Kusserow’s Corner: OIG Fraud Alert—Laboratory Relationships with Physicians

The HHS Office of Inspector General (OIG) issued a Special Fraud Alert focusing on payments to referring physicians for (1) specimen collection and (2) data submission/review for laboratory registries.  The OIG’s concern is that some laboratories may be using these arrangements to influence the flow of business from referring physicians in potential violation of the anti-kickback statute (AKS). The OIG cited previous guidance and advisory opinions on the topic, including a 1994 Special Fraud Alert, the OIG Compliance Program Guidance for Clinical Laboratories, and OIG Advisory Opinion No. 05-08 (June 6, 2005).

Anti-Kickback Statute

The AKS makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services payable by a federal health care program.  It is violated if only one purpose of an arrangement is to induce referrals.  Labs offering free or below-market items or services to physicians (e.g., free specimen collection containers) or offering payments to physicians that are not “commercially reasonable in the absence of [f]ederal health care program referrals, potentially raise four major concerns typically associated with kickbacks – corruption of medical judgment, overutilization, increased costs to the [f]ederal health care programs and beneficiaries, and unfair competition.”  The concern is that physicians will do business with the lab that pays, rather than the best lab, and physicians might order tests that are not medically necessary, particularly if the payment arrangement is tied to the number of referred tests.

Payment for Specimen Processing

The OIG addressed arrangements where labs—either directly or indirectly though marketing or other agents—pay physicians to collect, process, and package patient specimens. This may involve expensive or specialized tests that require centrifuging or special storage/packaging efforts to ensure the integrity of the sample during transport.  The OIG noted that such arrangements may result in a double payment where a physician receives a payment for such services from a third party like Medicare, through receipt of either a direct specimen collection fee or a bundled payment for the service could implicate the AKS.  Other factors that could implicate the AKS:

  • Payments that exceed fair market value (FMV) for services actually rendered;
  • Payments conditioned on a physician ordering a specified volume or type of test/panel, especially if tests are duplicative or not reasonable and necessary;
  • Payments made on a per-specimen basis when more than one specimen is 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;
  • Payments made directly to the ordering physician, rather than the physician’s group practice, which more likely bears the processing costs; and
  • Payments made to the physician or group practice when the services are actually performed by a phlebotomist placed in the physician’s office by a third party.

Registry Payments

The second issue involves the practice of some clinical labs in establishing, coordinating, and maintaining a database of the demographics, presentation, diagnosis, treatment, outcomes, and other characteristics of patients that have undergone certain tests by the clinical laboratory. The lab pays the physician for collecting and reviewing data and answering patient questions (Registry Arrangements).  The OIG states that this may effectively induce physicians to order medically unnecessary or duplicative testing, or to refer to laboratories that offer Registry Arrangements in lieu of more clinically superior laboratories. The AKS may be implicated even if such data registry payments “carve out” Medicare, Medicaid and other Federal Health Care Program (FHCP) beneficiaries, as that suggests a “disguised” remuneration for FHCP business, raising AKS risk under the OIG’s “swapping” theory (referred to in other OIG Advisory Opinions). The OIG identified some of the characteristics that might evidence an unlawful purpose, such as:

  • A certain testing frequency is required to be eligible for Registry Arrangements.
  • Multiple tests are ordered to compile comparative data on a patient.
  • Compensation is on a per-patient basis, varies with the volume or value of referrals, or is not FMV for the services.
  • Documentation of the services provided is lacking.
  • Registry Arrangements are only offered for proprietary tests or disease states associated with those tests.
  • Tests are presented in a panel format on a requisition form, making it difficult for the physician to make an independent decision about which tests are medically necessary.


  1. Labs and physicians should carefully review and monitor existing arrangements to ensure they don’t have characteristics matching those indicated as being troubling.
  2. Those desiring to enter into either of the two types of arrangements cited must be certain they don’t have as one purpose to induce referral of business, even if the payments are for bona fide services and are set at FMV.
  3. Ensure any Arrangements are structured to avoid any suggested of inducing business.
  4. Ensure all payments for any services are at a fair market value set-in-advance fixed fee that does not take into account individual patients, encounters or specimens.
  5. Guard against any payments offered to physicians in regards to their past or anticipated pattern of referrals.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2014 Strategic Management Services, LLC. Published with permission.