OIG expresses suspension of arrangements between labs and physicians

July 2014
BY Mary M. Bearden and Elizabeth H. Jepson, Brown & Fortunato, P.C.

On June 25, 2014, the Office of Inspector General (“OIG”) issued a Special Fraud Alert concerning compensation paid to referring physicians by laboratories. The Fraud Alert supplements a series of guidance issued by the OIG since 1994 in which the OIG addresses the risk of fraud in relationships between these two providers. In the Fraud Alert, the OIG identifies two compensation arrangements between laboratories and physicians that the OIG considers “suspect.”

The first arrangement discussed in the Fraud Alert involves laboratory payments to physicians for specimen collection, processing, and packaging (“Specimen Processing Arrangements”). Under this arrangement laboratories pay physicians, either directly or through an agent, to collect and centrifuge specimens, to maintain the specimens at a certain temperature, and to package the specimens for transport.

In the second arrangement identified by the OIG, a laboratory pays physicians for collecting and submitting data to a database maintained by the laboratory or the laboratory’s agent and for reviewing reports from the database (“Registry Arrangements”). Such registries collect data on the demographics, diagnosis, outcomes, and other information concerning patients who have undergone tests performed by the laboratory. These registries are often promoted as advancing clinical research and benefiting physicians and the health care industry.

The OIG expressed concern that the two suspect arrangements pose a risk of violating the federal Medicare/Medicaid anti-kickback statute. Arrangements that violate the statute lead to “corruption of medical judgment, over-utilization, increased costs to the Federal health care programs and beneficiaries, and unfair competition.” According to the OIG, unfair competition is an issue with the two suspect arrangements because physicians will choose a laboratory that offers compensation even if another laboratory will provide better, more clinically appropriate services. Finally, the OIG expressed concern that the two suspect arrangements may harm patients.

The OIG emphasized that one purpose of the anti-kickback statute is to “protect patients from inappropriate medical referrals or recommendations by health care professionals who may be unduly influenced by financial incentives.” Such inappropriate referrals are possible when laboratories pay physicians “because the choice of laboratory, as well as the decision to order laboratory tests, typically is made or strongly influenced by the physician, with little or no input from patients.”

Under the anti-kickback statute, a person may face criminal and civil liability for offering or paying anything of value to induce the referral of business that is reimbursable by a federal health care program (e.g., Medicare, Medicaid, or TRICARE). Likewise, whoever solicits or receives remuneration in exchange for referrals may be held criminally and civilly liable. Violation of the anti-kickback statute is a felony that is punishable by five years’ imprisonment and/or $25,000 fine. Individuals and companies that violate the anti-kickback statute may face other monetary penalties in administrative or civil proceedings and may face the death knell of health care providers: exclusion from federal health care programs.

The anti-kickback statute is an intent-based statute. Violation of the statute occurs when remuneration is paid with the purpose of inducing or rewarding referrals of business reimbursable by a federal health care program. This does not have to be the sole or primary purpose of an arrangement for a violation of the statute to occur. Rather, the OIG and other enforcement authorities may take action under the anti-kickback statute if only one purpose of an arrangement is to induce or reward such referrals. To determine whether the illicit intent is present, the OIG will look at the totality of the circumstances surrounding an arrangement.

In the Fraud Alert, the OIG identifies certain characteristics of the two suspect arrangements “that may be evidence of [an] unlawful purpose.” Characteristics that may evidence an illegal purpose in Specimen Processing Arrangements include the following: (1) The laboratory pays more than fair market value for the rendered services. The OIG warns, however, that even if the laboratory pays fair market value, the arrangement may still violate the anti-kickback statute if “one purpose of the payment is to induce or reward referrals of [f]ederal health care program business.” (2) The laboratory pays the physician rather than the physician’s group when the group bears the cost of collecting and processing the specimens. (3) Payment varies with the volume or value of referrals. For example, payment is made on a per-patient, pertest, or per-specimen basis. (4) Payment is contingent upon the physician ordering a specified number or type of test 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.” (5) A physician receives payment even though the services are actually performed by a phlebotomist who is engaged by the laboratory or a third party. (6) “Payment is for services for which payment is also made by a third party, such as Medicare.” The OIG emphasized this last characteristic in the Fraud Alert.

Under certain circumstances, Medicare will pay a collection fee when a physician draws a blood sample through venipuncture – i.e., when the physician draws blood by inserting a needle with a syringe or vacuum tube into the patient’s vein. Physicians may bill for routine venipuncture under Current Procedural Terminology (CPT) Code 36415. Furthermore, “Medicare reimburses physicians for processing and packaging specimens for transport to a clinical laboratory through a bundled payment” under CPT Code 99000. Therefore, if a physician bills Medicare and receives compensation under a Specimen Processing Arrangement, then the physician will receive double payment for the same services. Such double payment “provide[s] evidence of unlawful intent” according to the OIG.

For Registry Arrangements, the OIG indicated that the following characteristics may evidence an unlawful intent: (1) Compensation for the physician’s services is dependent on the physician performing the test at a stated frequency. For example, the physician may have to perform the test four times per year to qualify for compensation or to avoid a reduction in compensation. (2) “The laboratory collects comparative data for the Registry from and bills for, multiple tests that may be duplicative (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or that otherwise are not reasonable and necessary.” (3) Compensation varies with the volume or value of referrals. For example, physicians are paid on a per-patient basis. (4) Compensation is not set at fair market value for the physician’s services. (5) The physician is not required to document his or her services or the time spent on the services. (6) The Registry Arrangement covers only tests patented or exclusively performed by the laboratory. (7) If multiple laboratories perform the test, the Registry Arrangement only includes data on tests performed by the offering laboratory. (8) “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).”

If a Specimen Processing Arrangement or a Registry Arrangement violates the anti-kickback statute, then both the referring physician and the laboratory may be held liable. The Special Fraud Alert is the OIG’s warning shot. Eventually, the OIG will act upon illicit compensation arrangements. Therefore, physicians and laboratories should review their arrangements for any suspect characteristics. Moreover, providers should ensure that their arrangements would be commercially reasonable in the absence of referrals.