Labs Reassess Processing and Handling Payments in Light of OIG Special Fraud Alert

Clinical and anatomic pathology laboratories that pay referral sources for processing and handling (P&H) of specimens are reassessing their business models in light of a recent special fraud alert issued by the Health and Human Services Office of Inspector General (OIG). For example, Richmond, Va.-based Health Diagnostic Laboratory Inc. (HDL) has stopped offering reimbursements to health care providers for sending blood samples to its laboratory. HDL says that while it believes payment of P&H fees to help cover the cost of specimen handling is a widespread industry practice, it has stopped making those payments to referring providers as of June 25, 2014. “Health Diagnostic Laboratory Inc. has been cooperating fully with the Department of Justice as it conducts what we understand to be an industrywide review of certain clinical laboratory practices, many of which have been long-standing within the industry,” the company said in a statement provided to National Intelligence Report. According to a report in the Richmond Times-Dispatch, the company notified health care providers June 30 that it would no longer provide P&H payments to referral sources. The company’s decision to halt those reimbursements came in response to an alert issued June 25 by the OIG. That fraud alert warned clinical laboratories and physicians that providing remuneration to physicians to collect, process, and package patients’ specimens or establishing databases to collect patient testing data could violate federal anti-kickback law (NIR, July 10, 2014, p. 1). While processing fees are permissible in some cases, they violate the anti-kickback statute if they are used to induce referrals or if they are above fair market value. Medicare will pay $3 for specimen collection, but some boutique and esoteric labs reportedly have been paying referral sources upward of $20 or $30 for processing and handling. Several labs that NIR spoke with said they do not pay P&H fees to referral sources. In the fraud alert, the OIG expressed concern about the risks that specimen processing arrangements and registry arrangements pose under the anti-kickback statute. The OIG lists a number of characteristics of a specimen processing arrangement that it says may be evidence of an unlawful purpose, including:

• Payment exceeds fair market value for service actually rendered by the party receiving the payment;
• Payment is for services for which payment is also made by a third party, such as Medicare; and
• Payment is made on a per-specimen basis for more than one specimen collected during a single patient encounter or on a per-test, per-patient, or other basis that takes into account the volume or value of such referrals.

The special fraud alert is available online at http://oig.hhs.gov/fraud/docs/alertsandbulletins/2014/OIG_SFA_Laboratory_Payments_06252014.pdf. While the OIG did not identify any specific laboratories in its alert, the fact that the office issued a fraud alert likely means it has received questions about what sorts of arrangements may be legal. The alert was issued “to clarify the opinion of the Office of Inspector General and to warn people about entering into arrangements that may not, in fact, be lawful,” OIG spokesman Don White told the Times-Dispatch. Requested Guidance HDL officials said they have repeatedly requested guidance from federal regulators on the practice of P&H payments, and the alert was “the first clear guidance that speaks specifically to labs’ payment of P&H fees.” HDL “always strives to act in full accordance with all applicable laws, rules and regulations, and consistently reviews and re-evaluates its practices in light of new guidance,” the company said in a statement. In a June 26 letter to health care providers, Tonya Mallory, HDL’s co-founder, president, and chief executive officer, said the company’s P&H contracts are “carefully structured, and our payments are intended to compensate physician practices appropriately and at fair market value for the work and expense incurred in processing and shipping samples to our laboratory.” “It has never been our intent to use P&H to induce any physician to utilize our laboratory,” the letter said. Mallory sent a June 30 follow-up letter to health care providers in which she said that HDL has reviewed the alert and concluded that discontinuing P&H payments “is the right decision for us and for you, our physician partners.” “We are confident that physicians have always selected HDL Inc. for the quality of our tests and disagree with the alert’s suggestions that P&H payments might inappropriately affect some physicians’ decisions about care for their patients,” the letter said. HDL also offered to provide in-office phlebotomists for health care providers, saying it is “working with our physician partners to implement alternative methods for collecting and processing specimens that they send to our lab, such as the use of draw sites or placing phlebotomists inside practices.” Takeaway: Health Diagnostic Laboratory, which has experienced exponential growth since its launch in 2009, will stop paying processing and handling fees to health care providers in light of a recent special fraud alert issued by the Health and Human Services OIG. Other labs are also reassessing their business models as a result of the alert.