New Laboratory Referral and
Billing Arrangements and How
They May Implicate Federal and
State Laws, and Provider
Agreements
Presented By: Jeffrey J. Sherrin, Esq.
President, O’Connell & Aronowitz
Examples of New Arrangements
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
Billing pass-through arrangements

Participating in membership referral networks

Laboratory management agreements

Operating Internet-based Platforms for test requisitions, reporting and billing

Disguised physician ownership of laboratories

Disguised non-physician ownership of medical practices

Participation in research or treatment pathways
Why are these new arrangements on the
rise?
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
Narrowing of networks

Reduced reimbursement

Opportunities to increase revenue

Opportunities to increase customer reach

Evolvement of technology and integrated models
Potentially Implicated Laws: Federal

Anti-Kickback Statute


Stark Law


A statute of strict liability that prohibits physicians from making referrals for DHS (including
laboratory services) payable by Medicare to an entity with which s/he (or an immediate family
member) has a financial relationship (ownership, investment, or compensation)
False Claims Act

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A criminal statute that prohibits the solicitation or receipt of any remuneration in return for
referring an individual, arranging for the referral for the furnishing of health care items or
services, or otherwise purchasing, leasing, ordering or arranging of the same when payment is
made under a Federal healthcare program [42 U.S.C. s1320a-7b(b)]
Liability is imposed when a person or entity improperly receives payment or avoids payment
obligations to the Federal government by falsely submitting, certifying or presenting a claim
Potentially Implicated Laws: Federal

Civil Monetary Penalty Law



CLIA

Among other requirements, requires that test reports only be provided to an authorized person as
noted under state law, and to the laboratory that initially requested the test. 42 C.F.R. § 493.1291.

Laboratory director has responsibilities for the overall operation and administration of the lab
including approving all policies and procedures 42 C.F.R. § 493.1445, 42 C.F.R. § 493.1251
HIPAA

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Prohibits an individual from offering or transferring remuneration to Medicare or Medicaid
beneficiaries when that person knows or should know that such remuneration is likely to
influence a beneficiary to order or receive a Federally payable item or service from a particular
provider, practitioner, or supplier
Requires personally identifiable information to be protected with limited disclosures but also
requires individuals to have access to their records, including laboratory records 45 CFR Part 164
Potentially Implicated Federal Laws

Shell Lab Rule (30/70 Rule)


Substantially in Excess Rule

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For Medicare testing, a laboratory referring to another lab is permitted to bill for the referred
work, so long as no more than 30 percent of the tests for which the laboratory receives orders
during the year are performed by an outside laboratory—70 percent of the testing must be done
on-site.
Prohibits individuals and entities from charging the Medicare and Medicaid programs
substantially more than their usual charges to other payors for the same items or services or to
furnish items or services substantially in excess of a patient’s needs 42 C.F.R. § 1001.701
Potentially Implicated Laws: State Laws
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
State law equivalents of the Anti-Kickback Statute, Stark Law, False Claims Act

Fee splitting prohibitions

Laws regarding unprofessional conduct of professions

Anti-Markup provisions

Direct Billing requirements

State Medicaid most-favored nation clauses

State Medicaid fraud and abuse laws
Payor Contract Concerns
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
Exclusivity of services by payor-credentialed healthcare entities

Anti-assignment language

Limitations on billing for referred services
Scenario One
Has Contract w/
Payor and Bills
and Reflects
Testing Done at
Hospital
Payor Pays
Hospital Outreach Lab: Performs
No Testing But Bills Payor
Referrals
Referrals
L: Does Actual
Specimen Testing
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*Lab A & Hospital split
percentage of testing paid by
Payor
What is Potentially Problematic with
Scenario One?






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False Claims Act
Anti-Kickback Statute
 The hospital or laboratory might be receiving referrals in return for remuneration
that reflects the volume and value of referrals
 No safe harbor if percentage split
Stark Law (if hospital or laboratory is physician owned)
Shell Lab Rule
State laws
 Fee-splitting
 State anti-kickback laws
 State laws on fraud and abuse
 State anti-markup
Payor contract prohibitions
Hospital
Outreach Lab
Scenario Two
Referrals
Laboratory B
Flat Fee
Management Agreement
POL
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What is Potentially Problematic with
Scenario Two?






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Anti-Kickback Statute
 The hospital or laboratory may be receiving referrals in return for remuneration
that reflects the volume and value of referrals
 No safe harbor if percentage split
Stark Law (if hospital or laboratory is physician owned)
CLIA – laboratory director responsibilities
Shell Lab Rule
State laws
 Fee-splitting
 State anti-kickback laws
 State laws on fraud and abuse
 State anti-markup
Payor contract prohibitions
Scenario Three
Each laboratory is a member of an association
and pays an annual membership fee. Member
laboratories will pay a per-referral fee to be part
of a cloud-based internet platform to facilitate
reference relationships among the laboratories.
*The type of fee, whether
per referral or a membership
fee, may change the analysis
of the issues
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What is Potentially Problematic with
Scenario Three?

Scenario One concerns

Anti-Kickback Statute


CLIA (42 C.F.R. § 493.1291)

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The role of the platform and whether it is arranging for the referrals in
return for remuneration that reflects the volume and value of referrals
Requirement that test reports only be provided to an authorized person
pursuant to state law and to the laboratory that initially requested the test

Shell Lab Rule

State laws

Some states prohibit referral fee arrangements in healthcare

Fee-splitting
Scenario 4
ACO
Cloud based platform
develops clinical pathways
and conducts public health
research
Global Fee
Subscription
fee* & Lab
test fee
Transmits Orders
Fee
Sends Results
Lab Test Fee
*Subscription fee includes
a set-up fee to connect to
the platform and then a
per-patient fee
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Orders
Test
MSO
Global Fee
What is Potentially Problematic with
Scenario Four?

Anti-Kickback Statute-is it implicated?

CLIA



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Requirement that test reports only be provided to an authorized person
pursuant to state law and to the laboratory that initially requested the test
State laws

Some states prohibit referral fee arrangements in healthcare

State anti-kickback law

Unfair Business Practices
HIPAA
United v. Next Health et al (N.D. Tx)
Case No. 3:17-cv-243
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
“Next Health owns and operates several subsidiaries – including Medicus, US Toxicology,
ALG and UTox – that perform drug and genetic laboratory testing services” (Comp. ¶1)

Next Health and subsidiaries are out of network providers of United

United alleged that between 2011 and mid-2016, Next Health and subsidiaries submitted
false claims and engaged in false and fraudulent conduct

Broad allegations by United

Next Health et al relied on kickbacks to generate test requests

Next Health et al performed unauthorized testing services

Next Health et al had standing orders for “custom” profiles and confirmation testing

Next Health et al billed for services performed by another provider

Next Health et al waived all patient responsibility
United v. Next Health et al (N.D. Tx)

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Causes of Action brought by United

Fraud and Fraudulent Non-Disclosure

Conspiracy to Commit Fraud

Negligent Misrepresentation

Money Had and Received

Unjust Enrichment

Texas Theft Liability Act

Sham to Perpetrate Fraud Liability

Alter Ego Liability

Declaratory Relief

Injunctive Relief

False Association Under Lanham Act 15 U.S.C. § 1125(a)(1)(A)
Questions?
Jeffrey J. Sherrin, Esq.
President, O’Connell & Aronowitz
[email protected]
518-462-5061
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