Referral arrangements between laboratories and physicians have received a lot of scrutiny lately. Last week, it was reported that Health Diagnostic Laboratory Inc. is nearing a $50 million settlement with the Justice Department to settle an investigation into the lab’s practice of paying physicians to send patients’ blood for testing. Then, on March 25, 2015, the HHS Office of Inspector General (“OIG”) issued Advisory Opinion 15-04, which found that an exclusive arrangement between a laboratory and its referring physician practices could violate the Anti-Kickback statute.
Health Diagnostic Laboratory Inc.
As a background, physician offices often draw blood, process it, and then ship the specimen to clinical laboratories that offer diagnostic testing. Some labs enter into arrangements with physicians to compensate them for the time and effort involved in this process. Health Diagnostic Laboratories (HDL) tests blood samples to measure “biomarkers” that help predict heart disease. According to the Wall Street Journal article that initially put the spotlight on HDL, published in September 2014, the company “bundles together up to 28 tests it performs on a vial of blood, receiving Medicare payments of $1,000 or more for some bundles.”
Until June 2014, HDL paid $20 per blood sample to most doctors ordering its tests. “For some physician practices, payments totaled several thousand dollars a week,” WSJ reports. HDL says it stopped those payments after a Special Fraud Alert on June 25 from the OIG, which cautioned that such payments present “a substantial risk of fraud and abuse under the anti-kickback statute.” OIG’s chief concern, they noted, was that physicians would do business with the lab that pays the most, rather than the best lab, and that physicians would order tests that are not medically necessary, particularly if the payment arrangement is tied to the number of referred tests.
View our article on specific lab payments OIG deems “suspect” under the Anti-Kickback statute.
One such problematic arrangement is a “double payment,” where a lab pays a physician for services already reimbursed by a third party, such as where Medicare pays physicians for drawing blood. Last year, HDL’s CEO Tonya Mallory made a point to distinguish between drawing blood and the often complex procedure involved with “processing and handling” a sample, such as vial labeling, cooling and shipment coordination, which she believed justified the fees her lab paid to physicians.
When we covered the HDL story last year, noting the increased scrutiny into lab payments, it was fairly clear that some sort of settlement would be coming on the horizon. Indeed, the Wall Street Journal reported last week that HDL will pay around $50 million to settle the DOJ probe.
An interesting wrinkle in this case is that WSJ claims to have scoured the Medicare payment database, released around this time last year, to uncover this story. They report that Medicare paid HDL “hundreds of millions of dollars” due, at least in part, to their referral payments.
Through the last few months, HDL has maintained that their payments were consistent with the industry standard and that they ceased paying physicians when the OIG Alert came out. While maintaining the status quo is never a very convincing argument for the Department of Justice, it will be interesting to see whether the government probes other labs for similar conduct. HDL, for its part, seemed to be somewhat of an outlier both in terms of how much they offered physicians and in how much they profited off the process. The company “enjoyed explosive growth” since 2008, notes Forbes.
OIG Advisory Opinion on Exclusive Arrangements
On March 25, 2015, the HHS Office of Inspector General (“OIG”) issued Advisory Opinion 15-04. In the opinion, OIG addresses a laboratory’s proposal to enter into agreements with physician practices to provide all of the lab services for the practices’ patients. The lab would waive all fees for those practices’ patients who are enrollees of certain insurance plans that require the patient to use a different laboratory. The OIG reviewed the proposed agreement to determine if it would constitute grounds for the imposition of sanctions, such as exclusion from participation in federal health care programs, civil monetary penalties, and other penalties associated with kickback violations.
The requesting entity is a multi-regional lab that provides its services to a variety of hospitals and facilities. The requestor indicated that some of the physician practices to which it provides services expressed a desire to work exclusively with a single laboratory. Practices may wish to do this for a variety of reasons, including for ease of communication and consistency in the reporting of test results. For example, different labs use different reference ranges in reporting test results, and each lab requires a different interface for transmitting test reports electronically.
The lab also noted that approximately 70 percent of its physician practice clients have patients who are enrolled in insurance plans that require their enrollees to use a particular laboratory. According to the requestor, the applicable patients do not have federal health care program coverage as their primary insurance, but some could have it as their secondary insurance. Under the proposed arrangement, the laboratory would waive all fees for those practices’ patients who are enrollees of certain insurance plans that require the patient to use a different laboratory. Thus, the lab would not bill the patient, the physician practice, or any insurer for their tests in these circumstances, but would continue to bill all other patients, whether privately insured or covered by a federal health care program.
In a decision likely to concern some laboratories, the OIG found that this proposed arrangement could potentially generate prohibited remuneration under the Anti-Kickback Statute by “reducing administrative and possibly financial burdens associated with using multiple laboratories.”
This is an amazing way to define remuneration for a “kickback.” The OIG claims that physician practices would gain “convenience” and “efficiency” because they would receive test results with consistent reference ranges. Second, the OIG believed that the proposed arrangement would allow physician practices to potentially avoid from having to pay “monthly maintenance fees” charged in connection with any Electronic Health Records that it currently maintained with one or more other laboratories. This opinion seems to go against many of the trends in healthcare–namely, delivering health services in a more efficient way.
OIG also adds to its opinion discussion of Section 1128(b)(6)(A) of the Social Securities Act, the “substantially in excess” provision. This is “a permissive exclusion authority designed to prevent individuals and entities from charging the Medicare and Medicaid programs substantially more than their usual charges to other payors for the same items or services. ” OIG has stated that providing discounted or free services to uninsured or underinsured patients does not implicate the statute; however, it noted that the proposed arrangement involved the provision of free services to insured patients. OIG thus found that the proposed arrangement could potentially cause more than half of the laboratory’s non-Medicare and non-Medicaid patients to receive free services while Medicare and Medicaid would be charged at the regular rate.
“Without examining the data from every physician practice with which the Requestor would contract, which would be outside the scope of the advisory opinion process, we cannot determine whether the Requestor would violate the substantially in excess provision,” states OIG. “However, we have sufficient information to conclude that the Proposed Arrangement poses too high of a risk of violating that provision to grant it prospective immunity under our authorities.”