OIG and Justice Department Investigating Certain Blood Testing Labs for Kickback Arrangements

We outlined a special fraud alert that targeted the relationship between blood-testing laboratories and physicians. In it, the Office of the Inspector General (OIG) for the U.S. Department of Health and Human Services made clear that they will be scrutinizing labs who pay doctors who send in patients’ blood for testing as this arrangement raises a “substantial risk of fraud and abuse under the anti-kickback statute.” The Wall Street Journal recently reported that this fraud alert is part of an investigation the OIG is conducting with the Justice Department into a number of specific laboratories’ practices.

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), the target of the WSJ article, tests blood samples to measure “biomarkers” that help predict heart disease and “bundles together up to 28 tests it performs on a vial of blood, receiving Medicare payments of $1,000 or more for some bundles.” Before the OIG alert, they paid doctors $20 for each sample they sent over. Many labs invoked similar arrangements.

Payments like these, OIG argues, could result in giving doctors an incentive to order unnecessary tests from the labs, which would be an undue strain on federal healthcare programs. Medicare reimburses physicians $3 for drawing blood (known as “venipuncture”). Additional payments to the doctor from the lab may demonstrate intent to violate the Anti-Kickback Statute. 

While Medicare does indeed reimburse doctors for venipuncture, HDL’s CEO Tonya Mallory distinguished between drawing blood and the often complex procedure involved with “processing and handling” a sample, such as vial labeling, cooling and shipment coordination. (Click here for her 2010 letter, via WSJ, for a full breakdown of costs). Thus, HDL and other labs considered their payments not to be a “payment for services that are covered by a third party,” like Medicare, (#2 above), but rather fair market value payments that truly reimbursed physician and physician groups practices for the time, effort, and expense of processing and handling blood.

The WSJ article paid special attention to an email where Ms. Mallory made a point to distinguish between “draw fee” and “ph fee” (processing and handling fee). “Fyi To all I want to refocus that this is an ph fee not a draw fee. One word makes it legal the other illegal.” HDL reportedly paid some practices more than $4,000 a week in blood-sample fees.

Blood-sample fees were “a long-standing, industrywide practice” before the fraud alert, which was “new guidance,” Ms. Mallory said in her statement. In a letter to physicians, she stated that HDL “like many other labs, have concluded that we no longer will pay Process and Handling (P&H) fees to physician practices, health systems, or others who refer patients to HDL for testing. This change in policy is effective for P&H services provided on or after June 25, the day of HHS’s Alert. We typically would provide 30 days’ notice of changes such as this; however, in this care we have concluded that it is best that we make this change immediately.”

In addition to HDL, Quest’s Berkeley HeartLab, Singulex Inc., Boston Heart Diagnostics Corp., and Atherotech Diagnostics Lab are also under investigation for similar payment structures. Each have said that they stopped the practice following the alert, though the fees were standard industry practice according to the labs.

Quest says Berkeley ended payments of $7.50 to $11.50 in 2011 when Quest bought Berkeley. Singulex paid $10, saying such fees were “a long-standing industrywide practice,” before the “government clarified their view.” Boston says it paid $15 and thought the practice lawful before the alert. Boston and Singulex didn’t include a $3 draw fee. Berkeley did include the $3, as did Atherotech, which says it paid $10, declining further comment.

WSJ notes that of the labs, HDL by far collected the most from Medicare in 2012–$139 million compared to $8-$17 million for the other labs. The article also states that one doctor in particular sent HDL 1,179 blood samples in 2010’s first half, which would have added up to $23,580 in fees.

The OIG alert and surrounding investigations have caused some commentators, including a recent piece by Forbes, to question the necessity and frequency of certain expensive tests. The article references a post on the Science-Based Medicine blog that wrote:

“A friend’s 21-year-old son went to a board-certified family physician for a routine physical. This young man is healthy, has no complaints, has no past history of any significant health problems and no family history of any disease. The patient just asked for a routine physical and did not request any tests; the doctor ordered labwork without saying what tests he was ordering, and the patient assumed that it was a routine part of the physical exam. The patient’s insurance paid only $13.09 and informed him that he was responsible for the remaining $3,682.98 (no, that’s not a typo).”

The tests were done by HDL (which the article notes ended up reimbursing this patient for his expenses). 

Health Diagnostic Laboratory Responds to Wall Street Journal

Following the Wall Street Journal article, HDL responded that the story “paints a highly distorted picture of our company and our work. In particular, HDL, Inc. vehemently disagrees with any insinuation that payments to doctors were an inducement, or that the payments were illegal or known to violate any law.” 

 “The story inaccurately characterizes the HDL, Inc. of 2010 and totally ignores the world class 2014 HDL, Inc. laboratory practices of today, relying on misleading accounts from two former disgruntled employees who have not been with the company in more than three years – one speaking anonymously and the other dismissed for cause, including her opposition to HDL, Inc.’s zero-tolerance drug policies.”

Notably, none of the recent articles have addressed the impact of HDL’s testing has had on patient care. HDL states: “We are proud of the work we have done to help revolutionize patient care by changing the way that cardiovascular disease, diabetes, and related diseases are diagnosed and treated.” 

HDL states that their testing is “far more effective than traditional testing in detecting cardiovascular risk” and that “comprehensive biomarkers provide a far broader and deeper picture of patient health that can improve diagnosis and care for patients.” This testing offer doctors and patients “actionable information that can lead to early detection of diseases or pre-disease states and, as a result, improved prevention, treatment and even disease reversal.”

“In bringing the most advanced, comprehensive diagnostic testing to millions of Americans, HDL, Inc. testing is not only saving lives but also saving healthcare dollars,” the company states.

They also addressed the DOJ investigation: “As we confirmed to The Journal, the [DOJ] is conducting what we understand to be an industry-wide review of certain clinical laboratory practices, many of which have been longstanding within the industry. HDL, Inc. has been cooperating fully with the government investigation and has consistently complied with all applicable legal and regulatory requirements.  In the event that the DOJ investigation results in legal action against HDL, Inc., we are prepared to defend our business practices vigorously.”

Finally, HDL noted that the existing payment structure (as noted above, Medicare pays doctors $3 per “draw”) simply have not kept pace with major advancements in diagnostic testing. Currently, payment “is grounded in the more traditional, reactive model of providing and paying for care only after a medical event.” On the other hand, “HDL, Inc.’s testing, which is at the forefront of modern medical science, gives physicians tools to detect major health issues before such events to occur and is thus aligned with the Affordable Care Act (ACA) goals of improving patient health through preventative efforts.”