Federal Regulators Paying Close Attention to Laboratory Billing

Laboratory billing is under great scrutiny by federal regulators as indicated by a series of developments this year.

OIG Special Fraud Alert

In June, the Department of Health and Human Services Office of Inspector General (OIG) issued a Special Fraud Alert regarding laboratory payments to referring physicians (pdf). According to OIG, this Special Fraud Alert addresses compensation paid by laboratories to referring physicians and physician group practices for blood specimen collection, processing and packaging, and for submitting patient data to a registry or database.

The Alert describes two specific trends OIG has identified involving transfers of value from laboratories to physicians that we believe present a substantial risk of fraud and abuse under the anti-kickback statute.

The first involves blood specimen collection, processing and packaging arrangements under which clinical laboratories are providing remuneration to physicians to collect, process and package patients’ specimens. While Medicare allows the person who collects a specimen to bill Medicare for a nominal specimen collection fee in certain circumstances, there are a number of arrangements that may be problematic. According to OIG, these include when:

  • payment exceeds fair market value for services actually rendered by the party receiving the payment;
  • payment is for services for which payment is also made by a third party, such as Medicare;
  • payment is made directly to the ordering physician rather than to the ordering physician’s group practice, which may bear the cost of collecting and processing the specimen;
  • payment is made on a per-specimen basis for more than one specimen collected during a single patient encounter or on a per-test, per-patient or other basis that takes into account the volume or value of referrals;
  • payment is offered on the condition that the physician order either a specified volume or type of tests or test panel, especially if the panel includes duplicative tests (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or tests that otherwise are not reasonable and necessary or reimbursable; and
  • payment is made to the physician or the physician’s group practice, despite the fact that the specimen processing is actually being performed by a phlebotomist placed in the physician’s office by the laboratory or a third party.

The second OIG trend concerns registry payments. OIG indicated it had become aware of arrangements under which clinical laboratories are establishing, coordinating or maintaining databases, either directly or through an agent, purportedly to collect data on the demographics, presentation, diagnosis, treatment, outcomes or other attributes of patients who have undergone, or who may undergo, certain tests performed by the offering laboratories.

While registry arrangements may take various forms, OIG notes they typically involve payments from laboratories to physicians for certain specified duties, such as submitting patient data to be incorporated into the registry, answering patient questions about the registry and reviewing registry reports. Registry arrangements may induce physicians to order medically unnecessary or duplicative tests, including duplicative tests performed for the purpose of obtaining comparative data, and to order those tests from laboratories that offer registry arrangements in lieu of other, potentially clinically superior, laboratories.

OIG notes that whether any particular registry arrangement violates the anti-kickback statute depends on the intent of the parties to the arrangement. Payments from a laboratory to a physician to compensate the physician for services related to data collection and reporting may be reasonable in certain limited circumstances. However, the anti-kickback statute prohibits the knowing and willful payment of such compensation if even one purpose of the payments is to induce or reward referrals of federal healthcare program business.

Some possible arrangements identified by OIG that may be evidence of unlawful purposes include the following:

  • The laboratory requires, encourages, or recommends that physicians who enter into registry arrangements perform the tests with a stated frequency to be eligible to receive compensation or avoid a reduction in compensation.
  • The laboratory collects comparative data for the registry from, and bills for, multiple tests that may be duplicative or that otherwise are not reasonable and necessary.
  • Compensation paid to physicians pursuant to registry arrangements is on a per-patient or other basis that takes into account the value or volume of referrals.
  • Compensation paid to physicians pursuant to registry arrangements is not fair market value for the physicians’ efforts in collecting and reporting patient data.
  • Compensation paid to physicians pursuant to registry arrangements is not supported by documentation, submitted by the physicians in a timely manner, memorializing the physicians’ efforts.
  • The laboratory offers registry arrangements only for tests (or disease states associated with tests) for which it has obtained patents or that it exclusively performs.
  • When a test is performed by multiple laboratories, the laboratory collects data only from the tests it performs.
  • The tests associated with the registry arrangement are presented on the offering laboratory’s requisition in a manner that makes it more difficult for the ordering physician to make an independent medical necessity decision with regard to each test for which the laboratory will bill (e.g., disease-related panels).

Study: Questionable Billing for Medicare Part B Clinical Laboratory Services

In early July, OIG issued its study, "Questionable Billing for Medicare Part B Clinical Laboratory Services (pdf)" (which was later corrected and reissued in mid-August) The objective was to identify questionable billing for Part B clinical laboratory (lab) services in 2010.

The study analyzed Part B claims for lab services with dates of service in 2010. When labs submit claims for each lab service provided for Medicare beneficiaries, each claim contains information about the lab provider, the ordering physician, the beneficiary and the lab service. Researchers developed 13 measures to describe labs' billing patterns and identify labs with questionable billing patterns. They then calculated and analyzed the distribution of the measures for each lab, and then calculated a statistical threshold for the 13 measures and determined whether a lab's billing was unusually high for each measure. Additionally, they calculated the total number of claims and total allowed amount associated with certain measures of questionable billing.

Researchers found that in 2010, more than 1,000 labs exceeded the thresholds (i.e., had unusually high billing) for five or more measures of questionable billing for Medicare lab services. For example, a lab might have an unusually high percentage of claims with ineligible and/or invalid ordering-physician numbers, or an unusually high allowed amount per ordering physician. Some labs that exceeded the thresholds for fewer than five measures also exhibited billing that may warrant further review. Medicare allowed $1.5 billion across all labs for claims associated with questionable billing.

The OIG notes that while there may be some labs that have legitimate reasons for exceeding certain thresholds, collectively, these findings call for stronger oversight of labs and identification of specific issues with Medicare payments for lab services that need to be addressed to more effectively safeguard Medicare.

OIG recommended that CMS:

  1. review the labs identified as having questionable billing and take appropriate action;
  2. review existing program integrity strategies to determine whether these strategies are effectively identifying program vulnerabilities associated with lab services; and
  3. ensure that existing edits prevent claims with invalid and ineligible ordering-physician numbers from being paid.

CMS concurred with all recommendations.

Laboratories Under Investigation

In September, it became apparent that the feds were serious about cracking down on illegal payments by labs to physicians.

As the Wall Street Journal reports, Virginia's Health Diagnostic Laboratory is being investigated by the Justice Department for its payments of blood-sample fees to doctors. The company's CEO has resigned amid the investigation.

The Pittsburgh Post-Gazette reports Universal Oral Laboratories of Pennsylvania is also subject of a federal investigation, with prosecutors alleging that the lab's owner built the business by giving kickbacks to doctors for sending patients' saliva samples for prescription drug adherence testing.

Boston Heart Diagnostics Corp. in Boston is another lab under investigation, according to a Boston Globe report. Federal investigators are examining whether diagnostic firms, including Boston Heart, has improperly paid doctors who send them patients' blood specimens to test their risk for cardiovascular disease.

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