There are potentially significant implications for the clinical laboratory industry in a proposed rule published in the Federal Register on May 12 that amends and expands the authority of the Office of Inspector General (OIG) for Health and Human Services under the civil monetary penalty (CMP) regulations. The proposed rule codifies the Affordable Care Act’s (ACA) expansion of authority to protect federal health care programs from fraud and abuse. In the rule, the OIG proposes to update its regulations to incorporate changes made by the ACA; the Medicare Prescription Drug, Improvement, and Modernization Act of 2003; and other statutory authorities, as well as technical changes to clarify and update the CMP regulations.Specifically, the proposed rule implements ACA changes to the OIG authority to permit new CMPs for conduct in five areas:

• Failure to grant OIG timely access to records;
• Ordering of prescribing while excluded;
• Making false statements, omissions, or misrepresentations in an enrollment application;
• Failure to report and return an overpayment; and
• Making or using a false record or statement that is material to a false or fraudulent claim.

Additionally, the rule proposes a reorganization of the current regulations to make the regulations more accessible and to clarify the regulatory scheme. In the rule, the OIG comments that over time, as changes to the CMP regulations have occurred, the current structure has become cumbersome and confusing. There is also a proposal for an alternate method to calculate the penalties and assessments for employing excluded individuals in positions not directly related to billing federal programs. There are other changes that are not addressed here that may be important to some laboratories. The OIG anticipates an increase in collections as a result of the proposals in this rule but tempers that with a remark that it is difficult determine the extent of any increased collections. In calendar years 2004 through 2013, collections totaled $165 million. Implication for Labs Taking the proposed rule’s additions and changes one at a time may be the best way to determine the impact on clinical laboratories. Several areas addressed in the rule have more significance for laboratories than others. Laboratories are unique within health care in several ways, and operations can vary significantly from lab to lab. It is that uniqueness and individual variance that may affect the impact a rule or regulation has on any individual laboratory supplier. Reporting and Returning Overpayments The ACA requires that a person or entity receiving an overpayment must report and return the overpayment by the later of 60 days after the overpayment has been identified or the date an applicable cost report is due. ACA did not define what constitutes identification of an overpayment and that is also not addressed in this proposed rule, so laboratories and other providers are left to their own interpretation of the term. The new CMP authority does not include a specific penalty amount but uses the default penalty of $10,000 for each item or service for which an overpayment has been received. The OIG has interpreted this, in the proposed rule, to mean that the penalty would be imposed for each day after 60 days that an identified overpayment is not returned as well as for each item. For laboratories, a simple error like a miscoded test or an erroneous entry in the chargemaster or fee schedule could have a significant liability if the overpayment proposal is adopted because of the sheer volume of claims that labs submit. For even moderate-volume tests, it is not too far out of line to expect that a moderate-sized lab might have as many as 10 per day, and depending on the test and the kind of laboratory involved, 30 percent to 50 percent of those may be from tests provided to Medicare patients. In this scenario, the CMP penalty will reach the hundreds of thousands of dollars in short order. While the dollar value of the claims involved may be small for labs, this penalty is not necessarily dependent on dollar value but rather on the number of tests that are involved. CMP penalties are imposed in addition to other penalties, and labs submit far more claims than most other kinds of providers. The volume of claims submitted by a laboratory increases the chance of receiving overpayments, which further increases the liability a lab faces under the new CMP penalties proposed in this rule. If the proposed penalty of $10,000 per day, per claim stands, it could have significant implications for laboratories. The OIG is seeking comments on this aspect of the proposed rule, and it would be prudent for labs to comment on the potential impact this proposal could have on them. Timely Access to Records The proposed rule aslo adds a penalty of up to $15,000 per day for failing to grant timely access to records upon a reasonable request by the OIG for the purpose of audits, investigations, evaluations, or other statutory functions. According to the rule, the flexibility afforded by using terms like timely access and reasonable request gives the OIG an opportunity to vary the time within which records must be produced, depending on the circumstances of any given situation. The rule says that the best approach for the OIG is to make any requests in writing and specify the date records must be produced or access provided. The OIG will consider factors like the circumstances of the request, the volume of material requested, the size and resources available to the provider, and the OIG’s need for the material in a timely fashion. The exception is in a case where the OIG believes that requested material is about to be altered or destroyed. In that case, timely access means at the time the request is made. Laboratories maintain large amounts of records and materials that may be subject to such a request. Sometimes, the requested materials may be remotely located or in the hands of another provider, such as a physician office or a hospital. Laboratories must make sure they can meet any deadlines imposed in an OIG request for records. One good way to test their capability to do that is to include it as a component of billing audits. Employing or Contracting With Excluded Parties This is another area where labs find themselves in difficult circumstances because they do business with a large number of physicians who refer tests to their laboratories, with new ones being identified each week. Labs also deal with a wide variety of vendors that supply instruments, reagents, and other services that support services that are ultimately paid under federal and state health care programs. The proposed rule discusses this CMP at some length and proposes a new formula for assessing a lab or other provider who employs or contracts with an excluded person depending on the manner in which the items or services are reimbursed. In order to create an alternate method by which to calculate the CMP penalty for failure to comply, the rule adds proposed definitions for “separately billable items or services” and “non-separately billable items or services.” This is an attempt to accommodate changes in the way health care providers are reimbursed in the current system and how they may be reimbursed going forward. That means that the new definitions become more relevant as the system moves closer to bundled reimbursement for services. The rule says that providers may provide items or services in two different ways, and they are represented on claims accordingly. Either the item or service is separately billable, which will result in the ordering or providing person or entity being identified on the claim. This is the group that labs fall into the vast majority of the time. Each lab service is identified on the claim, and the claim includes the identity of the ordering person. This section of the rule also restates the OIG’s broad view that anyone in the supply chain needs to be checked to verify their exclusion status if they in any way contribute to the service that ends up on a claim to a federal program. For example, the rule identifies how a nurse working in a physician office is involved in a claim for evaluation and management services even though the nurse is not identified on the claim. Another example is the pharmacist who fills a prescription. Since the manufacturer, distributor, and wholesaler all have a part in filling that prescription, they would need to be checked for exclusion status. In the case of a laboratory, the number of individuals and entities involved in the provision of a service that is billed to a federal or state payer may be quite substantial. The proposed rule allows the OIG to assess a penalty of not more than $10,000 for each separately billable item or service provided, furnished, ordered, or prescribed by an excluded individual plus an assessment of three times the amount billed. In a case where an excluded individual or entity in the supply chain performs a service that itself is not separately billable, the OIG proposes a penalty based on the number of days the person was employed or entity was contracted with, and assessments would be made based on the total compensation the individual or entity was paid. There were no lab-specific examples provided in the proposed rule for this part of the proposal, but consider a case where the laboratory employs an excluded individual to perform maintenance on its testing equipment. The maintenance services cannot be tied to a certain number of items or services provided and separately billed, so the second calculation would be substituted for the $10,000 per item assessment under this proposed CMP rule. A laboratory would be well advised to make certain that its policies and procedures for checking the exclusion status of all of its employees, clients, and other referral sources and vendors are being followed and working as they should. While this is not necessarily a new CMP, it is expanded and emphasized in this proposed rule and may be a concern for labs and all health care providers. False Statements This section of the proposed rule authorizes the OIG to impose a $50,000 penalty for each false statement, omission, or misrepresentation of a material fact in any application, bid, or contract to participate or enroll as a supplier or provider under any federal health care program. The proposed rule added the word “omission,” which was not included in the ACA. CMS says the addition was necessary to give the full effect of the ACA amendment. It is incumbent on labs and other providers to make certain that all of the information on any enrollment forms is accurate and factual. This section could also be troubling next year when the government starts collecting data upon which new fees will be determined for payment for lab services. Labs would be advised to comment on the application of the penalties under this provision of the proposed rule and if or how they would be applicable in that process. Aggravating and Mitigating Factors The OIG will consider several aggravating factors when making decisions about penalty assessments. Those factors vary based on the type of violation the CMP assessment is being applied to, but the following list includes more common aggravating factors:

• Length of time the misconduct has been ongoing;
• Whether the conduct is a one-time event or part of a pattern;
• The extent of the misconduct;
• The number and variety of billing codes involved;
• The significance of a false statement, including omissions;
• The number of people involved;
• Harm to patients; and
• Level of intent concerning the conduct.

In another break from the past, the OIG proposes to set an actual amount to denote whether misconduct is “substantial” or not. According to the proposed rule, a loss to the program of $15,000 or more would constitute a substantial or serious loss. The OIG says that by providing an actual dollar threshold it “increases transparency and provides better guidance to the provider community.” Summary This is a brief summary of the sections of this proposed rule that may affect laboratories. It is not meant to be a comprehensive analysis of the rule. However, laboratory compliance officers should read this rule to make their own determination of whether or not this rule will affect their laboratories and how it will affect them, should the proposal be finalized as it is currently written. It is likely that some changes will be made based on comments received from providers and laboratories. Because some of the issues are unique to the industry, laboratories should seriously consider commenting on the rule, particularly in those areas described in this article. Comments on the rule will be received until July 11. Takeaway: Laboratories should be aware of proposed changes to regulations governing civil money penalties since labs could be subject to significant penalties based on the sheer volume of claims they submit.