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.

Connect with Richard Kusserow on Google+ or LinkedIn.

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

Kusserow’s Corner: New Pilot Programs to Address ALJ Appeals Backlog

The HHS Office of Medicare Hearings and Appeals (OMHA) announced earlier this year a temporary suspension of assignment of new Medicare appeals to administrative law judges (ALJs) for at least 28 months as a result of the significant backlog. To address the significant backlog of Medicare administrative appeals at the ALJ level, OMHA has posted information about two pilot programs that providers with Medicare appeals pending before an ALJ may use to resolve claims. They are:

  1. A Settlement Conference Facilitation (SCF) Pilot, which is an alternative dispute resolution process applicable only to Medicare Part B claims. At least 20 claims or $10,000 must be at issue.
  1. A Statistical Sampling Pilot, under which a provider would agree to allow OMHA to adjudicate a group of appeals using statistical sampling.

SCF Pilot

The SCF is a pilot alternate dispute resolution process designed to bring the appellant and CMS together to discuss the potential of a mutually agreeable resolution to the claims appealed to an ALJ hearing. If a resolution is reached, a settlement document is drafted by the facilitator to reflect the agreement. The document is signed by the appellant and CMS at the settlement conference session. As part of the agreement, the requests for an ALJ hearing for the claims covered by the settlement will be dismissed. The facilitator, an OMHA employee, uses mediation principles to assist the appellant and CMS in working toward a mutually agreeable resolution. The facilitator does not make official determinations on the merits of the claims at issue and does not serve as a fact finder, but may help the appellant and CMS see the relative strengths and weaknesses of their positions. To be eligible for the SCF process:

  • The request for hearing must appeal a Qualified Independent Contractor’s (QIC) reconsideration of a claim for Medicare Part B items or services;
  • Appellant must be a Medicare provider or supplier;
  • Beneficiary must not have been found liable after the initial determination or participated in the QIC reconsideration;
  • All jurisdictional requirements for an ALJ hearing must be met for the request for hearing and all appealed claims;
  • Request for hearing must have been filed in 2013 and not currently assigned to an ALJ;
  • Amount of each individual claim must be less than $100,000. For the purposes of an extrapolated statistical sample, the extrapolated amount must be less than $100,000.
  • At least 20 claims must be at issue, or at least $10,000 must be in controversy if fewer than 20 claims are involved;
  • There cannot be an outstanding request for OMHA statistical sampling for the same claims; and
  • Request must include all of the appellant’s pending appeals for the same item or service at issue that meet the SCF criteria.

Statistical Sampling Pilot

The Statistical Sampling Pilot is limited to appellants that are single Medicare providers or suppliers; multiple providers or suppliers may qualify if the owning entity agrees to accept or make any Medicare payment due as a single payment. To participate, a provider must identify a group of at least 250 claims, all of which fall into one of the following categories: pre-payment claim denials; post-payment non-RAC claim denials; or post-payment RAC claim denials. Claims also must meet all jurisdictional requirements for hearing before an ALJ. Currently, OMHA will only allow statistical sampling for appeals currently assigned to an ALJ but not scheduled for hearing, or appeals filed between April 1 and June 30, 2013. Once a provider has requested statistical sampling, OMHA will secure an independent statistical expert to assist the ALJ with conducting the sampling according to existing CMS guidance. The provider will receive a pre-hearing conference with an ALJ to establish that the provider has consented to the process, as well as to establish the claims from which a sample will be drawn. The ALJ will then issue a pre-hearing conference order, after which participation in statistical sampling becomes binding. The universe of claims will then be consolidated into one appeal, and the ALJ will hold a hearing and issue a decision on the sample units drawn from the larger group. A Medicare contractor will then extrapolate the ALJ’s decision on the sample claims to the larger universe of claims. The appropriate Medicare Administrative Contractor (MAC) will be directed to effectuate the decision based on the extrapolated amount.

Appellants who are eligible and interested in the pilot must complete a written request for sampling along with a detailed spreadsheet of claims for consideration. OMHA has included template request documents. Hospitals may be interested in evaluating whether or not initiating the pilot will be beneficial. While this may expedite the adjudication of long-awaiting appeals, the downsides of this project should also be considered.

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.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow’s Corner Newsletter

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

OPPS Payments Would Increase $5.2 Billion Under 2015 Proposed Rule

CMS has released a Proposed rule that is designed to change Medicare payment policies and rates for outpatient hospital departments and ambulatory surgical centers (ASCs) for calendar year (CY) 2015. CMS proposes to increase the outpatient prospective payment system (OPPS) market basket for CY 2015 by 2.1 percent. The CMS rule also proposes to: (1) update ASC payments by 1.2 percent; (2) develop a more comprehensive Ambulatory Payment Classification (APC) policy; (3) remove three quality measures from the hospital Outpatient Quality Reporting (OQR) program; (4) add one claims based measure to the OQR program; and (5) add one measure to the ASC Quality Reporting program (ASCQR).

OPPS Payment Update

The OPPS payment update is based upon the proposed market basket increase of 2.7 percent minus a 0.4 percentage point adjustment for multi-factor productivity and a 0.2 percentage point adjustment required by the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). CMS says the changes would result in a $5.2 billion rise in OPPS payments in CY 2015, a 2.2 percent payment increase from CY 2014.

Packaging Changes

In a 2014 Final Rule, CMS proposed an APC policy that would expand the services covered under a single comprehensive payment when hospital stays involve multiple services ancillary to the primary care. For CY 2015, CMS proposes to expand that APC policy to include all ancillary services when the geometric mean cost of the ancillary services is $100 or less. This would represent an expansion of the APC policy that CMS now uses which packages only those services that are integral to primary services.

ASC Update

The Consumer Price Index update for all urban consumers (CPI-U) is projected to be 1.7 percent and the multifactor productivity (MFP) adjustment to the ASC annual update is .5 percent. Accordingly, the adjusted ASC annual update is 1.2 percent, which CMS projects will result in in a $243 million increase in ASC payments from CY 2014.

Quality Measures

CMS is also proposing to eliminate three quality measures for hospitals including: a cardiac care measure and two prophylactic antibiotic surgery measures. CMS reasoned that performance in those areas is high and CMS has seen little variation among hospitals regarding quality in those areas. CMS did propose adding OP-32: Facility 7-Day Risk-Standardized Hospital Visit Rate after Outpatient Colonoscopy, a claim based measure for payment determinations to go into effect in CY 2017. CMS proposes to add the measure for the OQR and the ASCQR programs.

The agency will accept comments until September 2, 2014. CMS expects to publish the Final rule on or around November 1, 2014.

Compounded Drug Policies Released by the FDA

The FDA has released several document intended to clarify the FDA’s expectations for products coming out of the compounded drug industry. The documents include a draft guidance describing current good manufacturing practice (CGMP) requirements for facilities that compound human drugs, a proposed rule to revise the FDA’s list of drugs that may not be compounded, and a final guidance generally addressing the compounding of drugs by pharmacies. The release reflects the FDA’s hope that the documents will assist members in the compounding industry with compliance and the protection of patients.

CGMP Guidance

The draft guidance discusses appropriate manufacturing practices for facilities that compound human drugs and are registered outsourcing facilities under section 503B of the federal Food, Drug, and Cosmetic Act (FDC Act). Specifically, the draft guidance serves to explain the FDA’s interpretation of what the current CGMP requirements are in 21 CFR parts 210 and 211 until the FDA can release additional regulations that are specifically focused on outsourcing facilities. The draft guidance sets out specific standards for cleanliness including air quality requirements. The guidance also recommends specific control systems and monitoring procedures that manufacturers should use to prevent contaminations in sterile processes. The guidance discusses regulations in 21 CFR 211.42(c)(10)(iv) that pertain to personnel and environmental monitoring and suggests how manufacturers that compound drugs can address those requirements. The FDA also addresses labeling and packaging requirements for compound drugs.

Component Controls

The draft guidance places some specific focus on controls used to monitor the source and quality of components used in the products that compound drug manufacturer’s produce. It sets out standards for when a component may be used or should be rejected. The FDA also put out a specific call for public comments within the guidance to ask for alternative methods that manufacturers could employ, as alternatives to periodic laboratory testing, in order to determine the safety and quality of incoming components.

Release Controls

The CGMP guidance also focuses on other product controls, and details the requirements for release testing that a manufacturer must go through to be sure a product meets required final product specifications. The FDA put out an additional call for comments and recommendations as to how manufacturers can satisfy release testing requirements without requiring outsourcing facilities to establish an in-house laboratory to perform the testing.

Proposed Drug List

The newly released Proposed rule addresses the requirements in section 503A of the FDC Act that govern compounding of human drugs. Specifically, the Proposed rule addresses the requirement that a licensed pharmacist or licensed physician not compound a drug product that appears on a list found at 21 CFR 216.24. The requirement specifically applies to outsourcing facilities, which are entities that are registered as such with the FDA pursuant to section 503B of the FDC Act. Outsourcing facilities that satisfy the requirement of not using prohibited drugs in compounds are exempted from certain regulatory requirements. Satisfaction of the 503A requirements leads to exemption from certain manufacturing, labeling, and approval regulations found in section 501(a)(2)(B), 502(f)(1), and 505 of the FDC Act.

In other words, when a drug found on the list is included in a compound drug, the drugs will not qualify for the regulatory exemptions. The drugs that appear on the list include drugs or drug products that have been removed from the market because they were found to be unsafe or not effective. The FDA indicates in the Proposed rule that it invites public comments as to how the list can be updated going forward. The Proposed rule adds 25 drugs to the list of prohibited drugs for compounding, lists each of the 25, and discusses the reason each is on the list.

Pharmacy Compounding Guidance

The FDA also released a final guidance related to its regulatory power over compounding pharmacies as granted by section 503A of the FDC Act. The FDA indicates that the guidance does not apply to outsourcing facilities under 503B of the FDC Act. Generally, section 503A governs the conditions that are necessary for drug products compounded by a licensed pharmacist to qualify for the same manufacturing, labeling, and approval exemptions discussed above that are found in sections 501(a)(2)(B), 502(f)(1), and 505 of the FDC Act.

The final guidance sets out the specifics of how section 503A is satisfied. The FDA addresses the necessary steps that a pharmacy must take to ensure that each of the 503A requirements is met. The guidance indicates that the FDA will take action against violators of the FDC act in the form of warning letter, seizure of product, injunction, and/or criminal prosecution. The FDA offers examples of violations that include drug products that contain “filthy, putrid, or decomposed substance” or were composed in unsanitary conditions. Other violations include the making of compounds with components that don’t meet quality or purity standards, drugs that don’t meet labeling and packaging requirements, and drugs that have false or misleading advertisements.