Compliance Dos & Don’ts Revealed By Experts Throughout 33rd Annual Lab Institute

For two and a half days on Capitol Hill, compliance concerns permeated G2 Intelligence's 33rd Annual Lab Institute. Beginning with a compliance-focused workshop and continuing through keynote addresses and panel discussions, industry stakeholders and experts shared their perspectives on how to ensure laboratory and pathology groups comply with the myriad of existing and developing rules and regulations governing the sector. Here's an overview of the compliance dos and don'ts our presenters had to share regarding the top compliance issues currently facing laboratories.

DON'T Overlook Kickback Risks Hidden in Marketing and Promotion Activities
Opening a pre-conference workshop devoted to discussion of legal and compliance risks arising in lab and pathology arrangements, health care attorney Danielle Sloane, of Bass, Berry & Sims PLC in Nashville, spotlighted several general fraud and abuse issues for labs—among them, arrangements with marketing personnel. Sloane quoted the Department of Health and Human Services Office of Inspector General (OIG) as saying "many marketing and advertising activities may involve at least technical violations of the [Anti- Kickback] Statute." The concern is that marketing services are paid specifically to recommend services reimbursed by federal programs. Sloane recommended three issues to watch out for when structuring marketing arrangements:

• Incentive compensation—Outside the bona fide employee safe harbor this payment method raises kickback risks.
• Variable fee arrangements—per click, percentage or volume based payments raise kickback concerns.
• Arrangements including OIG "suspect characteristics" such as direct-to-patient marketing.

On a related note, Sloane also called attention to the risks related to the employee or independent contractor status of sales agents and marketing professionals—a subject which is gaining a lot of attention lately from the Department of Labor and Internal Revenue Service. She highlighted that the OIG has noted the potential for "abusive practices by salespersons who are independent contractors" and recommended that employing sales professionals increases control and supervision and protects incentive arrangements. So laboratories and pathology groups must consider their use of sales and marketing professionals, the employment status of those professionals and then ensure their activities aren't giving rise to kickbacks for the business they attract to the lab or pathology practice.

DO Use Caution Providing Freebies
Sloane also discussed the perennial compliance problem of providing freebies to referral sources. The Stark Law only permits labs to supply referring physicians with free items that are used "solely" to collect, store, process, or transport a specimen. Free items also can be considered improper remuneration for referrals under the Anti-Kickback Statute.

Freebies have received significant attention recently with the litigation between Ameritox and Millennium Health (see G2 Compliance Advisor, Sept. 2015, p. 3 and G2 Compliance Advisor, Feb. 2015, p. 1) and Millennium Health's recently announced settlement of allegations that its provision of free point of care testing (POCT) cups to physicians violated the Anti-Kickback Statute and Stark Law (see page 12). In the Ameritox/Millennium Health litigation, the Department of Justice filed a brief stating its position on the matter of what "solely" means—not even a very small benefit can be conferred on the receiving physician if the item conveys tangible benefits not related to permissible collection, transport, and storage purposes. Sloane highlighted factors the OIG considers: the tangible benefit the physician could receive from the freebie, whether the physician would otherwise need to pay for the item or service, and whether the freebie effectively offers a discount to referring physicians or their patients. She also provided examples of items that are acceptable—urine collection cups not having a point of care testing feature, vials for transporting blood, access to interfaces for communicating orders and results—contrasted against those the government has found improper: sterile gloves, biopsy needles, reusable needles, snares, and professional courtesy lab tests for health care providers.

DON'T Routinely Waive Charges for Out of Network Services
Another pre-conference workshop presenter, health care attorney Peter Kazon of Alston & Bird in Washington, D.C. quipped that he drew the short straw on the panel as his topic had no easy answers: compliance problems related to out of network services. What's a laboratory to do when it finds itself on the outside of an exclusive payer relationship? He said laboratories must balance both legal and business risks and are often caught between the payers who want to protect their networks and physicians who don't want their patients billed significant charges because the service was out of network. Clearly, what not to do is routinely waive copays and deductibles because doing so can run afoul of federal and state laws regarding waivers. The OIG has warned against waivers in the 1994 Fraud Alert as well as this year's OIG Advisory Opinion 15-04. Kazon noted that this year's Advisory Opinion is the first time the OIG has looked at convenience in finding remuneration; however, it was a combination of factors that the OIG cited as the reason it found impropriety in that opinion. He added that state law complicates the issue for laboratories by often ambiguously addressing the issue. Finally, private payers are also stepping into the fray, taking action themselves to counter routine waivers that threaten their exclusive networks.

Kazon's advised laboratories should 1) look closely at the factors highlighted in the OIG's most recent Advisory Opinion about waiving charges for out-of-network services and don't adopt a policy of generally refraining from billing out of network services; 2) consider applicable state law provisions regarding waivers; 3) not discuss waivers in the context of referrals; 4) take care that marketing statements and sales professionals don't state or imply that the laboratory will accept payer reimbursement as payment in full; 5) establish policies addressing out of network services; 6) communicate with physicians about the rules; 7) bill patients for their copays and deductibles but consider financial hardships and work with patients to appeal claims or work out payment plans.

DO Consider Compliance Issues Raised by Client Billing Arrangements
Health care attorney Jane Pine Wood of McDonald Hopkins discussed client billing—that is, labs billing other labs, physicians or hospitals, for laboratory services. The compliance issue raised in these arrangements is the "usual charge" issue that was a focus of the OIG's Advisory Opinion 15-04 earlier this year. Wood noted that while we haven't seen enforcement actions relating specifically to the usual charge issue, the concern is whether a laboratory's usual charge is "well below Medicare." Wood also cautioned attendees to be aware of differing state laws on client billing and particularly laws regarding markups. Referencing the recent announcement of Strata Pathology Laboratory's settlement resolving kickback allegations relating to billing arrangements between Strata and physicians who paid Strata to perform pathology services, Wood noted that case indicates that the client billing issue is clearly on the list of items the government is looking at.

She also highlighted some common compliance traps for laboratories related to billing other parties for testing services:

• state law provisions prohibiting mark-ups (for example, California prohibits a markup on lab-to-lab billing arrangements);
• the Medicare 70/30 rule – which requires 70% of testing be done in house by a laboratory or it can lose its Medicare eligibility;
• marketing arrangements—Wood raised the question of whether a lab that refers work to another lab is marketing for that lab and giving rise to potential problems regarding payments involved;
• in-office ancillary services exceptions—having a separate legal entity perform test services creates risk as shown by the settlement announced earlier this year concerning referrals to a dermatology practice's in house pathology laboratory;
• anatomic pathology Medicare anti-markup rules imposing physician supervision requirements for the technical services.

DON'T Forget It's Not Just Business: Consider Fraud, Abuse and Antitrust Implications of Transactions
Amid discussions throughout the conference about health care reform and the shift from volume to value-based reimbursement, antitrust lawyer Dionne Lomax and health care lawyer Karen Lovitch of Mintz Levin Cohen Ferris Glovsky and Popeo reminded attendees of compliance issues that can arise while strategizing partnerships and ventures that will help laboratories and pathology groups survive in this new environment. Lomax explained recently heightened Federal Trade Commission (FTC) attention to health care transactions, providing some assurance that laboratory transactions can be achieved without raising significant antitrust hurdles if careful attention is paid to factors that concern the FTC. Lomax advised attendees to always consider their market, their share of that market, activities undertaken within the arrangement, and how a transaction will affect that market. For example, exclusive arrangements can be lawful, advised Lomax, but their duration, other competitors in the marketplace and availability of less competitively restrictive arrangements must be considered.

Karen Lovitch cautioned laboratories to consult counsel earlier rather than later in developing a transaction or agreement. For example, she related that laboratories are often unaware that the structure of a deal can trigger change of ownership notification requirements and licensure issues. Finding out about these requirements late in the game can delay deal closure. Another critical step to ensuring compliant transactions, advised Lovitch, is to engage third party valuation consultants to provide guidance on fair market value for all compensation to avoid running afoul of fraud and abuse laws.

DO Prepare Now to Comply With Expected Changes to Oversight of LDTs
Several presentations addressed the current status of laboratory developed test (LDT) oversight, potential alternatives or alterations to the FDA framework issued last year, and what laboratories should be doing now. Peter Kazon indicated Congress may act to take the place of what the FDA has proposed and at the same time, the FDA is looking to revise its guidance and the result "may look significantly different" than what came out last year. "This is an area in tremendous flux," he concluded.

In a panel discussion, Allison Fulton and James Stansel, health care lawyers with Sidley Austin in Washington D.C., advised laboratories on practical steps they can take now in anticipation of more significant oversight of LDTs. Some of the steps they recommended include:

1. Take stock. Evaluate the LDTs the laboratory currently has and the claims they make with regard to each of those LDTs. Consider existing IVDs that are similar in intended use and their risk classification to gain insight on potential future classification of LDTs. Consult the existing FDA proposed framework to get a sense of potential obligations— whether notification or full approval.

2. Focus on Quality Systems. Fulton emphasized the onerous nature of FDA quality systems requirements, noting that both the house bill and the Diagnostic Test Working Group alternatives to the FDA framework also include quality systems requirements. So laboratories should take time now to survey what quality systems they already have in place and what they would need to do to comply with FDA quality system regulations. Begin crafting a strategy for meeting FDA quality system requirements including evaluating what expertise you will need on your team. Fulton suggests you may need to hire consultants.

3. Gear up for inspections. Prepare for FDA inspections by developing procedures and conducting internal audits. Also, appoint someone to be the contact person for the FDA and review FDA enforcement actions to get a sense of trends in current enforcement.

4. Update compliance plans. Fulton and Stansel emphasized the need to add LDT-related compliance concerns to the laboratory's overall compliance program including issues such as off-label promotion and similar marketing concerns as well as potential fraud and abuse issues raised by arrangements with consultants and other providers related to commercializing LDTs.