Compliance Perspectives: Avoid Kickback Liability by Steering Clear of MD Processing Fees

Editor’s Note: Two months ago, we talked about paying referring physicians a fee for collecting and processing blood, urine, tissue and other specimens. (G2 Compliance Advisor, Oct. 9, 2018, p. 1). While acknowledging the kickback implications of such arrangements, we also suggested that labs can navigate those risks. We heard from several persons, including GCA users and leading attorneys, who disagreed with our take and urged us to reconsider it. And that’s what we did. Conclusion: While technically right about the law, our original piece also offered the wrong practical advice. So, now we are revising it (along with the Model Processing Fee Policy that accompanied it).

Kickback Red Flags
The federal Anti-kickback Statute (AKS) and Stark Law ban labs from offering or paying anything of value to physicians to encourage or reward them for referring patients covered by Medicare, Medicaid and other federal health programs. So, any time a lab pays a fee to a referring physician, it raises a red flag.

This is especially true when the fee covers a specimen processing fee to a physician. One problem is that, historically, such services have been built into the physician’s reimbursement, e.g., via inclusion in CPT E & M codes.

The OIG Pronouncements
The OIG addressed this issue in a 2005 Advisory Opinion (05-08) stating that a lab’s proposal to pay physicians a $3 to $6 per patient fee for collecting blood specimens for Medicare patients to be tested by the lab would raise AKS concerns since it would confer “obvious benefits to the referring physicians.”

If any doubt remained, the OIG removed it on June 25, 2014 by issuing Special Fraud Alert (SFA) declaring its AKS suspicions of “Specimen Processing Arrangements,” i.e., those involving services such as collecting the blood specimens, centrifuging the specimens, maintaining the specimens at a particular temperature and packaging the specimens so they’re not damaged during transport. The SFA, on which our original article was based, then lists specific characteristics that raise red flags, including when the processing fee:

• Exceeds fair market value;
• Is calculated on a per-specimen, per-test, per-patient or other method based on the value or volume of referrals;
• Covers services already paid for by a third party such as Medicare;
• Covers services actually performed by someone placed in the office by the lab;
• Is made directly to the ordering physician rather than the group practice that employs him/her and actually bears the cost of collecting and processing the specimen; and
• Is offered on the condition that the physician order either a specified volume or type of test or test panel, especially if the panel includes duplicative tests.

On its face, the SFA leaves room for compliant arrangements, i.e., those structured to avoid the OIG red flags. But as a practical matter, crafting a compliant processing fee arrangement is just about impossible.

The Stark Issues
One problem with relying on the OIG pronouncements, notes Seattle healthcare attorney David Gee, is that they cover only the AKS and not the Stark issues. Explanation: To justify a processing fee under Stark, a lab would probably have to rely on the so called personal services exception. But to structure specimen collection as a personal fee would be extremely difficult, especially to the extent it couldn’t be based on the volume or value of specimens processed, he explains. “Theoretically, you could set an hourly personal service fee, but that would be highly dubious.”

The Cases
The view that processing fees can be structured as somehow avoiding the AKS and Stark obstacles is borne out by the few court cases that have addressed the issue.

The HDL Case
The 2015 Health Diagnostic Laboratory (HDL) case is the poster child for abusive processing fee arrangements. The case began when a whistleblower filed a qui tam lawsuit accusing HDL and its business associate Singulex of paying kickbacks to physicians in the form of processing fees of up to $10 to $17 per test in exchange for orders of medically unnecessary blood tests. HDL then compounded its liability by subsequently billing those ill-gotten tests to Medicare and TRICARE, thereby bringing the False Claims Act into play.

By the time the dust had cleared, HDL paid $47 million and Singulex $1.5 million to settle kickback and false claims charges. And in July 2018, the individual principles of both companies were convicted and fined another $114 million for their role in the scheme.

The Boston Heart Case
The more recent case of US ex rel. Riedel v. Boston Heart Diagnostics Corp. involved a lab’s payment of packaging fees. While acknowledging that the $15 to $25 it paid physicians was well above the $3 Medicare draw fee, the lab contended it was fair market value. The fee wasn’t a draw fee but a packaging fee covering the costs of not only collection but also processing and shipping specimens to its facility for testing, it argued.

But the court didn’t buy it, finding that the fees in this case were structured just like the ones the OIG rejected in the 2005 Advisory Opinion mentioned above. It also found credence in the whistleblower’s contention that the lab encouraged physicians to cover their tracks by breaking up their testing needs among multiple colluding labs. Result: The whistleblower would get a shot to prove his allegations at trial.

The Moral: Stay Away from Processing Fees
In our original, we suggested that processing fee arrangements can be structured to satisfy OIG criteria. Theoretically, this is true. But as a practical matter, it won’t work. So, don’t try it. A more legally sound alternative to help physicians manage the costs and hassles of specimen collection and processing (assuming your lab has the necessary resources):

• Establish a collection station near the offices of your physician clients; and/or
• Place a phlebotomist or staff member compensated by your lab at fair market value within their facilities.