.
Q: Did it matter that the donation was for software, not cash for personal use?
A: No. The statute reaches "a rebate, refund, commission, unearned discount or profit by means of a credit or other valuable consideration." Paying a major business cost for the doctor was valuable consideration. Whether the doctor pocketed cash or received a paid-for software license made no difference for purposes of the statute.
Q: Why didn't the federal EHR safe harbor save the arrangement?
A: Federal law has a safe harbor for donating EHR software (42 C.F.R. § 1001.952(y)) that, under certain conditions, shielded donors from federal anti-kickback liability. But the Department of Health and Human Services, in promulgating that rule, expressly stated it lacked authority to preempt state anti-kickback laws. So even a donation that would have been federally compliant could still violate Washington's RCW 19.68.010.
Q: What kinds of providers does RCW 19.68.010 cover?
A: The statute applies to consideration paid to a person "licensed by the state of Washington to engage in the practice of medicine and surgery, drugless treatment in any form, dentistry, or pharmacy." It is not limited to MDs.
Q: What if the lab and the physician share ownership?
A: The opinion noted that RCW 19.68.010(2) creates a separate exception for medical professionals with ownership or financial interests in another entity, conditioned on written disclosures and a list of alternative providers. The opinion expressly assumed the lab and physician did not share ownership and so did not analyze that exception.
Q: How is "official misconduct" investigated under this statute?
A: The original second question asked whether subsequent specimen referrals might be a violation reportable to the Medical Quality Assurance Commission. Because the AG answered the first question "no" (the donations were already unlawful), the second question was not reached.
Background and statutory framework
RCW 19.68.010 was enacted in 1949, during a national wave of anti-kickback legislation that followed Federal Trade Commission and Justice Department crackdowns on physician-prescribing rebates. Wright v. Jeckle, 158 Wn.2d 375, 380, 144 P.3d 301 (2006), describes a 1948 class action against thousands of physicians who steered patients to American Optical Company in exchange for kickbacks. The Washington statute targets the same dynamic: hidden financial incentives that distort medical decision-making.
The statutory text is famously dense. Wright called it "not a model of clarity." Both Wright and Columbia Physical Therapy, Inc., PS v. Benton Franklin Orthopedic Assocs., PLLC, 168 Wn.2d 421, 228 P.3d 1260 (2010), interpreted it as prohibiting two transactions: paying anything of value in return for a referral, and receiving anything of value in return for referring patients. The 2012 opinion's four-part decomposition (A1, A2, B1, B2) is consistent with that reading and made the analysis of the EHR-donation arrangement straightforward.
The opinion also reached a federal-preemption question. The Medicare Modernization Act of 2003 (Pub. L. 108-173) authorized HHS to write a federal safe harbor for EHR donations (now at 42 C.F.R. § 1001.952(y)). HHS, in adopting the rule, said expressly that the underlying statute did not give it authority to preempt state anti-kickback laws. (Compare with electronic-prescribing standards in the same Act, which Congress did expressly preempt.) Washington's anti-kickback rule therefore applied with full force, regardless of whether the EHR-donation pattern would have qualified for the federal safe harbor.
Citations and references
Statutes:
- RCW 19.68.010, Washington anti-rebate statute
- RCW 19.68.040, compensation for services actually rendered
- 42 C.F.R. § 1001.952(y), federal EHR donation safe harbor
- Pub. L. 108-173 (Medicare Modernization Act of 2003), § 1128B(b)(3)(E)
Cases:
- Wright v. Jeckle, 158 Wn.2d 375, 144 P.3d 301 (2006), Washington Supreme Court, two-clause structure of RCW 19.68.010
- Columbia Physical Therapy, Inc., PS v. Benton Franklin Orthopedic Assocs., PLLC, 168 Wn.2d 421, 228 P.3d 1260 (2010), Washington Supreme Court, application to physical-therapy referrals
Prior AG opinions:
- AGO 2005 No. 13, three-element test for RCW 19.68.010
- AGO 1992 No. 30
- AGO 1988 No. 28
Source
- Landing page: https://www.atg.wa.gov/ago-opinions/application-rcw-1968010-donations-electronic-health-record
Original opinion text
Attorney General Rob McKenna
MEDICINE—PHYSICIANS—Application Of RCW 19.68.010 To Donations For Electronic Health Record
RCW 19.68.010, Washington's anti-rebate statute, precludes a donation by a clinical laboratory to a physician for the purpose of paying a portion of the cost of software for the physician's electronic health record system, in connection with the receiving physician either continuing or establishing a referral arrangement with the donating laboratory.
November 20, 2012
The Honorable Eileen Cody
State Representative, District 34
PO Box 40600
Olympia, WA 98504-0600
Cite As:
AGO 2012 No. 7
Dear Representative Cody:
By letter previously acknowledged, you have requested our opinion on the following questions:
Under RCW 19.68.010, can a clinical laboratory licensed by the State of Washington lawfully make a monetary donation to a physician to cover 85 percent of the software cost of that physician's electronic health record (EHR) when the physician's office that is the recipient of the EHR donation either continues a referral arrangement with the laboratory, or subsequently initiates an arrangement for the referral [of] specimens to the donating laboratory for analysis?
If such donations are in fact permissible under RCW 19.68.010, will a subsequent initiation or increase in specimen referrals between the physician recipient of the donation, who orders clinical laboratory services, and the donating laboratory be a violation, or a potential violation, of the code and thus subject to investigation by the Medical Quality Assurance Commission?
BRIEF ANSWER
A clinical laboratory's donating money to a physician to be used for a portion of the cost of an electronic health record, when the donations are made only to those physicians who maintain or create arrangements for the physician's referral of specimens to the laboratory, would violate the anti-rebate provisions in RCW 19.68.010. Given the answer to the first question, we do not reach the second question.
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BACKGROUND
RCW 19.68.010 generally prohibits the payment or receipt of rebates when certain licensed medical professionals refer patients to others to obtain services or supplies. [1] The state legislature enacted the law in 1949 during a period when the Federal Trade Commission and the Justice Department were cracking down on rebate or kickback schemes. See Wright v. Jeckle, 158 Wn.2d 375, 380, 144 P.3d 301 (2006) (mentioning a 1948 class action lawsuit against 2000 physicians who directed their patients to fill prescriptions at the American Optical Company, which company then provided kickbacks to the referring doctors). The FTC promulgated federal anti-kickback rules, and numerous states, including Washington, followed suit with their own legislation. See Recent Developments: Medical Profession—Anti-Kickback Statute, 45 Wash. L. Rev. 838, 839 (1970). The goals of anti-kickback legislation "were protection of the public from hidden rebates and charges, and the elimination of a potential motive to make unnecessary prescriptions." Id. at 839-40. The codified legislative intent statute supports this interpretation. See RCW 19.68.040 (indicating that licensed professionals covered by the chapter shall only receive compensation for services actually rendered).
With this background in mind, we turn to the text of the first subsection:
It shall be unlawful for any person, firm, corporation or association, whether organized as a cooperative, or for profit or nonprofit, to pay, or offer to pay or allow, directly or indirectly, to any person licensed by the state of Washington to engage in the practice of medicine and surgery, drugless treatment in any form, dentistry, or pharmacy and it shall be unlawful for such person to request, receive or allow, directly or indirectly, a rebate, refund, commission, unearned discount or profit by means of a credit or other valuable consideration in connection with the referral of patients to any person, firm, corporation or association, or in connection with the furnishings of medical, surgical or dental care, diagnosis, treatment or service, on the sale, rental, furnishing or supplying of clinical laboratory supplies or services of any kind, drugs, medication, or medical supplies, or any other goods, services or supplies prescribed for medical diagnosis, care or treatment.
RCW 19.68.010.
Opinions of both the Washington Supreme Court and our office have parsed the meaning of this single, dense, 156-word sentence on several occasions. See Wright, 158 Wn.2d at
[original page 3]
377 n.1, 381 (describing the statute as "not a model of clarity"); see also AGO 2005 No. 13, at 3 4 (construing the statute and citing an earlier opinion). It may be helpful in understanding the statute to analytically divide it into two halves, with each half containing two separate clauses. The statutory language can be quoted verbatim in the following divided fashion, designating the two clauses of the first half with A and B, and the two clauses of the second half with 1 and 2:
(A) It shall be unlawful for any person, firm, corporation or association, whether organized as a cooperative, or for profit or nonprofit, to pay, or offer to pay or allow, directly or indirectly, to any person licensed by the state of Washington to engage in the practice of medicine and surgery, drugless treatment in any form, dentistry, or pharmacy and
(B) it shall be unlawful for such person to request, receive or allow, directly or indirectly, a rebate, refund, commission, unearned discount or profit by means of a credit or other valuable consideration
(1) in connection with the referral of patients to any person, firm, corporation or association, or
(2) in connection with the furnishings of medical, surgical or dental care, diagnosis, treatment or service, on the sale, rental, furnishing or supplying of clinical laboratory supplies or services of any kind, drugs, medication, or medical supplies, or any other goods, services or supplies prescribed for medical diagnosis, care or treatment.
The first half of the statute provides two categories of actors who can violate the statute. Part A references a person, firm, corporation, or association making or offering to make payments to certain licensed medical professionals. Part B describes medical professionals who ask for or receive any form of consideration. Part B uses an indirect reference, "such person," and that phrase is most reasonably interpreted as referencing those licensed professionals described at the end of Part A, because "such person" refers to one asking for or receiving valuable consideration. In other words, A and B capture both sides of the same transaction, with A describing the persons offering the consideration to medical professionals, and B describing the medical professionals soliciting or accepting the consideration.
The exchange of consideration described by A and B falls within the statutorily prohibited activity only when the transaction is coupled with the alternative circumstances described in the second half of the statute. The exchange of consideration must either be (1) in connection with the referral of a patient, or (2) in connection with the provision of any medical supplies or services prescribed for medical diagnosis, care, or treatment. When viewed in this segmented fashion, a statutory violation may occur in any one of four combinations: A1, A2, B1, or B2.
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This method of reading RCW 19.68.010 is consistent with prior analysis of the statute. The Washington Supreme Court has analyzed RCW 19.68.010 in two recent decisions, in which the court summarized the statute as prohibiting two things: "The first clause prohibits paying anything of value in return for a referral. The second clause prohibits receiving anything of value in return for referring patients." Wright, 158 Wn.2d at 381, cited with approval in Columbia Physical Therapy, Inc., PS v. Benton Franklin Orthopedic Assocs., PLLC, 168 Wn.2d 421, 439, 228 P.3d 1260 (2010). Our prior opinions have construed RCW 19.68.010 as containing three elements, concluding that the statute is violated when
(1) there [is] a payment of a rebate, refund, commission, unearned discount, or profit by means of credit or other valuable consideration; (2) the payment [is] in connection with the referral of patients or in connection with the furnishing of medical, surgical, or dental care, diagnosis, treatment, or service; and (3) the recipient of the payment [is] licensed by the state of Washington to engage in the practice of medicine and surgery, drugless treatment in any form, dentistry, or pharmacy.
AGO 2005 No. 13, at 3 (citing AGO 1992 No. 30, at 3, which in turn cites AGO 1988 No. 28, at 3-4). [2]
Having clarified the scope and application of the prohibition in RCW 19.68.010, we turn to your specific questions.
ANALYSIS
Under RCW 19.68.010, can a clinical laboratory licensed by the State of Washington lawfully make a monetary donation to a physician to cover 85 percent of the software cost of that physician's electronic health record (EHR) when the physician's office that is the recipient of the EHR donation either continues a referral arrangement with the laboratory, or subsequently initiates an arrangement for the referral [of] specimens to the donating laboratory for analysis?
Your question involves a laboratory making a monetary donation to a physician to cover 85 percent of the cost of EHR software. First, the fact that such laboratory is licensed by the State of Washington is not relevant to application of RCW 19.68.010. The only licensing requirement mentioned in the statute is that the person receiving consideration be a licensed medical professional, as is the physician referenced in your question. Also, for purposes of answering the question, we presume that the laboratory and physician do not have common
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ownership or financial interests, so as to avoid implicating the exception addressed in RCW 19.68.010(2). [3]
A laboratory's donating money to a physician, to apply toward the cost of the physician's EHR software, squarely fits within Part A of RCW 19.68.010. A clinical laboratory constitutes a "person, firm, corporation or association," the money being provided constitutes a payment, and the physician receiving the payment is a licensed medical professional covered by the statute. The situation also fits within Part B, because it involves a medical professional accepting a monetary payment.
Whether the donation also falls within the second part of the statute depends upon the facts surrounding a specific donation. The donation would fall within Part 1 of RCW 19.68.010, if it was made "in connection with the referral of patients to any person, firm, corporation or association." RCW 19.68.010 (emphasis added). Your question references referral agreements under which the physician sends specimens for laboratory analysis. If the physician obtains specimens from patients in the physician's office, and the physician sends only the specimens to the laboratory, such action would not involve the referral of a patient and Part 1 may not be implicated.
On the other hand, if the physician did refer patients to the laboratory for purposes of providing the specimens needed for analysis, then Part 1 could be implicated, but the critical question would be whether the laboratory's donation of money towards EHR is made "in connection with" the patient referrals. RCW 19.68.010. Your question asks us to presume that the physician receiving the donation either continues an existing referral relationship with the donating laboratory, or later begins making referrals to the laboratory. The fact that the EHR donations are made to those physicians who have such arrangements or who thereafter initiate such arrangements shows that the donations are made "in connection with" the referrals.
If a physician did not refer patients to the donating laboratory, but rather sent specimens that the physician obtained from a patient in the physician's own office, Part 2 of RCW 19.68.010 could be implicated. The doctor's sending specimens to the laboratory for diagnoses falls within the scope of language in Part 2, which includes "the furnishings of medical . . . diagnosis, treatment or service . . . or supplying of clinical laboratory . . . services of any kind . . . or any other goods, services or supplies prescribed for medical diagnosis, care or treatment." As with Part 1, the critical connection is whether the EHR donation is made "in connection with" the furnishing of laboratory services. RCW 19.68.010. The fact that donations are made to those physicians who maintain or initiate new specimen referral arrangements necessarily draws a connection between the donation and the referral, thereby triggering Part 2.
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In the explanation leading up to your question, you reference the enactment of a federal safe harbor rule that does allow certain medical professionals to receive EHR software donations from third parties in certain circumstances without violating a federal anti-kickback statute. The federal rule on this topic, 42 C.F.R. § 1001.952(y), does not alter the above analysis. We generally decline to consider, in our official opinions, the question of whether a particular state law might be preempted by federal law, because such questions effectively call into question the validity of existing state law. In this instance, and as you point out in your letter, the United States Department of Health and Human Services expressly acknowledged that it lacked federal statutory authority to preempt application of state anti-kickback statutes regarding the donation of electronic health record software. See 71 Fed. Reg. 45114 (stating that Section 1128B(b)(3)(E) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173, does not provide authority to preempt state anti-kickback laws with regards to EHR software, in contrast to a different part of the Act that did preempt state laws regarding electronic prescribing standards). Because the federal agency promulgating the safe harbor rule for EHR software donations expressly states that the rule is not intended to preempt application of state laws, RCW 19.68.010 fully applies to your hypothetical. [4]
Because your second question was contingent on the first question being answered affirmatively, and we have answered the first question in the negative, we do not further address the second question.
We trust that the foregoing will be useful to you.
ROBERT M. MCKENNA
Attorney General
JOSEPH V. PANESKO
Assistant Attorney General
wros
[1] This opinion uses the phrase "medical professional" as meaning professionals covered by RCW 19.68.010(1). Those consist of individuals licensed by the State to practice in the fields of medicine and surgery, drugless treatment in any form, dentistry, or pharmacy. Also, this opinion refers to RCW 19.68.010 without specifying subsections, with the understanding that the only portion of the statute at issue in this opinion is the language in subsection one.
[2] The Court in Wright was aware of at least one of the Attorney General Opinions construing RCW 19.68.010 because the decision cites AGO 1988 No. 28, but Wright does not reference or endorse the three part test that was applied in the 1988, 1992, and 2005 AGOs.
[3] RCW 19.68.010(2) allows a medical professional to have an ownership or financial interest in another entity that provides medical services, so long as the professional reveals the interest to the patient in writing, provides the patient with a list of alternative service providers, and assures the patient that the patient's choosing an alternative provider will not result in different treatment by the professional.
[4] We also note that the EHR federal safe harbor rule contains a sunset provision that lapses on December 31, 2013. 42 C.F.R. § 1001.952(y)(13).