Physician office laboratories (POLs) can be an asset to both the doctor and the patient. Usually providing common tests such blood counts, urinalysis, pregnancy, fecal occult blood, and cholesterol levels, they help the doctor to manage their patient more efficiently and offer in-office convenience to the patient who needs testing.
However, a doctor considering setting up such a laboratory must keep several important laws in mind.
Stark and the Anti-Kickback Statute
Stark
The Physician Self-Referral Law (Stark) prohibits a doctor from referring a Medicare patient to an entity with which they or their immediate family member has a financial relationship.
This law does not, however, prevent a doctor from operating a laboratory in their office if they come under an exception. The most common one allows a practice to provide clinical laboratory testing as an “in-office ancillary service”. In other words, if the test is one that your doctor needs as part of your care, Stark will allow them to perform it in their office. Most POLs are set up to come under this.
Anti-Kickback Statute (AKS)
The Anti-Kickback Statute (AKS) prohibits offering, soliciting, paying, or receiving anything of value to induce or reward referrals for items or services that are reimbursed by a federal health care program. It will apply even if only one purpose of the transaction is the kickback. Unlike Stark, which carries civil financial penalties, the AKS is a criminal statute.
Like Stark, though, the AKS does have some exceptions. “Safe harbors” are arrangements that are considered to be unlikely to result in fraud or abuse. The Office of Inspector General (OIG) can also evaluate arrangements on a case-by-case basis. A POL set-up should therefore only be done after an AKS analysis.
Avoiding risky schemes
Of course, most physicians considering a POL have no intention of engaging in fraud or abuse. The problems come in when a model is touted to them that sounds too good to pass up.
Joint ventures
One such situation that attracted the attention of the OIG was joint ventures in which the doctor, acting as an owner of a POL, expanded into a new line of business with a supplier of a related service and the supplier then ran the operation and the doctor received profits from the POL in return for referrals.
In a 2003 Special Bulletin, and in subsequent Advisory Opinions, the OIG has taken the position that such an arrangement, under which a service costs more than if the supplier did it on its own, allows the owner of the POL to generate a fee for a referral, violating the AKS.
The OIG will hold this even if the individual agreements that make up the arrangement could themselves fit under safe harbors.
The OIG will look for indicators that this is really a fee generation system, including the owner having no role in running the business while also having minimal risk because it controls the referrals, and whether payments to the supplier vary with the business it generates.
If a POL is planning to outsource it must make sure that it avoids this sort of venture.
Investment models
Doctors must also be wary of investment models that may be promoted as avoiding Stark and the AKS, but which actually can violate them. These include “carve-out” labs and “partial ownership” labs.
Carve-out labs
A carve-out lab allows a doctor to invest in, and then refer to, a lab that does not participate in any federal health care programs, placing it outside Stark and the AKS. The investment is usually minimal but the returns on referrals can be very significant.
A problem comes in, though, if a lab that is affiliated with the carve-out lab bills a federal program.
OIG Advisory Opinions have considered carve-out labs as a potential route for “disguising” remuneration that federal law would otherwise prohibit.
Partial ownership labs
A partial ownership lab allows a doctor to invest in a clinical laboratory that is in partnership with a larger clinical laboratory. The doctor is then encouraged to refer testing to the lab owned by the other doctors.
This arrangement will be suspected as being an end-run around Stark’s prohibition on self-referral, and as an AKS violation because it is based on profits from induced referrals.
State fee-splitting laws
An essential aspect of healthcare is that a physician should only be making decisions based on the best interests of their patient. States have therefore passed laws against medical practitioners sharing or dividing fees. Violation of such laws will constitute professional misconduct that can adversely affect a doctor’s license.
Referrals for clinical testing are seen as particularly susceptible to this type of abuse and so it is essential for a physician planning to start a POL to structure it within their state’s limitations.
Medical Necessity
This is an issue that is closely associated with the issues of fraud and abuse.
An independent laboratory merely receives orders from outside practitioners. A POL, though, is owned by the ordering provider and so it will be responsible to ensure that the testing that it does is medically necessary.
POLs will be highly scrutinized by the OIG on this issue, and the physician owner must therefore make sure that the medical necessity of the testing that the POL does is well-documented.
Clinical Laboratory Improvement Amendments of 1988 (CLIA)
POLs are also regulated as to their actual laboratory practices. The most important legislation in this area is CLIA and POLs are the largest category of CLIA-certified laboratories. Some states may have their own laboratory registration, licensing or certification process, so you have to confirm first what your state requires.
Under CLIA, laboratories that test human specimens must have a certificate issued by Centers for Medicare and Medicaid Services (CMS). The regulatory requirements will depend upon the complexity of the testing that the lab does.
Most POLs will only be certified for low complexity, or waived testing, and so will be exempt from stricter levels of regulation, but will still be subject to site inspections to check that they are only performing permissible testing and are doing that testing properly. Self-monitoring of procedures at the lab and good documentation are therefore essential.
A POL can be a useful and lucrative addition to your practice, but it will be subject to regulations that carry significant penalties. At ByrdAdatto, we can guide you through compliance at all the levels that your POL will face. If you already have a POL or are thinking of starting one, contact us at info@byrdadatto.com to schedule a consultation.