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Keep close eye on payments to physicians

Recent legal developments should give laboratories new cause to tightly monitor efforts to win physician referrals, attorney Jane Pine Wood said at last month’s Executive War College meeting.

In April, the federal government reached a settlement with cardiovascular-disease testing labs Health Diagnostic Laboratory and Singulex to resolve allegations that they violated the False Claims Act by paying doctors in exchange for patient referrals. The U.S. Justice Department also alleged the companies billed Medicare and Medicaid for medically unnecessary testing. HDL agreed to pay $47 million to settle the matter, while Singulex will pay $1.5 million.

According to the Justice Department, HDL, Singulex, and another company paid doctors between $10 and $17 in processing and handling fees for each blood test. They also routinely waived patient copays and deductibles.

“These lawsuits didn’t go to court, so we don’t know if these actions would have been held to be a violation of the antikickback law,” Wood said. Nonetheless, she added, earlier advisories from the Office of the Inspector General specify that payments to physician offices for blood collection are subject to scrutiny if they exceed what Medicare pays for phlebotomy services.

“Even if you only pay the $3.50 that Medicare pays for phlebotomy to a physician office, it should be pursuant to a written agreement that meets all the Stark requirements,” Wood said. “There should be a term of one year describing the services and providing fixed, fair-market compensation.”

Earlier cases that were resolved in court shed light on the white lines of the law in this area. Wood, an attorney at the McDonald Hopkins law firm, said laboratory owners, sales representatives, and even physicians are serving criminal prison sentences for actions related to illegal inducements disguised as handling fees.

“The real difference from the past is physicians being prosecuted for accepting these payments and handling fees. If you have a physician doing a blood draw for you, I can get a comfort level with paying the physician the Medicare fee to do the draw for you, assuming that there are not other viable options for the draw. However, the Medicare draw is not much. It might not be enough to get the physician to want to do it,” she said.

“But remember the physician also is at risk, so if you start to go above the Medicare fee, you start to go higher on the risk scale. If you’re paying more than that and paying the physician some type of handling fee, at that point you should start asking, ‘Is this something we really need?’… You might be able to justify the payment, but you should recognize those payments will come under extraordinary scrutiny.”

If laboratories are going to pay referring physician offices for specimen collection and handling, it should be justified with great detail in writing.

“Do something like a time-and-motion study, where you go through a mockup and say here’s how much time it would typically take to do this, and note the salary level of the person doing the work,” Wood said. “I can understand reimbursing a physician for the time spent, but giving the physician a profit motive [to order tests] could get you into trouble.”

Another area where laboratories must tread carefully is in paying physicians to participate in studies or patient registries, Wood said.

“This is a question I get, not infrequently. A laboratory explains that the sales team would like to put together a study to offer to physicians. Well, a study needs to have a legitimate business purpose for your laboratory services other than gaining referrals,” she said. “I’m not sure, for most sales departments, how they would be tied to your R&D, for example. If R&D comes and says they want a study to help refine an existing test, that’s one thing. But if it’s something that comes in from sales, look at it with a skeptical eye.”

Three elements should be in place before approving payment to physicians for study participation, Wood advised. First, identify a legitimate need for the study, such as to correlate patient outcomes with a surgical intervention. Second, offer fair-market value payment based on time-and-motion studies orother objective measures of the expenses for which the physician practice is being reimbursed. Third, the results of the study must be used.

“This is a problematic area,” she said. “I am aware of studies that have been ongoing for quite some time, and no one is talking about how to use the results. They don’t even have interim use of the data.… If a study goes on indefinitely, it has the flavor of being a way to generate referrals over time.”

The study, Wood advised, should have a specified end date and goal to collect a certain number of samples or data points over a given period. Referring doctors can be the source of legally questionable compensation arrangements.

“Be very, very wary of physicians who will offer to send you work if you can have them participate in a study,” she said, noting that they may be willing to order tests without properly documenting the reason for those orders.

More generally, Wood said, laboratories must keep a close watch on the sales and marketing efforts undertaken on their behalf, whether by in-house staff, independent contractors, or marketing agencies. One element of the federal government’s settlement with HDL and Singulex is that there be unannounced ride-alongs with sales staff. Laboratories should implement a similar approach in-house.

“Go visit some accounts with sales reps,” Wood said. “Just saying you want to do a ride-along and visit clients can highlight problems. If the sales rep says, ‘Great! Come along. I’m sure the doctor wants to meet the owner of the lab,’ then you’re probably in good shape. If the salesperson balks and tries to put you off, they may be trying to hide something.” —Kevin B. O’Reilly

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