New source of lab test abuse surfaces in the form of HOPDs and MSOs

Lab scheme recruits hospitals in schemes that push against anti-kickback laws

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This is an excerpt from a 2,350-word article in the Oct. 30, 2017 issue of THE DARK REPORT. The complete article is available for a limited time to all readers, and available at all times to paid members of the Dark Intelligence Group.

CEO SUMMARY: Growing numbers of hospitals are being asked to enter into a “hospital outpatient department” billing arrangement involving lab testing. One common attribute of these HOPD schemes is that the organizers want the hospital, as an in-network provider, to bill for all the lab tests performed in the organizers’ labs. The hospital and the HOPD organizers then split the payments from payers. THE DARK REPORT is first in the lab industry to recognize HOPDs as a fast-growing phenomenon that has the potential to cause unwitting hospitals and health systems to violate federal and state anti-kickback laws, Stark laws and other statutes.

MOSTLY UNNOTICED, new and complex billing scams are spreading through the clinical lab industry and costing the Medicare program and private health insurers billions of dollars. Until now, this trend has not been reported widely either in the general or lab industry media.

In this latest generation of abuse, scammers are targeting hospitals and health systems that typically are in-network for the largest health insurers. Management companies engaged in these activities seek agreements with hospitals and health systems so that their associated physicians can refer lab tests to these facilities and then the hospitals and health systems can bill payers as in-network providers for toxicology, pain management, pharmacogenomics, molecular diagnostics, genetic, and specialty cardiology testing. The hospitals or health systems then will split the revenue with the management companies.

Healthcare attorneys familiar with these arrangements say they are the newest variation on pass-through billing schemes, long-recognized as possibly fraudulent under federal and state laws.

Using sophisticated arrangements, the management companies make it difficult for Medicare and private health insurers to recognize that these increased outpatient lab test claims may involve medically-unnecessary or clinically-worthless lab tests.

In an investigation into these schemes, THE DARK REPORT has learned that the management companies promoting this pass-through billing scheme have several commonalities. First, they are designed to defraud private health insurers and the Medicare program, and second, they involve sending inflated bills to patients to increase lab revenue. Third, many of the patients give blood or other specimens for lab tests that are not needed or have little or no clinical utility. Then, the patients are billed several hundreds to thousands of dollars for these tests.

Fourth, under most of these schemes, many of the management companies use inducements, kickbacks, or bribes to get physicians to order a substantial number of tests that are unnecessary, clinically inappropriate for patients, or have no clinical utility.

These new forms of abuse involve three separate levels of activity that could be illegal. First, physicians must be willing to order outpatient lab tests that are unneeded or clinically useless.

Second, the lab management company submits its lab claims to private health insurers and Medicare. If payers do not reimburse the companies for these outpatient lab test claims, the fraudulent scheme fails and the management companies go out of business.

$21,500 Test Bill For Patient

Third, the management companies recognize that payers will deny a substantial portion of their lab test claims. To generate revenue, the management companies bill patients for amounts ranging from hundreds to many thousands of dollars. THE DARK REPORT has reviewed one patient’s explanation of benefits that showed $21,500 for such lab testing.

To date, there is no evidence that the federal Department of Justice or state attorneys general have recognized these developments and started enforcement actions. Private insurers have filed several lawsuits accusing management companies, toxicology lab companies, and some hospitals of submitting fraudulent lab test claims. Some of these lawsuits were dismissed during pre-trial motions and others are ongoing.

In THE DARK REPORT’S investigation, we have found that these management companies use two arrangements to perpetuate this fraud on hospitals, health systems, clinical labs, and patients: management service organizations (MSOs) and hospital outpatient department (HOPD) billing models.

To be clear, THE DARK REPORT is not suggesting that every MSO or HOPD is committing fraud. But our investigation to date shows that these vehicles are increasingly being used in schemes that more than one payer has alleged are fraudulent, and that healthcare attorneys we have consulted believe may violate multiple state and federal laws, including anti-kickback laws.

The scammers may use MSOs to induce physicians to refer patient specimens to their participating laboratory companies, typically labs performing toxicology, pain management, pharmacogenomic, cardiology, and genetic tests.

Often, these MSOs are organized to allow physicians to refer to the MSO almost any type of medical service, such as radiology or imaging services, physical therapy, electrocardiograms, or lab tests.

In these arrangements, the MSOs send the patient referrals from participating physicians to their affiliated lab companies or other providers.

The MSOs also send money back to the referring physicians in a way that can trigger violations of federal and state anti-kickback laws.

Billing In-Network Rates

The management companies use HOPDs to lure hospitals and health systems into agreements for lab testing and billing and collections arrangements. The management companies enlist in-network hospitals or health systems to bill health insurers at in-network rates.

The management companies solicit lab administrators of hospitals and health systems about entering into HOPD agreements so that the hospital can bill health insurers for the management companies’ lab tests. The management companies want hospitals and health systems to agree to the following:

  • Accept lab specimens from the management companies’ associated physicians
  • Accession these specimens and perform the routine tests, using their automated chemistry analyzers and other equipment while referring other lab specimens to the management companies
  • Bill for all lab tests using their provider numbers and in-network managed care contract rates, regardless of whether it was the hospital lab or the management company that performed the test

Five Types Of Federal Law

The attorneys identified five types of federal or state laws that these HOPD agreements could violate, including:

  • The False Claims Act.
  • Anti-Kickback laws (if the hospital or laboratory might be receiving referrals in return for remuneration that reflects the volume and value of referrals. There is no safe harbor if the hospital and the management company are doing a percentage split.)
  • The Stark Law (if the hospital or laboratory is physician owned.)
  • The shell lab rule
  • Laws in certain states that cover such activities as fee-splitting, anti-kickback, fraud and abuse, as well as anti-markup.

HOPD Agreements

Private health insurers have targeted HOPD agreements involving a hospital and a management company for civil actions in state courts. When a hospital has managed care contracts, several prohibitions may be part of these contracts. They include:

  • Exclusivity of services by payer-credentialed healthcare entities.
  • Anti-assignment language.
  • Limitations on billing for referred services.

There are multiple ways that these HOPD arrangements involving management companies, hospitals, or health systems can violate federal and state laws. Similarly, the hospital’s participation in these lab test outreach schemes can put its contracts with health insurers at risk for multiple reasons. One example is the lawsuit filed by Blue Cross Blue Shield of Mississippi against Sharkey-Issaquena Community Hospital and four toxicology lab companies.

Another lawsuit that garnered national headlines and alleges fraud involving lab tests is United Healthcare Services Inc. and UnitedHealthcare Insurance Company vs. Next Health LLC, United Toxicology LLC, Medicus Laboratories LLC, US Toxicology LLC, American Laboratories Group LLC, Erik Bugen and Kirk Zajac.

Many Hospitals Approached

How common are these HOPD arrangements between management companies and hospitals? Many pathologists and lab administrators working in hospitals and health systems tell THE DARK REPORT that sales representatives have approached their institutions to pitch these schemes. Additional evidence of the prevalence of these schemes comes from recent lab conferences. When asked if hospitals have been approached about entering into an HOPD agreements, many hospital lab officials have raised their hands.

THE DARK REPORT predicts that these new forms of fraud involving laboratory testing will reach into the multiple billion dollar range and could dwarf the $2 billion the federal government collected from labs in the 1990s as a result of its LabScam investigations and details exactly how these schemes work.

Have you been approached by a management company to take part in an HOPD arrangement? Please share your experience with us in the comments below.


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