CE Update

Clinical Laboratory Compliance: Something Old, Something New

Melissa Scott, BS, CHC, CPC, Dinh Nguyen, MT(ASCP), CHC (Sinaiko Healthcare Consulting, Los Angeles, CA)
DOI: 10.1309/LM6EXL41OZEVFDXJ

Abstract
The health care industry has relied on electronic technologies to manage the vast amount of information generated in most clinical laboratories and to submit claims to payors. While highly efficient and reliable, such systems must be carefully monitored to ensure the accurate flow of critical information throughout the preanalytical, analytical and

post-analytical phases of laboratory operations. Many billing errors, such as duplicate billing, often stem from a failure to validate the software prior to installation and to monitor continued accuracy through software upgrades/ revisions/customizations post-installation. Other billing errors may result from undetected failures in the interfaces between accessioning modules at the front end, the analytical

equipment, and the billing system at the back end. While laboratory compliance programs have matured and evolved since 1998, ongoing scrutiny and new regulations make it essential for such programs to be reviewed in the new context and in light of many recently issued advisory opinions and work plans from the OIG.

After reading this article, readers should be able to discuss laboratory billing compliance, be familiar with practices that are not compliant, and have an understanding of safeguards to mitigate potential risk.

Compliance exam 110901 question and answer form is located after this CE Update on page 436.

Clinical laboratories were the first health care entities to come under regulatory scrutiny by the Office of the Inspector General (OIG) as far back as 1992. The OIG had embarked on Project Lab Scam to investigate fraudulent billing practices by clinical laboratories. As a result, Laboratory Corporation of America (LabCorp) was fined and paid $187 million to resolve civil penalties under the False Claim Act (FCA) for allegedly submitting claims for medically unnecessary tests. Also, in 1996, Damon Clinical Laboratories entered into a settlement agreement of $119 million with the Department of Justice (DOJ) in civil and criminal penalties for allegedly submitting false claims to the Medicare and Medicaid programs. The largest settlement of $325 million was paid by SmithKline Beecham Clinical Laboratories for similar allegations of violations involving the Medicare, Medicaid, CHAMPUS, and Railroad Retirement Board health care programs. All told, the OIG reported more than $820 million in recoveries from clinical laboratories nationwide through Project Lab Scam. A watershed outcome of Project Lab Scam for the industry was the Compliance Program Guidance for Clinical Laboratories, one of the first such guidance issued by the OIG in 1998. It should be noted that OIG compliance program guidances are not requirements; rather, they should be viewed as recommendations for best practices. The OIG makes it clear, however, that laboratories should have a compliance program in place. Compliance is to the business side of laboratories what the Clinical Laboratory Improvement Amendments (CLIA) of 1988 is to the analytical and regulatory side. Compliance is all about money and doing the right thing: Pay the right amount to the right provider for the right beneficiary for the right reason for the right test. While this article is an introduction to compliance and its complexities as it relates to laboratories, ideally, laboratories have compliance officers who educate staff relative to the ropes to know and the ropes to skip. A glossary of acronyms can be found in this article for those who are less familiar with the concepts presented. Special fraud alerts were the forerunner of all the compliance program guidances that followed. The alerts covered 13 areas of practice. Since the issuance of the OIGs guidance, fraudulent billing practices by clinical laboratories have 428
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remained an area of concern and scrutiny in nearly every annual work plan released since 2000. As a result, almost all clinical laboratories, whether independent or hospital-based, have adopted and implemented compliance programs to address the obligations and risk areas outlined in the 1998 guidance. Given the maturity of these compliance programs, it would not be unexpected for the clinical laboratory industry to become somewhat complacent about compliance as it enters into a new era of joint ventures, mergers and acquisitions, and research and development to leverage molecular diagnostic technologies. Yet, constant vigilance by the industry remains an expectation by regulatory agencies while new risk areas emerge from ongoing scrutiny and new rules and regulations. In fact, the 2009 OIG work plan reiterated its intent to scrutinize laboratory billing practices. The 1998 OIG guidance document emphasized that each laboratory organization should develop and implement its own compliance plan that addresses unique compliance obligations as well as operational complexities. At a minimum, each plan must include the 7 essential elements described in the original OIG guidance and rely on written standards of conduct, policies and procedures, and education to instill a culture of compliance and ethics organization-wide. As a reminder, the 7 essential elements include: A Code of Conduct as well as standard operating procedures designed to provide direction and guidance to every member of the work force in adhering to laboratory-wide principles of compliance and ethics in day-to-day activities; A Compliance Officer and Compliance Committee with defined charter, composition, role, and responsibilities; Effective staff training and education on a regular basis, including as a part of new hire orientation programs; Assuring an effective line of communications, including a confidential hotline available to all work force members; Implementing effective disciplinary processes to assure adherence to applicable rules and regulations and documented actions in response to demonstrated violations; Regular auditing and monitoring practices; and Establishing protocols for prompt responses to detected violations and effective remediation.
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CE Update Although never adopted as a final rule, an eighth element defining roles and responsibilities and assigning oversight responsibility was added in the Draft OIG Guidance for Recipients of Public Health Service Awards in November of 2005. Clinical laboratories have been penalized for engaging in claim submission and billing practices that are not compliant with applicable rules and regulations of the Centers for Medicare & Medicaid Services (CMS). Some examples of inappropriate practices that have resulted in administrative or civil monetary penalties include seeking reimbursement for tests not performed, tests performed but not ordered, tests ordered by a nonauthorized individual, tests already reimbursed in another claim or by another payor, and test results obtained by calculation only. Additionally, penalties have been assessed for adding non-ordered tests to automated organ or disease-oriented panels approved by the American Medical Association (AMA), substituting tests with higher reimbursement for those actually ordered, modifying test orders without the expressed consent of the requesting physician or other authorized individual, offering customized automated profiles that are not medically necessary or specifically requested by a physician, offering reflexive testing that is not medically necessary or requested, and inaccurate/inappropriate selection and reporting of diagnosis (ICD-9) and procedure (CPT) codes. While there are clearly many areas of risk associated with laboratory billing practices, there are also a number of safeguards a laboratory may implement in order to mitigate potential risk. A vast number of coding and billing resources are available to assist laboratories. These include the AMA CPT Assistant, CAP CPT coding Q&A, CodeCorrect, CodeMap, Dennis Padgets Pathology Service Coding Handbook, and Flash Code. Sales and marketing staff typically serve as the first and ongoing point of contact between the laboratory organizations and the physician community. While recruiting staff with a combined expertise in marketing and laboratory science may be a challenge for some organizations, it remains their obligation to ensure sales and marketing staff are thoroughly familiar with the applicable rules and regulations affecting the industry. In turn, sales and marketing staff are expected to educate the physician community about compliance obligations and the applicable rules and regulations. For example, discount pricing strategies must be structured in such a way to avoid the perception that such discounts are exclusively volume-based or payorbased. Similarly, the OIG frowns upon strategies designed to influence the decision making process of the requesting physicians in an effort to optimize laboratory reimbursement. Practices such as the creation of customized, non-AMA approved test panels that encourage overutilization or offering analytes in groupings but not making them available to be ordered individually on a test requisition should be discouraged. Laboratory requisitions should be designed to assist the ordering physician in selecting only medically necessary tests and should clearly disclose the composition or any panels or profiles. Laboratories that choose to offer customized panels are obligated to inform providers of the panels individual test components and CPT codes used to bill Medicare on an annual basis. As a best practice, the laboratory should exercise due diligence to obtain signed acknowledgment of these annual notices from providers who utilize customized panels to ensure compliance and minimize the potential for regulatory exposure.
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The OIG continues to scrutinize marketing practices designed to recruit Medicare beneficiaries through gifts and other inducements to have unnecessary tests performed for which reimbursement is subsequently sought from the program. A similar level of scrutiny by the OIG has focused on arrangements between laboratory organizations and physicians intended to promote increased utilization of specific laboratory services for beneficiaries of federally-funded health care programs. One example may involve providing services and supplies in a physician office that are not used for the sole purpose of test ordering, specimen collection, and result reporting. Another example would be direct or indirect remuneration to physicians who refer program beneficiaries to a laboratory organization in return for discount pricing on services rendered to non-program beneficiaries. A third example would be to bill the ordering physician at a significant (below cost) discount and allowing the ordering physician to seek higher reimbursement directly from Medicare and Medicaid. Federally-funded health care programs such as Medicare and Medicaid do not intend to restrict physicians from ordering laboratory tests they believe are appropriate for their patients conditions. However, these programs will only pay for tests that are covered, reasonable, and necessary. Laboratories that perform tests not meeting coverage determinations should ensure Advanced Beneficiary Notice (ABN) forms are properly executed when appropriate, according to National Coverage Determinations (NCDs), or in the absence thereof, Local Coverage Determinations (LCDs). ABNs are designed to allow the beneficiary the option of declining the tests as ordered or to assume financial responsibility for them. Failure to execute an ABN with the patient and providing tests at no charge may expose the laboratory to potential regulatory and financial liability. The industry has increasingly relied on electronic technologies to manage the vast amount of information generated in most clinical laboratories and to submit claims to payors. While highly efficient and reliable, such systems must be carefully monitored to ensure the accurate flow of critical information throughout the preanalytical, analytical and postanalytical phases of laboratory operations. Many billing errors such as duplicate billing often stem from a failure to validate the software prior to installation and to monitor continued accuracy through software upgrades/revisions/customizations post-installation. Other billing errors may result from undetected failures in the interfaces between accessioning modules at the front end, the analytical equipment, and the billing system at the back end. Taking the time to ensure information remains accurate from the point of order, to testing, to reporting, to claim submission is critical, especially when reliance is on multiple systems working together to produce a clean claim.

Something New Since the inception of the program guidance, CMS and the OIG have continued to scrutinize the laboratory industry in the wake of focused audits, new rules and regulations, retrospective reviews of paid claims, and special investigations in selected geographical markets. Another important guidance was jointly issued by the OIG and the American Health Lawyers Association (AHLA) in 2004. This collaborative effort defined and emphasized the
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CE Update fiduciary and ethical obligations of the governing boards for health care organizations, including those in the nonprofit sector. Subsequently, revisions to the U.S. Sentencing Guidelines reintroduced the concept of corporate governance in the context of compliance and strongly encouraged the governing boards of health care systems to be knowledgeable about and provide vigilant oversight of the organization-wide culture of compliance and ethics. Onerous regulatory obligations under Sarbanes-Oxley added to the compliance burden of many publicly traded health care entities in the for-profit sector. More recently, the OIG and AHLA collaborated again to produce a new guidance document articulating the responsibilities of governing boards with respect to quality of care, an essential element of the mission of the laboratory industry, upon whose services the physician community relies heavily to improve the quality of care. With the industry and technology changing faster than most can adapt, newly identified risk areas may be derived from AHLA list serves, annual work plans, advisory opinions, fraud alerts, special advisory bulletins, and program transmittals and newsletters issued by the OIG and CMS since 2004. Budgetary constraints have forced many laboratory organizations to engage in make or buy decisions regarding which tests should be performed in-house and which procedures should be referred to external laboratories. Once outsourcing decisions are made, the referring laboratory must exercise considerable due diligence in selecting external laboratories. The selected reference laboratory must be properly licensed and accredited by the appropriate federal and state regulatory agencies, such as the College of American Pathologists (CAP) and/or the Joint Commission for the Accreditation of Health Care Organizations (JCAHO), and must meet CLIA requirements to perform the referred tests. The laboratory must be enrolled as a supplier of laboratory services in federally-funded health care programs, not be debarred, delicensed, or otherwise excluded from participation in federallyfunded health care programs, and not employ staff that is debarred, delicensed, or otherwise excluded from participation in federally-funded health care programs. Exclusion status may be verified by using the OIGs List of Excluded Individuals/Entities (LEIE) that is available online. The laboratory must also demonstrate it has implemented a compliance program that is well-designed and effective in meeting regulatory obligations unique to its structure and operations and refrain from engaging in deceptive sales and marketing practices. In turn, the referring laboratory is obligated to implement internal control processes to validate the quality of the services provided by the reference laboratory and the results upon which its physicians rely for patient care and the quality of care. This includes verification that test reports clearly indicate the name and address of the performing reference laboratory, reporting the test cost and reference laboratory name, address, CLIA number, and National Provider Identifier (NPI) on the claim, use of modifier 90 on the claim to indicate the test was referred, and ensuring fees charged by the reference laboratory are passed through to Medicare and Medicaid. The referring laboratory should also be able to demonstrate that contractual or pricing arrangements negotiated with the reference laboratory do not violate permissible discounting practices and/or Anti-Kickback Statutes. While clinical laboratories are obligated to perform only tests requested by a physician or other authorized individual, 430
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Glossary of Terms
ABN Advance Beneficiary Notice AHLA American Health Lawyers Association AMA American Medical Association ASCP American Society for Clinical Pathology CAP College of American Pathologists CHC Certification in Healthcare Compliance CLIA Clinical Laboratory Improvement Amendments CMS Centers for Medicare and Medicaid Services (formerly HCFA) CPT Current Procedural Terminology DOJ Department of Justice DRA Deficit Reduction Act FCA False Claims Act FDA Food and Drug Administration FTC Federal Trade Commission HCCA Health Care Compliance Association HCPCS Healthcare common procedure coding system IVDMIA In vitro diagnostic multivariate index assay ICD-9-CM International Classification of Diseases, 9th edition, Clinical Modification IUO Investigational use only JCAHO Joint Commission on Accreditation of Healthcare Organizations LCD Local Coverage Determination LDT Laboratory developed test LEIE List of excluded individuals/entities MAC Medicare administrative contractor MIP Medicaid integrity program MUE Medically unlikely edit MUP Mark-up prohibition NCCI National Correct Coding Initiative NCD National Coverage Determination NPI National Provider Identifier OIG Office of the Inspector General PC Professional component QLC Qualification in laboratory compliance RAC Recovery audit contractor RUO Research use only TC Technical component

they must ensure the ordering practitioner has not been debarred, delicensed, or otherwise excluded from participation in federally-funded health care programs. Again, the LEIE search is a great tool to use when setting up new providers to ensure they are authorized to order laboratory tests on behalf of program beneficiaries that are reimbursable by Medicare and Medicaid. It can also be used for annual or periodic review to ensure ongoing compliance. While many may not realize this responsibility applies to clinical laboratories, clinical laboratories are obligated to do so when they are reimbursed directly by federally-funded health care programs for services provided to their beneficiaries. As a result, seeking reimbursement for tests ordered by providers who are debarred, delicensed, or otherwise excluded from participation
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CE Update in federally-funded health care programs places laboratory organizations at risk of claim denial and potential liability. Since 2003, laboratories have been required by CMS to capture and report the diagnostic information provided by the requesting physician or authorized individual in either narrative format or ICD-9 format. Diagnostic information is relied upon by CMS to determine whether the tests in question are reimbursable. Claims submitted without this critical information are always scrutinized and frequently denied, with adverse impact on laboratory reimbursement and possible regulatory exposure. This particular CMS requirement underscores the essential educational role of the sales and marketing staff. Because they serve as the point of contact between the laboratory and the physician community, they are in the ideal position to ensure the necessary diagnostic information is captured and reported in the correct ICD-9 format on the requisition form by the ordering physician or his or her staff. Placing this responsibility on laboratory staff further removed from the patient encounter with the physician adds operational complexity and regulatory liability to the laboratory. A new reimbursement challenge presented itself in the expansion of the diagnostic test Mark-Up Prohibition (MUP) Final Rule. In summary, the rule states the anti-markup payment limitation will apply in cases where a physician does not share a practice with the billing physician or other supplier, either under the substantially all services or site of service test. It should be noted that the rule does not apply to independent laboratories. If a physician who supervises the technical component (TC) or performs the professional component (PC), or both, furnishes at least 75% of his or her professional services through the billing physician or other supplier, none of the performing physicians services will be subject to the MUP payment limitation under the substantially all services requirement. Under the site of service analysis, the MUP will apply only when the TC is conducted and supervised and the PC is performed in the office of the billing physician or other supplier by a physician owner, employee, or independent contractor of the billing physician or other supplier. The office of the billing physician or other supplier is defined as any medical office space, regardless of the number of locations, in which the ordering physician regularly furnishes patient care, including space where the billing physician or other supplier furnishes diagnostic testing, if the space is located in the same building. For a physician organization, the office of the billing physician or other supplier is defined as space in which the ordering physician provides a substantial range of patient care services. Under the MUP, the Medicare payment for the TC or PC of the diagnostic test is the lower of the costs (less the applicable deductibles and coinsurance paid by or on behalf of the beneficiary) of the performing suppliers net charge to the billing physician or other supplier; billing physician or other suppliers actual charge; or fee schedule amount for the test that would be allowed if the performing supplier billed directly. The MUP further states that the net charge must be determined without regard to any charge that reflects the cost of equipment or space leased to the performing supplier by the billing physician or other supplier. Perhaps the biggest impact of the increased regulation involves pod or condo laboratories, which are located in a facility to service several physician groups. Typically, the physician groups are responsible for the overhead expenses of the pod or condo laboratory
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and purchase the testing at a predetermined flat rate. The physicians then add a markup to the purchase price and bill the insurance companies directly for the testing, in turn making a profit off the services. Such arrangements are no longer permitted. The use of recurring orders for diagnostic testing has been a long-standing practice in health care. However, there are very specific conditions under which a standing order is permissible when it is reimbursed by Medicare. Recurring or standing laboratory orders must meet all the following criteria in order to be reimbursed: (1) each ordered test must be appropriate for the known or suspected diagnosis; (2) each ordered test must be appropriate for the individual patients clinical circumstances; (3) each test performed must be necessary for the individual patients management; (4) the frequency of repeated testing must not be greater than medically necessary; (5) the number of repeated studies must not be greater than medically necessary; (6) the diagnosis must be indicated for each test with sufficient clarity to permit accurate ICD-9-CM coding to the highest level of specificity; (7) the order for the recurring test must be renewed at least annually or sooner if required by state law or the patients clinical circumstances; (8) the treating physician must review each tests result, making any indicated adjustments in frequency and number of repeated studies; and (9) the documentation must demonstrate that all laboratory tests were reviewed and appropriate clinical action taken. Routine standing orders for a population of patients who have the same or similar condition do not fall within Medicare criteria. Also not allowed are preprinted orders for use with patients undergoing a specific procedure or admission, even when such orders are specific to patients being treated by a specific practitioner. Standing orders must be medically necessary and specific to an individual patients course of treatment. With the vast array of tests available, and the seemingly limitless number of diagnosis codes, it is no wonder laboratories sometimes receive ambiguous test orders from physicians. Missing digits on ICD-9 codes, incomplete or nonspecific narrative descriptions, and use of nonstandard test abbreviations are examples of orders lacking clarity. When dealing with ambiguous test orders, a laboratory should not take action without first consulting the ordering provider for clarification. It is not appropriate for a laboratory to submit a claim for services not supported by a physician order. It is equally inappropriate for a laboratory to submit a claim with diagnosis codes not directly obtained from the ordering physician, or to infer diagnostic information from a previous order. As a best practice, laboratories should develop specific policies and procedures and deliver targeted training to staff processing test orders to minimize potential risk when faced with such ambiguity.

Going Forward In 2007, CMS added the Medically Unlikely Edit (MUE) project to the already existing National Correct Coding
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CE Update Initiative (NCCI) which is designed to improve the accuracy of Medicare payments. The intent of the MUE project is to reduce errors due to clerical entries and incorrect coding based on anatomic considerations, HCPCS/CPT code descriptors, CPT coding instructions, established CMS policies, nature of a service/procedure, nature of an analyte, nature of equipment, and unlikely clinical treatment. There are a number of scenarios in a laboratory that may trigger an MUE. For example, billing a Pap smear on a male patient or billing multiple units on the same date of service for a test requiring an extended specimen preparation period. MUEs restrict the number of units reportable on a single date of service. The edits, which are based on the unit of service reported per line item, are triggered when quantity limits are exceeded. However, there may be circumstances in which it is appropriate for a laboratory to perform the same test more than once on the same date of service for the same patient when it is necessary to obtain multiple results in the course of treatment. Standard CPT codes should be reported when available to describe a series of tests. For example, CPT 80400 should be reported to indicate 2 cortisol levels (CPT 82533 2) were performed as an ACTH stimulation panel. In the event a comprehensive CPT code does not exist, modifiers 91 and 59 may be used. Modifier 91 should be reported on a claim to indicate the same test was performed more than once on the same date of service, such as serial troponin levels. Modifier 59 should be reported on a claim to indicate the same test was performed on multiple, separate, and distinct anatomical sites, such as a throat and eye culture. It is not permissible to use modifiers when tests are repeated for result confirmation, due to specimen or testing problems, or for any other reason when a single reportable result is all that is required. Molecular and genomic testing offer great potential in the future of medicine and there is every indication that explosive growth in these areas will continue for many years to come. Physicians often rely on laboratory professionals and pathologists to help them understand the complexities of these diagnostic advances as they integrate them into their patient care plans. One significant implication of such rapid evolution in the laboratory industry is many payors have lagged behind diagnostic development in approving reimbursement for a wide range of molecular diagnostic and genomic tests. CPT code assignment can even become difficult as technologies are introduced faster than the AMA can assign new codes. Many marker studies are considered to be screening tests to help physicians predict the probability of disease occurrence based on a variety of clinical and genetic conditions. Typically, screening tests are not reimbursable under the strict definition of medical necessity. Resolution of these reimbursement challenges may involve a combination of executing ABNs when necessary or perhaps seeking approval from the medical directors of each payor or local Medicare Administrative Contractor (MAC) for reimbursement on the basis of clinical indications, family history, genetic predisposition, and medical necessity. Often referred to as home brew reagent systems, laboratory developed testing (LDT) has been the subject of considerable debate and scrutiny. LDT has been defined as tests developed by a single clinical laboratory for use only in that laboratory, under strictly defined circumstances approved by the medical director of the laboratory. Subject to applicable CLIA requirements for analytical and clinical validation, the 432
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FDA has generally exercised enforcement discretion over LDT that uses primarily analyte-specific reagents, general-purpose reagents, general-purpose laboratory equipment, other laboratory instrumentation, and controls. More recently, a new breed of LDT has come into existence as In Vitro Diagnostic Multivariate Index Assays (IVDMIAs). Based on observed correlations between multivariate data and clinical outcome, the FDA does not feel IVDMIAs provide clear, transparent results that can be independently derived or verified by patients, laboratorians, or the treating clinician. Rather than relying on generally accepted information from the clinical community, the clinician requires information from the test developer in order to interpret the result in patient management. Due to the high-risk nature and complex medical decision making associated with IVDMIAs, the FDA issued a Draft Guidance for Industry, Clinical Laboratories, and FDA Staff on July 26, 2007. The guidance recommends IVDMIAs should meet FDA pre- and post-market device requirements. For laboratories that introduce test systems not subject to FDA clearance or approval, or that modify FDA-approved test systems, CLIA requirements stipulate each test system must meet the following performance characteristics: 1) accuracy; 2) precision; 3) analytical sensitivity; 4) analytical specificity; 5) reportable range of test results for the test system; 6) reference intervals; and 7) any other performance characteristic required for test performance. Laboratories that perform unmodified, FDA-approved test systems are required to demonstrate only that they can obtain accuracy, precision, and reportable ranges consistent with those established by the manufacturer and to verify manufacturers reference intervals are appropriate for the laboratorys patient population. Laboratory tests designated for research use only (RUO) or investigational use only (IUO) have not yet been approved for diagnostic use and therefore fall outside CLIA requirements. Hence, RUOs and IUOs are not eligible for reimbursement by CMS as well as most nongovernmental payors. Billing for laboratory tests not regulated by CLIA could potentially be viewed as submission of a false claim. As a result, laboratories should exercise caution and introduce system edits to preclude the submission of claims for RUO or IUO tests. All Medicare reimbursed laboratory tests are subject to the direct billing requirement, meaning tests must be billed directly to Medicare by the laboratory or physician performing the test. If an outside laboratory performs a test on a referral, the reference laboratory may legally bill for the test. The only exemption to the direct billing rule comes when the referring hospital or laboratory meets one of the following conditions: (1) the referring laboratory is located in, or is part of, a rural hospital; (2) the referring laboratory is wholly owned by the entity performing such test, the referring laboratory wholly owns the entity performing such test, or both the referring laboratory and the entity performing such test are whollyowned by a third entity; or (3) the referring laboratory does not refer more than 30% of the clinical laboratory tests for which it receives requests for testing during the year (not counting referrals made under the wholly owned condition described above). Only when one of these conditions are met may a referring entity bill for clinical laboratory diagnostic tests based on the clinical laboratory fee schedule for Medicare beneficiaries
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CE Update performed by a reference laboratory. Laboratories must also accept assignment when billing Medicare for their services, meaning the laboratory must accept the Medicare reimbursement as payment in full for any covered laboratory test. It is not permissible to balance-bill Medicare patients for any additional amounts. In addition to Medicare and other federally funded health care programs, laboratories often seek reimbursement from nongovernmental payors such as other health insurers, other health care providers, physicians, and even patients. Since laboratory fee schedules rarely have an impact on payments, their importance is often overlooked. This can be a significant area of compliance concern. California Attorney General Edmund G. Brown, Jr., recently filed suit against seven independent laboratories related to overcharging the states Medi-Cal program. Laboratories should take care to ensure pricing is never set below cost, particularly when it comes to panels and profiles. Setting different fee schedules for different payors could be perceived as discrimination by payor category. Offering a lower cost to one payor and not extending the same rate to Medicare or another federally funded health care program may expose the laboratory to potential sanctions for violation of the Anti-Kickback Statute. A laboratory may choose to offer self-pay patients a discount from its published fee schedule. This should only be done through a documented Charity Care Policy that predefines the criteria for eligibility and discount methodology. A Charity Care Policy should be applied uniformly to all applicants and should not vary on a case-by-case basis. Discounts for Charity Care should be reported as a writeoff and should be periodically audited in the accounting system to ensure compliance with policy guidelines. The Federal Trade Commission (FTC) may have delayed enforcement of the Red Flags Rule until May 1, 2009, but the compliance deadline for covered entities remained as was previously set forth on November 1, 2008. The Red Flags Rule applies to any creditor that maintains any covered accounts. Any laboratory, whether for-profit or nonprofit, that extends credit or defers payment by not requiring payment in full at the time of service is considered a creditor under the Red Flags Rule. Since most laboratories do not know patient liability at the time of service, and hence do not collect deductibles, coinsurance, and copayment amounts, many will meet FTC criteria as a creditor. There are two types of covered accounts. One is an account used mostly for personal, family, or household purposes that involves multiple payments or transactions, including continuing relationships with consumers for the provision of medical services. The other is one for which there is a foreseeable risk of identity theft, where consideration is given to the risks associated with how the accounts may be opened or accessed and the type of interaction and documentation required. In order to comply, laboratories subject to the Red Flags Rule should develop a written policy and procedure designed to identify relevant red flags, detect red flags, and prevent and mitigate identity theft. FTC guidelines also require laboratories to update their Red Flag Program periodically, and the program clearly indicates how it will be administered. The program should be appropriate to the size and complexity of the organization, as well as the nature of the operations. The program should be approved by the Board or Senior Employee, and appropriate staff training should ensue. Failure to comply may result in civil monetary penalties and vulnerability to private law suits.
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What once was a three-state demonstration program is now permanent and will be expanded to all 50 states no later than 2010 under Section 302 of the Tax Relief and Health Care Act of 2006. The Recovery Audit Contractor (RAC) program has provided Medicare with a new mechanism for retrospectively detecting improper payments and preventing future payments, refunding inappropriate overpayments to the Medicare Trust Funds, and identifying monies that need to be returned to providers. The demonstration program, which looked at Medicare payments in six states between 2005 and 2008, resulted in over $900 million in overpayments being returned to the Medicare Trust Fund and nearly $38 million in underpayments returned to health care providers.Overpayments can occur when laboratories submit claims that do not meet Medicares coding or medical necessity policies. Underpayments can occur when laboratories submit claims for a simple procedure but the medical record reveals a more complicated procedure was actually performed. A major implication of the Deficit Reduction Act (DRA) is the requirement as a condition of participation that any health care provider, including laboratories, receiving at least $5 million annually in Medicaid payments, design and distribute written policies and procedures to educate employees about health care fraud laws, the providers processes for preventing and detecting fraud, waste and abuse, and the rights of employees to act as relators or whistleblowers. The policies and procedures should provide detailed information related to the False Claims Act, federal administrative remedies for false claim submission and statements, state laws pertaining to civil and criminal penalties for submitting false claims, and the protection for whistleblowers created under these laws. In addition to explaining the role of federal and state laws in preventing and detecting fraud, waste, and abuse, they should include a detailed explanation of the providers own policies and procedures for detecting and preventing waste, fraud, and abuse. Employee handbooks should be revised to include specifics on each of the required elements, and compliance programs should be reviewed to ensure DRA requirements are incorporated in order to maintain eligibility to receive Medicaid reimbursement. Also under the DRA, the Department of Health and Human Services was directed to establish a Medicaid Integrity Program(MIP) designed to provide theCMS the resources necessary to combat fraud, waste, and abuse in Medicaid. Section 6034of the DRA not only established the MIP, but it requires states to cooperate with MIP efforts. MIP also increased funding for Medicaid fraud and abuse control activities as well as CMS staffing to ensure MIP integrity, and expanded the Medicare-Medicaid date match program.

Conclusion While laboratory compliance programs have matured and evolved since 1998, ongoing scrutiny and new regulations make it essential for such programs to be evaluated for optimal effectiveness on a regular basis. Such evaluations are essential in the new context and in light of many recently issued advisory opinions and work plans from the OIG. Assessment of compliance program effectiveness by an independent third party is an area whose benefits are often overlooked. The OIG Model Compliance Guidance for Clinical Laboratories recommends regular performance of periodic audits of the
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CE Update laboratorys operations, with particular attention paid to billing, sales, marketing, notices and disclosures to physicians, requisition forms, pricing, and activities of phlebotomists and others involved in the ordering of laboratory services. The goal should be to ensure compliance with the laboratorys compliance policies, the laboratorys compliance plan, and all applicable federal and state laws. Inclusive within this review should be emphasis on contracts, competitive practices, marketing materials, CPT/HCPCS coding and billing, test information, reporting, and record keeping. While it may sound like a lofty task, taking a proactive approach when it comes to monitoring and auditing a compliance program can significantly reduce a laboratorys risk in an ever-changing and highly scrutinized industry. The American Society for Clinical Pathology (ASCP) offers a Qualification in Laboratory Compliance (QLC) for laboratorians who complete additional specialized training and successfully pass an examination on the topics of auditing, billing, coding, compliance education, and policies. However, the ASCP has announced the QLC program will be discontinued in July 2009. Another resource for compliance education and certification is the Health Care Compliance Association (HCCA). The HCCA sponsors and hosts training on a variety of regulatory topics throughout the year. Qualified candidates may take an examination to become Certified in Healthcare Compliance (CHC) through the Compliance Certification Board. By nature and training, clinical laboratory professionals are dedicated and detail-oriented. They should be encouraged to apply such attributes to nonanalytical aspects of laboratory operations to ensure optimal compliance and fiscal health in a highly competitive and intensely regulated environment. LM
13. Laboratory National Coverage Determinations. Centers for Medicare & Medicaid Services. Available at: www.cms.hhs.gov/CoverageGenInfo/04_ LabNCDs.asp#TopOfPage. Accessed on: April 6, 2009. 14. Local Coverage Determinations. Centers for Medicare & Medicaid Services. Available at: www.cms.hhs.gov/DeterminationProcess/04_LCDs. asp#TopOfPage. Accessed on: April 6, 2009. 15. An Integrated Approach to Corporate Compliance: A Resource for Health Care Boards of Directors. Office of Inspector General and American Health Lawyers Association (July 1, 2004). Available at: http://oig.hhs.gov/fraud/docs/ complianceguidance/Tab%204E%20Appendx-Final.pdf. Accessed on: March 24, 2009. 16. Federal Sentencing Guidelines Manuals. United States Sentencing Commission. Available at: www.ussc.gov/guidelin.htm. Accessed on: April 6, 2009. 17. Sarbanes-Oxley Act of 2002. Available at: www.soxlaw.com/. Accessed on: April 6, 2009. 18. Corporate Responsibility and Health Care Quality: A Resource for Health Care Boards of Directors. United States Department of Health and Human Services, Office of Inspector General, and American Health Lawyers Association (September 13, 2007). Available at: http://oig.hhs.gov/fraud/docs/ complianceguidance/CorporateResponsibilityFinal%209-4-07.pdf. Accessed on: March 24, 2009. 19. AHLA Listserve Subscription Management. Available at: http://archive. healthlawyers.org/crm_queries/lyris/index2.cfm?L_step=2&type=listserve. Accessed on: April 6, 2009. 20. OIG Work Plans. Available at: www.oig.hhs.gov/publications/workplan.asp. Accessed on: March 24, 2009. 21. OIG Advisory Opinions. Available at: www.oig.hhs.gov/fraud/ advisoryopinions.asp. Accessed on: March 24, 2009. 22. OIG Fraud Alerts. Available at: www.oig.hhs.gov/fraud/fraudalerts.asp. Accessed on: March 24, 2009. 23. OIG Special Advisory Bulletins. Available at: www.oig.hhs.gov/fraud/ fraudalerts_bulletins.asp. Accessed on: March 24, 2009. 24. CMS Program Transmittals. Available at: www.cms.hhs.gov/transmittals/. Accessed on: March 24, 2009. 25. CMS Newsletters. Available at: www.cms.hhs.gov/AboutWebsite/ EmailUpdates/list.asp. Accessed on: March 24, 2009. 26. The Effect of Exclusion From Participation in Federal Health Care Programs. Office of Inspector General (September 1999). Available at: www.oig.hhs.gov/ fraud/alerts/effect_of_exclusion.asp. Accessed on: April 6, 2009. 27. OIG List of Excluded Individuals/Entities (LEIE) Search. Available at: http:// oig.hhs.gov/fraud/exclusions.asp. Accessed on: March 24, 2009. 28. National Provider Identifier Standard. Center for Medicare & Medicaid Services. Available at: www.cms.hhs.gov/NationalProvIdentstand. Accessed on: April 6, 2009. 29. Medicare Claims Processing Manual, Chapter 16Laboratory Services. Centers for Medicare & Medicaid Services. Available at: www.cms.hhs.gov/manuals/ Downloads/clm104c16.pdf. www.cms.hhs.gov/NationalProvIdentstand. Accessed on: April 6, 2009. 30. 42 CFR Part 1001. Available at: www.oig.hhs.gov/fraud/docs/ safeharborregulations/MedicareSELECTNPRMFederalRegister.pdf. www.cms. hhs.gov/NationalProvIdentstand. Accessed on: April 6, 2009. 31. CMS Transmittal B-03-045 (June 6, 2003). Available at: www.cms.hhs.gov/ Transmittals/Downloads/b03045.pdf. Accessed on: April 8, 2009. 32. CMS Transmittal 445 (February 13, 2009). Available at: www.cms.hhs.gov/ Transmittals/downloads/R445OTN.pdf. Accessed on: March 24, 2009. 33. 42 CFR 411.351. Available at: http://frwebgate.access.gpo.gov/cgi-bin/get cfr.cgi?TITLE=42&PART=411&SECTION=351&YEAR=2000&TYPE=PD F. Accessed on: March 24, 2009. 34. 42 CFR 411.351. Available at: http://frwebgate.access.gpo.gov/cgi-bin/get cfr.cgi?TITLE=42&PART=411&SECTION=351&YEAR=2000&TYPE=PD F. Accessed on: March 24, 2009. 35. 42 CFR 414.50(a) (1). Available at: http://edocket.access.gpo.gov/cfr_2004/ octqtr/pdf/42cfr414.50.pdf. Accessed on: March 24, 2009. 36. 42 CFR 414.50(a)(2)(i). Available at: http://edocket.access.gpo.gov/ cfr_2004/octqtr/pdf/42cfr414.50.pdf. Accessed on: March 24, 2009. 37. Standing Orders. Noridian Medicare A News, Issue 2066 (January 2008). Available at: www.noridianmedicare.com/shared/parta/bulletins/2008/2066_ jan/Standing_Orders_.htm. Accessed on: April 6, 2009.

1. Medicare payments for clinical laboratory services, vulnerabilities and controls. OEI-05-00-00070. January 2000. Available at: www.oig.hhs.gov/oei/reports/ oei-05-00-00070.pdf. Accessed on: March 23, 2009. 2. False Claims Act [31 U.S.C. 37293733]. Available at: www.law.cornell. edu/uscode/31/usc_sup_01_31_08_III_10_37_20_III.html. Accessed on: March 23, 2009. 3. Publication of OIG Compliance Program Guidance for Clinical Laboratories. 56 Federal Register (August 14, 1998): 4507645087. Available at: www.oig. hhs.gov/authorities/docs/cpglab.pdf. Accessed on: March 11, 2009. 4. Clinical Laboratory Improvement Amendments of 1988. Available at: wwwn. cdc.gov/clia/regs/toc.aspx. Accessed on: April 6, 2009. 5. OIG Work Plan Fiscal Year 2009. Available at: www.oig.hhs.gov/publications/ docs/workplan/2009/WorkPlanFY2009.pdf. Accessed on: March 24, 2009. 6. Draft OIG Compliance Program Guidance for Recipients of PHS Research Awards. 70 Fed. Reg. 71312 (2005). Available at: www.oig.hhs.gov/fraud/ docs/complianceguidance/PHS%20Research%20Awards%20Draft%20CPG. pdf. Accessed on: April 6, 2009. 7. CMS Programs & Information. Available at: www.cms.hhs.gov. Accessed on: April 22, 2009. 8. 42 USC 1320a7. Available at: www.law.cornell.edu/uscode/uscode42/ usc_sec_42_00001320a007a.html. Accessed on: April 6, 2009. 9. Discount Arrangements Involving Clinical Labs. Office of Inspector General (April 26, 2000). Available at: www.oig.hhs.gov/fraud/docs/ safeharborregulations/lab.htm. Accessed on: April 6, 2009. 10. Publication of OIG Special Fraud Alerts. 59 Federal Register (December 19, 1994). Available at: www.oig.hhs.gov/fraud/docs/alertsandbulletins/121994. html. Accessed on: March 24, 2009. 11. Section 1862(a)(1)(A) of the Social Security Act. Available at: www.ssa.gov/ OP_Home/ssact/title18/1862.htm. Accessed on: April 6, 2009. 12. Beneficiary Notices Initiative. Center for Medicare & Medicaid Services. Available at: www.cms.hhs.gov/BNI/02_ABNGABNL.asp#TopOfPage. Accessed on: April 6, 2009.

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38. CMS Medically Unlikely Edits. Available at: www.cms.hhs.gov/ NationalCorrectCodInitEd/08_MUE.asp#TopOfPage. Accessed on: March 24, 2009. 39. National Correct Coding Initiative. Center for Medicare & Medicaid Services. Available at: www.cms.hhs.gov/NationalCorrectCodInitEd/. Accessed on: April 6, 2009. 40. Program Memorandum, Transmittal AB-02-030. Center for Medicare & Medicaid Services (March 5, 2002). Available at: www.cms.hhs.gov/ Transmittals/downloads/AB02030.pdf. Accessed on: April 6, 2009. 41. Draft Guidance for Industry, Clinical Laboratories, and FDA Staff. Food and Drug Administration (July 26, 2007). Available at: www.fda.gov/cdrh/oivd/ guidance/1610.pdf. Accessed on: March 24, 2009. 42. Medicare Claims Processing Manual, Chapter 16, Laboratory Services. Available at: www.cms.hhs.gov/manuals/Downloads/clm104c16.pdf. Accessed on: March 24, 2009. 43. Brown Sues to Recover Hundreds of Millions of Dollars Illegally Diverted from Medi-Cal. Office of the Attorney General, State of California Department of Justice (March 20, 2009). Available at: http://caag.state.ca.us/ newsalerts/release.php?id=1705. Accessed on: March 24, 2009. 44. New Red Flag Requirements for Financial Institutions and Creditors Will Help Fight Identity Theft. Federal Trade Commission (June 2008). Available at: www.ftc.gov/bcp/edu/pubs/business/alerts/alt050.shtm. Accessed on: March 24, 2009. 45. Tax Relief and Health Care Act of 2006. Available at: www.ssa.gov/OP_ Home/comp2/F109-432.html. Accessed on: March 24, 2009. 46. Deficit Reduction Act. Available at: http://frwebgate.access.gpo.gov/cgi-bin/ getdoc.cgi?dbname=109_cong_public_laws&docid=f:publ171.109. Accessed on: March 24, 2009. 47. Medicaid IntegrityImplementation of New Program Provides Opportunities for Federal Leadership to Combat Fraud, Waste, and Abuse. United States Government Accountability Office (March 28, 2006). Available at: www.gao. gov/new.items/d06578t.pdf. Accessed on: March 24, 2009. 48. Qualification in Laboratory Compliance. American Society for Clinical Pathology. Available at: www.ascp.org/FunctionalNavigation/certification/ QualificationinLaboratoryComplianceQLC.aspx. Accessed on: April 6, 2009. 49. Health Care Compliance Association. Available at: www.hcca-info.org//AM/ Template.cfm?Section=Home&WebsiteKey=2e01d5e7-d946-4eb1-99204f9e782c166e. Accessed on: April 6, 2009. 50. Become Certified in Healthcare Compliance. Health Care Compliance Association. Available at: www.hcca-info.org/AM/Template. cfm?Section=CHC_Certification. Accessed on: April 6, 2009.

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