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Large Laboratory Fraud Settlement Highlights Physician Incentives

Laboratories

One of the largest laboratory fraud settlements occurred recently resulting in $256 million paid to the government to settle allegations surrounding the False Claims Act, the Anti-Kickback Statute, and the Stark Law. Specifically, the settlement resolves allegations that Millennium Laboratories billed Medicare, Medicaid, and other federal health care programs for medically unnecessary drug testing and genetic testing, and provided kickbacks to physicians to induce business. This settlement highlights the serious nature of laboratory physician relationships and should serve as guidance to the laboratories across the country regarding using best practices to mitigate risks.

Allegations

The allegations evolve around various practices associated with physician referral sources. Please keep in mind that these are only allegations. The allegations as a part of the complaint include the following:

Summary from Complaint

“Millennium used a variety of schemes to cause physicians, including many of its biggest referrers, to routinely order excessive amounts of UDT for all patients (including Medicare and Medicaid patients) regardless of individual patient assessment or need. Millennium’s abusive practices included the use of physician standing order forms (called “Custom Profiles”) to encourage routine, excessive UDT, and the dissemination of false and misleading statements about drug abuse rates and the value of its testing. Millennium also provided many services and benefits to physician customers (including free supplies, as discussed below) contingent on referrals of certain amounts of tests to Millennium.” Page 2.

 Billing for Additional and Unnecessary Tests – See 42 C.F.R.
§§ 410.32(a), (d)(2).

“Millennium then billed Medicare for each drug or drug class tested—averaging more than seventeen procedure codes (many with multiple units) per urine sample—including tests for drugs that patients were not suspected of taking, and for “confirmatory” quantitative tests of expected in-office screening test results.” Page 2.

Alleged Kickbacks to Physicians

“Millennium also paid illegal kickbacks to physicians in the form of free point-of care (“POC”) drug test cups to induce physicians to make referrals to Millennium. These POC test cups cost about $5-6 each and Millennium gave physicians more than one million of them in exchange for referrals. As a condition for providing free POC test cups, Millennium explicitly required physicians to refer additional testing to Millennium or pay back the cost of the “free” test cup. Millennium’s provision of the free cups was tied to its excessive testing scheme: its executives required that, to be eligible to receive free POC test cups, physicians have Custom Profiles (i.e., standing orders) with at least twelve drug tests. Millennium’s provision of free POC test cups generated more than 200,000 referrals for Medicare patients, which resulted in Millennium receiving over $90 million in tainted Medicare reimbursements.” Page 3.

Obviously there are some serious allegations here involving alleged over-testing, causing physicians to over-test for certain issues, and kickbacks to physicians in the form of free POCs. So what does this mean for future laboratories and how they should interact with physicians?

Medicare Laboratory Law

As many of the readers are aware, laboratory services are covered by the Medicare program. However, laboratory services must meet all applicable requirements of the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) (you can find this in 42 C.F.R. Part 493). Further, Medicare Part B does pay for covered diagnostic laboratory tests that are furnished by a laboratory.

(v) A laboratory, if it meets the applicable requirements for laboratories of part 493 of this chapter, including the laboratory of a nonparticipating hospital that does not meet the requirements for emergency outpatient services in subpart G of part 424 of this chapter.

Nevertheless, although laboratory services can be reimbursed, Medicare Part B only covers laboratory services that are reasonable and necessary as required under 42 USC 1395y(a)(1)(A). Further, all diagnostic tests must be ordered by either a physician, clinical nurse specialist, clinical psychologist, clinical social worker, nurse-midwife, nurse practitioner, or physician assistant (“Ordering Practitioner”).

The Ordering Practitioner must be the individual Practitioner that is treating the patient and tests ordered by another individual would not be considered reasonable and necessary. The key factor is that the test must be ordered which means a communication from the Ordering Practitioner that a diagnostic test be performed (See Section 80.6.1).

The interesting part here is that as a part of the allegations, the tests that were ordered by physicians were not medically necessary. However, Medicare regulations state that a laboratory’s claim for a service will be denied if there is not sufficient documentation in the patient’s medical record. This means that the Ordering Practitioner is the individual in charge of the record yet the laboratory is responsible. The government would argue that laboratories do have the power to request additional documentation from Ordering Practitioners as established under 42 CFR 410.32(d)(3). So although the laboratory is not directly involved in the medical necessity decisions, “the entity submitting the claim may request additional . . . information from the” Ordering Practitioner “to document that the services it bills are reasonable and necessary.”

In short, you can see how a laboratory is responsible for ensuring each link as a part of the Medicare billing process meets the Medicare regulations. In this case, it has been alleged that some of these requirements have not been met, thus allegedly unnecessary tests were ordered.

Kickback and Stark Allegations

As a part of the complaint, it was also alleged that the Anti-Kickback Statute and Stark Law were violated. The Federal Anti-Kickback Statute is a criminal statute that prohibits a person or entity from exchanging, or offering to exchange, anything of value, in an effort to induce or reward the referral of Federal health care program business. This includes all Federal health care programs including Medicare and Medicaid. Notice, this criminal statute does have an intent based component to it in that the individual or entity must be doing something knowingly or willingly. In other words, if the Federal government cannot establish knowledge then the Anti-Kickback Statute cannot be violated.

The Stark Law on the other hand is a bit different. The Stark Law is implicated when an entity, such as a hospital, has a financial arrangement with a physician. In the event the physician makes a referral to the entity, then the Stark Law may be implicated. In both cases, the allegations involving the Anti-Kickback Statute and Stark Law related to the POCs. Thus, referring physicians were allegedly receiving remuneration in the form of POCs. You can click the following links for more information on the Stark Law and the Anti-Kickback Statute.

Takeaway Points

  • Laboratories should be mindful of their responsibilities of providing correct documentation. Even if an Ordering Practitioner is responsible for an order, the laboratory needs to ensure that each link in the billing regulations has been met.
  • Marketing practices should not have a clear nexus between the marketing and inducing referrals. Marketing itself can be risky in healthcare because often there is a fine line between marketing and free products. Analyze your marketing practices to ensure compliance.
  • Closely analyze any practices that involve physician referral sources. In this case, not only marketing practices but also processes in place that involve physicians.