OIG Report: Questionable Billing for Medicare Part B Clinical Laboratory Services

Perhaps not coincidentally, immediately following the release of the Questionable Laboratory Payments Special Fraud Alert by the OIG, posted yesterday on the Med Law Blog, the OIG has followed up with Audit Report OIG – 03-11-00730: Questionable Billing for Medicare Part B Clinical Laboratory Services. Below are two quoted paragraphs from the executive summary stating the findings and recommendations of the OIG.

In 2010, over 1,000 labs exceeded the thresholds (i.e., had unusually high billing) for 5 or more measures of questionable billing for Medicare lab services. For example, a lab might have an unusually high percentage of claims with ineligible and/or invalid ordering-physician numbers, or an unusually high allowed amount per ordering physician. Almost half of the labs that exceeded the thresholds for five or more measures of questionable billing – compared to 13 percent of all labs – were located in California and Florida, areas known to be vulnerable to Medicare fraud. Some labs that exceeded the thresholds for fewer than five measures also exhibited billing that may warrant further review. Medicare allowed $1.7 billion across all labs for claims associated with questionable billing.

There may be some labs that have legitimate reasons for exceeding certain thresholds. However, collectively, these findings call for stronger oversight of labs and identify specific issues with Medicare payments for lab services that need to be addressed to more effectively safeguard Medicare. Therefore, we recommend that the Centers for Medicare and Medicaid Services (CMS) (1) review the labs identified as having questionable billing and take appropriate action, (2) review existing program integrity strategies to determine whether these strategies are effectively identifying program vulnerabilities associated with lab services, and (3) ensure that existing edits prevent claims with invalid and ineligible ordering-physician numbers from being paid. CMS concurred with all recommendations.

Anti-Kickback Laboratory Enforcement Actions – Special Fraud Alert

There has been significantly enhanced scrutiny of financial relationships between referring physicians by both the Office of Inspector General (OIG) and Pennsylvania authorities.


Pennsylvania enacted amendments to the Pennsylvania Clinical Laboratory Act on December 18, 2013 (the amendments are referred to as Act 122) and the Department of Health and Bureau of Laboratories just issued additional guidance on May 28, 2014 in the form of a Letter and Frequently Asked Questions.

Under Act 122 it is generally unlawful for clinical laboratories to:

  • Pay or receive a commission, bonus, kickback or rebate or engage in a split-fee arrangement in any form with a health care provider/practitioner.
  • Lease or rent space, shelves or equipment or other services within a health care provider’s/practitioner’s office. This includes leasing or renting space for the purpose of establishing a specimen collection station.
  • Directly or indirectly provide personnel to perform functions or duties within a health care provider’s/practitioner’s office for any purpose regardless of whether fair market value is offered or given.
  • Permit the placement of paid or unpaid personnel to perform services (e.g., specimen collection, processing, packaging or handling or genetic counseling) in a health care provider’s/practitioner’s office.


Act 122 also contains three enumerated exceptions to these prohibitions:

  1. A health care provider/practitioner that owns and operates its own clinical laboratory may place its employees in the clinical laboratory.
  2. A clinical laboratory licensed by the Department can refer specimens to another clinical laboratory licensed by the Department or to a CLIA-accredited or certified clinical laboratory.
  3. Clinical laboratories are allowed to own or invest in a building in which space is leased or rented for adequate and fair consideration to health care providers/practitioners.

Federal Enforcement

On June 25, 2014 the Office of Inspector General issued a “Special Fraud Alert: Laboratory Payments to Referring Physicians”.

The OIG has been monitoring physician and laboratory relationships since issuing a Special Fraud Alert on arrangements for the provision of clinical laboratory services in 1994. This new fraud alert addresses two areas:

  1. Blood-specimen collection, processing and packaging arrangements; and
  2. Registry payments.

Specimen Processing Arrangements

The OIG states that characteristics of a questionable specimen processing arrangement may be evidence of unlawful purpose include but are not limited to the following:

  • Payment exceeds fair market value for services 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.
  • Payment is made directly to the ordering physician rather than to the ordering physician’s group practice, which may bear the cost of collecting and processing the specimen.
  • 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 referrals.
  • Payment is offered on the condition that the physician order either a specified volume or type of tests or test panel, especially if the panel includes duplicative tests (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information), or tests that otherwise are not reasonable and necessary or reimbursable.
  • Payment is made to the physician or the physician’s group practice, despite the fact that the specimen processing is actually being performed by a phlebotomist placed in the physician’s office by the laboratory or a third party.

Registry Payments

The OIG has become of arrangements under which clinical laboratories are establishing, coordinating or maintaining databases and paying physicians to collect this information under the alleged guise of research and categorizing these payments as “registry arrangements”.

Characteristics of the registry agreement may be evidence of such unlawful purpose include, but are not limited to the following:

  • The laboratory requires, encourages, or recommends that physicians who enter into Registry Arrangements perform the tests with a stated frequency (e.g., four times per year) to be eligible to receive, or to not receive a reduction in, compensation.
  • The laboratory collects comparative data for the Registry from, and bills for, multiple tests that may be duplicative (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or that otherwise are not reasonable and necessary.
  • Compensation paid to physicians pursuant to Registry Arrangements is no a per-patient or other basis that takes into account the value or volume of referrals.
  • Compensation paid to physicians pursuant to Registry Arrangements is not fair market value for the physicians’ efforts in collecting and reporting patient data.
  • Compensation paid to the physicians pursuant to Registry Arrangements is not supported by documentation, submitted by the physicians in a timely manner, memorializing the physicians’ efforts.
  • The laboratory offers Registry Arrangements only for tests (or disease states associated with tests) for which is has obtained patents or that it exclusively performs.
  • When a test is performed by multiple laboratories, the laboratory collects data only from the tests it performs.
  • The tests associated with the Registry Arrangement are presented on the offering laboratory’s requisition in a manner that makes it more difficult for the ordering physician to make an independent medical necessity decision with regard to each test for which the laboratory will bill (e.g., disease-related panels).

AMA Issues New Telemedicine Policy

Last week, the American Medical Association (AMA) issued a new report regarding coverage of and payment for telemedicine (CMS Report 7-A-14). The report recognizes the telemedicine is a “key innovation in support of health bill reform, being used in initiatives to improve access to care, care coordination and quality, as well as reduce the rate of growth and healthcare spending”.

Given the pace of healthcare reform, it is slighting ironic that the AMA uses, as background for it’s new report, a report issued in 1996 by the Institute of Medicine (IOM) entitled “Telemedicine: A Guide to Assessing Telecommunications for Healthcare”.

The AMA report addresses the three major issues for telemedicine:

  1. Technology;
  2. Reimbursement coverage; and
  3. Licensing and the establishment of an appropriate physician-patient relationship.


The report states that there are now three broad categories of telemedicine technology:

  • Store and forward (asynchronous)
  • Remote monitoring
  • Interactive or synchronous (real-time) services

The report does not approve or disapprove the efficacy of any technology. I believe it is appropriate that the AMA leave the issue of appropriate technology to the States and to commercial and government insurers regarding reimbursement policies. However, I also think it is important that the AMA has acknowledged that telemedicine can be delivered in more ways than simply real time interactions.


The report summarizes the existing reimbursement options or programs and provides examples of reimbursement policies by various insurers. Those summaries are available in the report.

Licensing and Physician-Patient Relationship

The AMA, correctly, acknowledges that licensing should be an issue for the respective medical boards of the states and territories and imposes a single national federalized system of medical licensure.

The AMA states that “a valid patient-physician relationship must be established before the provision of telemedicine services” through:

  • A face-to-face examination “if a face-to-face encounter would otherwise be required in the provision of the same services not delivered via telemedicine”;
  • A consultation with another physician who has an ongoing physician-patient relationship;
  • Meeting standards of establishing a physician-patient relationship is part of evidence based clinical practice guidelines developed by major medical specialties.

I believe the AMA therefore supports the fact that a face-to-face consultation or patient encounter is not a prerequisite for providing telemedicine services in situations in which the relevant standard of care does not necessarily require an actual physical visit. The AMA recognizes that appropriate specialty societies could establish standards of care for the delivery of telemedicine.

Ohio Court Reiterates Peer Review Privilege Applies Only to Formal Peer Review Actions

A Hospital in Ohio tried to prevent access to a patient incident report on the basis of Peer Review Privilege.  The Hospital claimed that, since the incident report was reviewed by the Hospital Peer Review Committee, the report was then privileged. 

In Ridenour v. Glenbeigh Hospital, the Ohio Appellate Court stated that the Ohio Peer Review privilege applied,

only to documents specifically generated by or for a peer review committee

The moral of the story is that you cannot protect other documents created outside of the peer review process simply by inserting them into the peer review process.

New CMS Rules Reduce Role of Medical Staff

The American Health Lawyers Association Regulatory Accreditation and Payment Practice Group (RAPPG) has issued an email alert regarding the issuance of a final rule by CMS intending to streamline Medicare regulatory requirements.  Two aspects of that rule which are a great concern to physicians are:

  • Allowing hospital systems with more than one hospital to use a single medical staff provided the medical staffs of each hospital vote to approve the structure, and
  • The leading their proposal that there be a physician member of the medical staff based upon complications with regulatory requirements of non-profit and government owned hospitals.

Below are quoted portions of the AHLA email alert regarding those two issues, as follows:

  • Hospital medical staff-related changes:  reinterpreting 42 C.F.R. Section 482.22 to permit either a unique medical staff for each hospital or a unified and integrated medical staff shared by multiple hospitals within the same system.  In the case of the latter, each hospital must demonstrate that it actively addresses its use of a system unified and integrated medical staff model by a vote of the medical staff of each hospital to participate in such model and the unified staff adopting integrated policies and procedures (including advising medical staff of the ability of members to opt out), among other requirements.

The Final Rule also clarifies that, subject to state law requirements and governing body discretion, hospitals have the option to appoint other categories of physicians (as set out at Section 482.12(c)) and non-physician practitioners to their medical staff.  It also permits hospitals to grant limited privileges to registered dietitians and qualified nutritionists to order patient diets directly.

Additionally, the Final Rule permits non-staff practitioners to order hospital outpatient services for their patients when authorized by the medical staff and as permitted by state law;

  • Medical staff participation on hospital governing board: eliminating the requirement that a member of the medical staff sit on the hospital governing board.  Instead, the governing board is only required to consult periodically throughout the year with the individual responsible for the organized medical staff of the hospital, or his or her designee.  For multi-hospital systems using a single governing body to oversee multiple hospitals within its system, this provision requires the single governing body to consult directly with the individual responsible for the organized medical staff (or his or her designee) of each hospital within its system

I believe this is further diminution of physicians impact on the operation of the medical staff.  I would suggest it would have been just as easy to require physician membership except when prohibited by non-profit or government regulations.  That physician membership requirement has been replaced by a requirement to “consult” with appropriate medical staff representatives.

I have attached the following:

  1. A link to the entire regulation;
  2. A scan of the actual regulations dealing with the composition of the governing body and the single medical staff; and
  3. The CMS discussion of both.

CMS Cancels ICD-10 Testing

The MLN Connects™ Provider eNews contains important news, announcements, and updates for health care professionals.


Friday May 2, 2014



ICD-10 Compliance Date

On April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. No. 113-93) was enacted, which said that the Secretary may not adopt ICD-10 prior to October 1, 2015. Accordingly, the U.S. Department of Health and Human Services expects to release an interim final rule in the near future that will include a new compliance date that would require the use of ICD-10 beginning October 1, 2015. The rule will also require HIPAA covered entities to continue to use ICD-9-CM through September 30, 2015.

July ICD-10 End-to-End Testing Canceled: Additional Testing Planned for 2015

CMS planned to conduct ICD-10 testing during the week of July 21 through 25, 2014, to give a sample group of providers the opportunity to participate in end-to-end testing with Medicare Administrative Contractors (MACs) and the Common Electronic Data Interchange (CEDI) contractor. The July testing has been canceled due to the ICD-10 implementation delay. Additional opportunities for end-to-end testing will be available in 2015.



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Previous issues are available in the archive.

Physical Therapy Provider Enters into HIPAA Settlement

U.S. Department of Health and Human Services Office for Civil Rights (OCR) recently announced yet another enforcement action.  Specifically, OCR opened a compliance review of Concentra Health Services (Concentra) upon receiving a report that an unencrypted laptop was stolen from the Springfield Missouri Physical Therapy Center.  The investigation revealed that Concentra had previously recognized in multiple risk analyses that critical risks existed.  While steps were taken to address the risks, OCR found the efforts to be incomplete and inconsistent. OCR’s investigation further found insufficient security management processes to safeguard patient information. Concentra has agreed to pay OCR $1,725,220 to settle potential violations and will adopt a corrective action plan to evidence their remediation of these findings.

Medical Staff Application Release Bars Physician Credentialing Claim

In Copeland v. MidMichigan Regional Medical Center, a Michigan State Appellate Court affirmed a trial court’s grant of summary judgment in favor of the Hospital, based upon both HCQIA immunity and a general release signed by the physician as part of the initial medical staff application process. 

These releases are almost universally included in the medical staff application and renewal documents.  However, there may be a basis for challenging the validity of these releases, i.e.,

  1. Contracts of adhesion;
  2. State hospital licensing regulations mandating open medical staffs or baring certain restrictions; or
  3. IRS non profit regulations requiring open medical staffs, although threatening to challenge the tax exempt status of the hospital is unlikely to provide much leverage or little basis for injunctive relief.

Of course, the hospital’s response will certainly be that the medical staff is open as long as everybody signs the required release.  The issue will be whether a local court agrees with that interpretation.  Furthermore, in some circumstances, this issue might also ignite further discussion on the antitrust principal of the essential facilities doctrine.