Understanding and Avoiding Compliance Errors

In a world increasingly aware of healthcare fraud and corruption, clinical laboratories are finding a thorough understanding of the False Claims Act (FCA)¹—and strong oversight over their own billing and coding practices—vital to ensuring they avoid issues of noncompliance. Of course, despite 15 consecutive years in which FCA enforcement actions resulted in recoveries over $2 billion,² most laboratories don’t intentionally set out to defraud the government. Nonetheless, errors in billing and coding can lead to unintentional violations and create problems for busy labs.

Common mistakes

“The False Claims Act requires knowledge of falsity or reckless disregard,” says Danielle Tangorre, a healthcare lawyer and partner at Robinson+Cole. “It is not accidental errors that generate a False Claims Act case. Areas that may be perceived as accidental noncompliance generally revolve around billing for tests that were not medically necessary, not fully understanding how samples are coming to the laboratory, or paying third parties based on volume.”

Documentation errors that may lead to noncompliance include:

• Lack of medical necessity. Billed tests must have appropriate documentation of their clinical justification. Courts also have the right to treat medical judgments as subjective opinions that can be false,³ so this documentation must be accurate and complete. Labs should be particularly conscientious about ensuring justification for standing orders, large panel tests, or repeat genetic testing⁴—all of which can lead to test overutilization.
• Upcoding or downcoding. Documenting tests at a higher or lower level of cost or complexity than is accurate can have serious consequences. The former can lead to excessive reimbursement relative to the care provided,⁵ whereas the latter can leave labs under-resourced.⁶ Both can prompt external audits if the lab is suspected of manipulating codes to increase reimbursement or avoid claim denials.
• Unbundling. Test panels with a single code must be billed using this code. Billing each test in the panel separately artificially inflates reimbursement.⁷ Unbundling also applies when laboratories run only some of the tests in a panel to increase the rate of reimbursement.⁸
• Inappropriate modifiers. Commonly misused modifiers include Current Procedural Terminology (CPT) code modifiers 26 (for the professional component of a service), 59 (for distinct procedural services), and 91 (for laboratory tests repeated on the same day).

“Setting aside patient complaints or whistleblowers as the genesis of a lawsuit, government enforcement actions use data analytics and look for aberrant patterns of billing,” says Tangorre. “Excessively broad panels, high-frequency testing, bundling tests or performing multiple types of unrelated tests on the same date, and questions around medical necessity may lead to potential FCA investigations.” To avoid issues, Tangorre recommends that laboratories implement strong internal compliance programs for marketing, billing, and relationships—and that they conduct regular internal audits to ensure compliance and strengthen any areas of weakness.

Relationship rigor

In terms of relationships, labs may come under scrutiny for their sales and marketing, billing practices, referrals and send-outs, or any other arrangements with other laboratories, individual practitioners, or third parties. The Centers for Medicare & Medicaid Services caution against offering or receiving incentives for referrals, submitting or supporting claims the lab has not ensured are medically necessary, or forming potentially risky relationships with other providers, payers, or businesses.⁹ In particular, they warn that selecting a specific item, test, or provider based on a business relationship may fall foul of not just the FCA, but also the federal Anti-Kickback Statute,¹⁰ the Physician Self-Referral Law (Stark Law),¹¹ or even the Criminal Health Care Fraud Statute.¹²

The Healthcare Fraud Prevention Partnership also highlights several laboratory relationships of concern,⁸ including pass-through billing (in which one lab or provider pays another to perform a test, then bills for the test themselves), rural health pass-through billing (which can inflate reimbursement rates due to incentives for healthcare provision in underserved areas),¹³ and co-referral networks (in which physicians are paid to refer patients to specific laboratories or even given minority ownership of a laboratory in exchange for referring patients to other laboratories in the same network).¹⁴

Managing risk

Education is key to any lab’s mitigation efforts. Understanding where the potential for error and fraud lies allows lab professionals to identify possible problem areas, review their own activities, and take action to improve compliance and test utilization management.

The U.S. Department of Health and Human Services’ Office of Inspector General (OIG) emphasizes the importance of a strong compliance program and provides extensive guidance for laboratories aiming to strengthen their coding compliance.¹⁵ The OIG’s recommendations begin with seven elements for success:

1. Written policies and procedures. These ensure that all members of the laboratory understand their roles, duties, and expected conduct—not to mention the regulations and requirements that govern their work.
2. Compliance leadership and oversight. Labs should have a senior member or leader as compliance officer; that person should report directly to the board or CEO and also chair a cross-departmental compliance committee whose members have training in issues relevant to their area of expertise.
3. Training and education. Laboratorians should receive regular training and updates on the legal and regulatory requirements that apply to their institution, location, and scope of practice.
4. Effective lines of communication. Every member of the lab should have access to the compliance officer alongside protections such as confidentiality and nonretaliation policies.
5. Enforcement of standards. The OIG suggests a combination of incentives for compliance efforts and consequences (whether educational or punitive) for incidents of noncompliance.
6. Risk assessment and monitoring. Labs should schedule regular compliance risk assessments, internal audits for compliance, and reevaluation of existing monitoring efforts.
7. Responding to issues. If internal audits uncover instances of noncompliance that constitute a legal or regulatory violation, labs are required to self-report these and take corrective action, including repayment of any overpayments received.¹⁶ If repeated audits find no issues, labs should evaluate the effectiveness of their monitoring programs to ensure that they are able to detect any potential issues.

These elements can be modified as needed—for instance, small laboratories may have a part-time or volunteer compliance officer, whereas large networks may have a multi-person compliance department. Labs can also add or modify compliance practices as they learn from experience. The key is simply to be aware and educated about common errors, establish strong compliance policies and practices, and engage in regular review to minimize the potential for problems.

References:

1. United States Code. 31 USC Subtitle III, Chapter 37, Subchapter III: Claims against the United States government. https://uscode.house.gov/view.xhtml?path=/prelim@title31/subtitle3/chapter37/subchapter3&edition=prelim.
2. U.S. Department of Justice Office of Public Affairs. False Claims Act Settlements and Judgments Exceed $2.68 Billion in Fiscal Year 2023. February 22, 2024. https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023.
3. Phillips & Cohen LLP. Another appellate court rules in whistleblower’s favor in important medical necessity decision. Whistleblower Law Insights. April 3, 2020. https://www.phillipsandcohen.com/another-appellate-court-rules-in-whistleblowers-favor-in-important-medical-necessity-decision.
4. Healthcare Fraud Prevention Partnership. Genetic Testing Fraud, Waste, & Abuse. July 2020. https://www.cms.gov/files/document/hfpp-genetic-testing-fwa-white-paper.pdf.
5. Whistleblowers International. Upcoding — health care and Medicare fraud. https://www.whistleblowersinternational.com/types-of-fraud/healthcare/upcoding.
6. Butler W. What Is Down Coding In Medical Billing? BellMedEx. https://bellmedex.com/what-is-down-coding-in-medical-billing.
7. Aubry B. More laboratory audits: CMS looking at unbundled coding (again). Inside Angle. April 22, 2019. https://insideangle.3m.com/his/blog-post/more-laboratory-audits-cms-looking-at-unbundled-coding-again.
8. Healthcare Fraud Prevention Partnership. Examining Clinical Laboratory Services. May 2018. https://www.cms.gov/files/document/download-clinical-laboratory-services-white-paper.pdf.
9. Centers for Medicare & Medicaid Services. Medicare Fraud & Abuse: Prevent, Detect, Report. Medicare Learning Network. January 2021. https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/Fraud-Abuse-MLN4649244.pdf.
10. United States Code. 42 USC 1320a-7b: Criminal penalties for acts involving Federal health care programs. https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1320a-7b&num=0&edition=prelim.
11. United States Code. 42 USC 1395nn: Limitation on certain physician referrals. https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1395nn&num=0&edition=prelim.
12. United States Code. 18 USC 1347: Health care fraud. https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title18-section1347&num=0&edition=prelim.
13. Herrick D. ‘Pass-Through Billing’ Health Care Scams. The Goodman Institute Health Blog. April 21, 2023. https://www.goodmanhealthblog.org/pass-through-billing-health-care-scams.
14. Husten L. The Wild West of New Laboratory Scams. CardioBrief. July 11, 2016. https://www.cardiobrief.org/2016/07/11/the-wild-west-of-new-laboratory-scams.
15. U.S. Department of Health and Human Services Office of Inspector General. General Compliance Program Guidance. November 2023. https://oig.hhs.gov/compliance/general-compliance-program-guidance.
16. Chen ZX et al. Recommendations to protect patients and health care practices from Medicare and Medicaid fraud. J Am Pharm Assoc (2003). 2020;60(6):e60–e65. doi:10.1016/j.japh.2020.05.011.