Suspect In-Office Laboratory Arrangements

While suspect laboratory arrangements are not a new phenomenon, certain unscrupulous laboratories have devised a new arrangement designed to incentivize referring providers to use their services.  Specifically, these laboratories are encouraging primary care providers, who run routine urinalysis testing, to automatically reflex to Urine Cytology and FISH (Florescence In Situ Hybridization) testing.  A urinalysis is a set of tests that detect cells, cell fragments, and substances, such as crystals or casts, in the urine.  It may be used as part of a health exam or when a patient manifests certain symptoms; the results of this test may help detect a urinary tract infection, kidney disorder, liver problem, diabetes or other metabolic condition.  The FDA Package Insert does not include an indication to use urinalysis for the detection or monitoring of Bladder Cancer.  If Hematuria, or Blood in the Urine is present, a reflex would be added to perform a Urine Cytology and Urine FISH, which is a test used to detect bladder cancer and cervical cancer.  The FISH test has a history of being fraudulently ordered and abused in the health system. 


In order to avail the provider of the ability to bill for laboratory tests, the laboratory would enter into an arrangement with the provider, whereby the laboratory would obtain the specimen from the provider, perform the testing on such specimen and then deliver the glass slides to the provider.  The provider would then employ a pathologist, who would interpret the slides and generate a report for the provider.  The laboratory would bill for the technical component of the test, and the provider would bill for the professional component of the test. 


While this arrangement may seem innocuous, it is fraught with danger.  Aside from any fraud and abuse concerns that may arise for the proposed arrangement (e.g., “Contractual Joint Venture”, Self-Referral, etc.), a primary care provider’s ordering of a FISH test may constitute the ordering of medically unnecessary services, in violation of applicable state and federal laws.  For example, C.F.R. 42 § 410.32(a) provides, in relevant part, that [a]ll diagnostic x-ray tests, diagnostic laboratory tests, and other diagnostic tests must be ordered by the physician who is treating the beneficiary, that is, the physician who furnishes a consultation or treats a beneficiary for a specific medical problem and who uses the results in the management of the beneficiary’s specific medical problem.” (emphasis added).  The foregoing regulation effectively requires that a provider order only those tests that could yield results that may be applied by such provider, based on their practice specialty, in the treatment of the patient.  Accordingly, the test would likely not be medically necessary, even if it detects or rules out cancer, since a primary care provider does not possess the requisite education, training and experience (or Board specialty) to treat a patient whose test results reveal bladder or cervical cancer (such treatment would be within the scope of a medical oncologist’s practice), and should, consistent with the standard of care, refer the patient to a specialist (again, a medical oncologist). 


If the test is deemed medically not necessary, then the provider’s ordering of such test would likely constitute a violation of law, and the provider’s claim for such test would likely constitute a false claim violative of state and federal laws prohibiting the submission of false claims, such as the False Claims Act, resulting in an overpayment to the provider.  Violation of these laws could result in significant adverse action against the provider, including, without limitation, direct penalties in the form of recoupment actions, False Claims Act/Insurance Fraud Prevention Act actions (seeking three times the overpayment and attorneys’ fees), fines, exclusion, criminal penalties provided that the requisite intent exists (which intent could be inferred from a pattern of improper billing), as well as collateral consequences in the form of licensure action, third party payor actions (including termination from panels) and healthcare facility medical staff adverse action.  


Given the current regulatory climate, marked by aggressive enforcement activity, the risk of adverse action heavily outweighs the potential benefit that may be derived from the aforementioned arrangement.  Unlike the principals of a laboratory, the principals of a medical practice are independently licensed by state agencies (e.g., the Board of Medical Examiners).  As such, adverse action could disproportionately affect providers, who face not only monetary penalties and criminal sanctions, but also adverse licensure action that could result in the loss of their medical license and livelihood.


Not all violations of law are readily apparent; some violations may be subtle.  Ignorance of the law, and reliance on the laboratory’s representation of compliance with law, is no defense.  Providers are independently liable for their conduct, and are charged with knowledge of the law.  Accordingly, before embarking on a new arrangement, it is imperative that you fully evaluate the legality of the same using independent qualified legal counsel.