New OIG Special Fraud Alert: Laboratory Payments

The Office of the Inspector General (“OIG”) of the Department of Health and Human Services released a new Special Fraud Alert concerning payments by laboratories.  The OIG is concerned that laboratories are inducing referring physicians to order unnecessary lab tests or surrender clinical judgment in return for impermissible remuneration.

The new Special Fraud Alert is not the first guidance issued by the OIG on this topic.  As cited in the Alert, one of the first Special Fraud Alerts issued by the OIG addressed laboratory payments, in addition to compliance program guidance and multiple Advisory Opinions (such as Advisory Opinion 05-08).  As the multiple forms of guidance emphasize, the OIG sees laboratory payments as ripe for anti-kickback violations.

Taking a step back, it is first necessary to understand what the Anti-Kickback Statute (the “AKS”) does and why the OIG is worried.  The AKS is meant to protect patients and federal healthcare programs, i.e. Medicare, from inappropriate medical referrals and recommendations.  Under the AKS, it is illegal to knowingly and willfully offer, pay, solicit or receive remuneration to induce, or in return for, referrals of items or services reimbursable by a federal healthcare program.  Remuneration can be anything of value, which in essence makes the definition limitless.

Laboratories have often been a target of the OIG because there are many potential instances when a laboratory could offer an improper payment to a referring physician.  Further, laboratory referrals and orders are typically done solely at the physician’s discretion with little or no input from a patient.  The OIG has come to the view that laboratories will offer non-justifiable payments to physicians in order to drive up referrals or generally enable the laboratory to conduct more business.

In the new Special Fraud Alert, the OIG identified two arrangements of particular concerns: (i) Blood-Specimen Collection, Processing and Packaging Arrangements (“Specimen Processing Arrangements”) and (ii) Registry Payments (“Registry Arrangements”).

Specimen Processing Arrangements arise where a clinical laboratory pays a physician to collect, process and package their patients’ specimens.  Under Medicare, a physician is entitled to payment by Medicare for collection, processing and packaging if conditions of payment are met.  However, the OIG believes that laboratories are offering to pay physicians additional money beyond what the physician may receive from Medicare.  Such payments, in OIG’s eyes, spur physicians to only use the laboratory that gives the extra remuneration, even if that laboratory is not the best one to use.  As the OIG states, the appropriateness of the payment should be questioned if a third party, such as Medicare, will also pay for the service(s).

The following are some of the characteristics of Specimen Processing Arrangements identified by the OIG as suspect: (i) payments exceed fair market value, (ii) payment for the services is also made by a third party payor, (iii) payment is made directly to the ordering physician as opposed to that physician’s group practice, and (iv) payment is conditioned on the physician ordering a specified volume or type of tests or panel of tests.

Registry Arrangements, the other suspect arrangement identified by the OIG, occurs when a clinical laboratory approaches a physician and indicates that certain data is to be collected for research purposes.  For example, the laboratory may state that it wants to learn about patient demographics, presentation, diagnosis, treatment, outcomes or other attributes of patients.  The OIG alleges that these requests often accompany tests that are particularly expensive.  The laboratories then offer to compensate a physician for answering questions, submitting information or reviewing reports.  Registry Arrangements are problematic because physicians may feel obligated to order additional tests from the laboratory.

The following are some of the characteristics of Specimen Processing Arrangements identified by the OIG as suspect: (i) the laboratory encourages participating physicians to perform tests at a stated frequency, (ii) the laboratory collects comparative data from and bills for duplicative tests, (Iii) compensation to physicians is on a per-patient basis or other methodology that takes the volume or value of referrals into account, (iv) compensation to physicians is not supported by documentation, and (v) the laboratory offers payments only for tests for which the laboratory holds a patent or that it exclusively performs.

In light of the new Special Fraud Alert, laboratories and physicians should be especially careful if entering into either of the described relationships.  It should be expected that the OIG is actively looking for Specimen Processing and Registry Arrangements to stop.  Special Fraud Alerts are not released in a vacuum, but are done with a purpose.  If a suspect relationship is not voluntarily stopped, then the OIG will handle it and the fallout will include significant practice and monetary penalties.

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About Matt Fisher

Matt is the chair of Mirick O'Connell's Health Law Group and a partner in the firm's Business Group. Matt focuses his practice on health law and all areas of corporate transactions. Matt's health law practice includes advising clients with regulatory, fraud, abuse, and compliance issues. With regard to regulatory matters, Matt advises clients to ensure that contracts, agreements and other business arrangements meet both federal and state statutory and regulatory requirements. Matt's regulatory advice focuses on complying with requirements of the Stark Law, Anti-Kickback Statute, fraud and abuse regulations, licensing requirements and HIPAA. Matt also advises clients on compliance policies to develop appropriate monitoring and oversight of operations.
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