Trends in Compliance and Regulatory Enforcement for Laboratories

Edgar Bueno

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Compliance and Regulatory Enforcement Update for Labs

by: Edgar Bueno, Matt Wilmot of Nelson Mullins - Idea Exchange - Alerts

Wednesday, January 4, 2023

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Whether you operated a traditional diagnostic lab, a toxicology lab, or one that performs high-complexity genetic and genomic testing, there were plenty of regulatory nightmares to keep you up at night in 2022. It seems “the watchdogs” were watching more than ever as it was a remarkable year from a government enforcement standpoint and laboratories.

The Office of Inspector General (OIG) started the year by issuing a fraud alert warning the public about the proliferation of COVID-19 testing scams.^[1] The U.S. Department of Justice (DOJ) pursued a record number of high-profile investigations, recoveries, and convictions in the laboratory space.^[2] Notably, several of these cases were initially reported by whistleblowers who also shared in the government recoveries.^[3]

This update summarizes some of the recent trends in compliance and regulatory enforcement for laboratories. It also serves as a reminder to implement and maintain robust compliance policies and procedures in order to face these challenges.

The Challenge of Medical Necessity and Lab Orders

Claims for lab services must be reasonable and medically necessary in order to be paid. From a regulatory standpoint, this means that the service or test is used for “the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body member.”^[4] Simply because the test was ordered and performed does not guarantee payment.

This year the government continued its scrutiny of medically unnecessary genetic testing schemes.^[5] Medicare undertook targeted auding of genetic labs and routinely pursued recoupment where medical necessity requirements were not met. Several national genetic testing labs were the subject of government investigations by federal and state authorities. Medicare, and some Medicaid programs, strictly limit coverage for genetic screening, although government programs may cover genetic tests that meet the criteria for diagnostic testing such as those used to treat cancer (e.g., CGx screening), carrier screening tests, particularly for pregnant women, and other medical conditions (e.g., PGx screening).

The government usually identifies medically unnecessary services by the lack of documentation to support a claim. Medical necessity documentation to support an ordered test should be found in the record set. If you bill a lab service to Medicare, for example, you must obtain the treating physician’s signed order, or progress notes to support the order, as well as documentation to support medical necessity. This documentation should be available as part of the full record set and produced in its entirety if requested by Medicare during an audit. The timing of when this documentation is obtained from the provider may be critical in establishing medical necessity. Importantly, while laboratories are not strictly required to maintain the ordering provider’s medical record documentation, such records will be required for Medicare to validate a claim for payment. The lab may actually be required to repay any amounts received based on deficient ordering provider documentation.

Signature requirements should also be followed particularly in situations where a non-physician practitioner, although authorized, orders a test. While a physician order is not required to be signed, the physician must clearly document in the medical record his or her intent that the test be performed.^[6]

Payments to Physicians

Providing payments or other items of value to physicians in order to induce or reward referrals for lab services can be a violation of the federal Anti-Kickback Statute. These impermissible payments can be disguised through professional services agreements, medical directorships, or consulting agreements. The recent string of criminal prosecutions clearly demonstrate a focus by law enforcement to hold individual, licensed professionals accountable.^[7]

This update also serves as a reminder that the placement of a lab employee in a physician’s office to assist with blood or specimen collection remains a suspect practice for the OIG. However, each arrangement’s facts and circumstances need to be analyzed from a regulatory standpoint.

Another common situation by those pushing improper lab relationships is falsely describing such agreements as legal or “safe-harbored.” It would therefore be prudent to seek competent legal counsel to review all such contracts prior to entering into them.

Lab Reimbursement – Upcoding, Bundling, and Add-On Tests

The level of a billed lab test is also being questioned by payors more frequently. Claims can be denied if you bill for a more expensive test or panel than what is necessary or actually performed. Therefore, it is important to stay abreast of coding standards either nationally or within your specific region.

Failing to follow lab billing guidelines such as those published through National Coverage Determinations (NCDs) or Local Coverage Determinations (LCDs) may subject your organization to civil liability and treble damages under the False Claims Act. NCDs and LCDs are viewed by the government as analogues for determining whether a test is medically necessary.^[8] The government often takes the position that failure to follow such guidelines is not merely a technical violation but constitutes actual fraud.

The OIG has been closely monitoring high levels of add-on lab tests that are billed alongside COVID-19 tests. If the vast majority of your patients are receiving the same type of added or bundled tests with little or no variation across patients, then this might serve as a red flag. In one recent report, the OIG stated: “such high levels of billing for add-on tests raise concern about potential waste or fraud suggesting a need for further scrutiny of billing by these labs.”^[9]

Reference Lab Billing

In a recent case, DOJ prosecutors issued a criminal indictment against a Louisiana man who allegedly submitted over $174 million in false Medicare claims for genetic testing.^[10] The testing was not medically necessary and not even performed by the billing lab but rather the specimens were sent to reference labs.

Under Medicare rules, there are specific rules and limitations that must be adhered to whenever a reference lab is utilized to perform a billed test. At minimum, if a lab does not in fact perform the test then it cannot bill and represent to Medicare as if it performed the test.

Several rural hospitals and labs have been the subject of other government investigations for similar “pass-through” billing schemes.^[11]

Waiving of Patient Copays for Lab Tests

For certain types of tests, like genetic or genomic testing, the amount of patient copays can be significant. Labs may sometimes waive or substantially reduce copays, deductibles, and other patient financial obligations in order to promote patient health and the delivery of preventative care. However, if copayment waivers or other reductions are provided routinely or without actual consideration of a patient’s ability to pay, then the government may view such arrangements as violations of the fraud and abuse laws, including the Anti-Kickback Statute and the Beneficiary Inducement Law.^[12]

Therefore, it is important to maintain and follow written policies and procedures addressing situations when a patient copayment can be waived. This would include having a policy on providing lab services to the indigent or the uninsured. Likewise, it is important to document individual financial need and/or collection efforts if such waivers are offered to patients.

Marketing

Marketing schemes seem to entangle many a lab in DOJ investigations. This is particularly true in the genetic testing space where labs have paid independent marketers or “brokers” for patient referrals based on the volume or number of lab services ordered. According to the DOJ, such schemes are undoubtedly criminal under the Anti-Kickback Statute. The DOJ has focused its enforcement efforts on labs who, for example, employ a telemarketing company to identify potential patients for lab services through call centers, social media, or health fairs. Oddly, however, it is still somewhat common to find labs that pay marketers per patient referral or on a commission basis.

A more recent compliance concern for labs is the increasing number of DOJ investigations involving the Eliminating Kickbacks in Recovery Act (“EKRA”) which prohibits recovery homes, treatment facilities, and laboratories from paying or receiving kickbacks or bribes.^[13] This criminal law applies to all types of diagnostic labs and even prohibits certain commission-based compensation arrangements. Particularly noteworthy is that EKRA prohibits these arrangements for both private and government payors, closing a loophole that many labs utilized by restricting such arrangements to only commercial payors.