Direct Access Test Laboratories Targeted by NY State Attorney General

Direct Laboratory Services LLC and LabCorp agree to pay fines and file compliance reports

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CEO SUMMARY: Following an investigation of two lab companies providing direct access testing in New York State, the New York Attorney General entered into agreements with each lab company. Direct Laboratories, LLC, of Mandeville, Louisiana, agreed to cease offering DAT services in New York, pay restitution to patients, and pay a fine to the state. Laboratory Corporation of America agreed to pay a fine and report on its compliance efforts. The agreements reveal details of their DAT business model.

NEW YORK STATE PROHIBITS direct access testing (DAT). Just last month, the attorney general cracked down on two lab companies that were providing DAT services to consumers in the Empire State.

On December 30, Attorney General Eric T. Schneiderman announced agreements with Direct Laboratories LLC of Mandeville, Louisiana, and Laboratory Corporation of America to discontinue direct access testing services to residents of New York State.

The two settlement agreements provide a rare peek into the relationship that exists between a company offering DAT testing services and a national lab that contracts with it to collect the specimens and perform the testing, generally at a discounted price.

DirectLabs and LabCorp cooperated with Schneiderman’s investigation, according to the individual settlement agreements with the AG’s office. In March 2015, DirectLabs stopped offering services to New Yorkers and posted notices on its website that it was no longer operating in New York State, the agreement said.

DirectLabs was ordered to pay $24,500 as a civil penalty, pay $5,500 in restitution to patients whose tests were not completed, and stop all testing in New York State, although it continues to operate in other states. LabCorp agreed to pay a fine of $225,000.

The DirectLabs agreement explained that DirectLabs offers consumers nationwide direct access to more than 250 tests, meaning the patient does not need a physician’s test requisition. “It does this by selling doctors’ orders for the laboratory testing available through its website and partnering with LabCorp to have those orders accepted at LabCorp patient service centers,” stated the agreement.

Direct access Testing

Beginning in September 2012, DirectLabs operated a service called DirectLabs Access that was available to consumers in New York, New Jersey, and Rhode Island. Consumers could order tests online or by telephone without a requisition from a licensed physician or other health care provider, the agreement said. New York law requires that laboratory tests be performed only at the request of licensed medical providers within their scope of practice.

After Schneiderman’s office investigated the arrangement between DirectLabs and LabCorp, it ordered the operation to be shut down in March 2015.

“From September 2012 through March 2015, approximately 1,100 New Yorkers purchased diagnostic tests through DirectLabs, some of which cost hundreds of dollars. These tests may have been of little or no utility for any number of reasons, including that the tests were not medically appropriate for the consumer, or that the test results did not, in isolation, actually reflect that individual’s likelihood of having the condition tested for,” the agreement said.

One Chiropractor Listed

After getting a complaint about DirectLabs’ practices in March 2015, the AG’s office had a female investigator order seven tests through DirectLabs Access. “Under New York law, laboratories may only perform these tests at the request of a licensed provider, but the investigator was never examined by a licensed healthcare provider in connection with these tests. Moreover, the practitioner whose name appeared on the requisitions (and who was retained by DirectLabs to ‘authorize’ the laboratory tests purchased by consumers) was a chiropractor, and therefore could not legally order four of these tests (CA 27.29, RA factor, PSA, and tacrolimus),” the agreement said.

Investigation Begins

“The investigator intentionally purchased tests that, when performed without a healthcare provider’s involvement, may disserve consumers. For example, the CA 27.29 test was described on DirectLabs’ website as a way to evaluate possible progression of breast cancer, but this test is generally regarded as a poor clinical marker of breast cancer and is not recommended for routine surveillance of patients with breast cancer,” the agreement said.

DirectLabs Charged $24

“After selecting the desired tests, consumers could proceed to check out. Upon checking out, DirectLabs charged a $24 ‘Access Portal Charge,’” the agreement said. “During the two and a half years it conducted business in New York, DirectLabs generated approximately $40,000 in revenue from issuing requisitions to New York consumers through the ‘Access Portal Charges.’

“DirectLabs then sent consumers a requisition form for the selected tests that the consumer could bring to a LabCorp patient service center for the testing to be performed. Consumers would then pay LabCorp the price of the tests, as listed on the DirectLabs website (anywhere from $12 to over $5,000),” the agreement said.

Pathologists and lab executives may find this an interesting detail. DirectLabs charged a $24 fee to the consumer when the lab test order was placed. Then, upon arrival at the LabCorp PSC, the consumer was charged LabCorp’s “EasyPay” fees. That meant DirectLabs was not collecting payment for the lab tests themselves.

Subpoena Issued By NY aG

On March 25, 2015, shortly after getting a subpoena from the New York AG, DirectLabs informed LabCorp that it would no longer operate in New York State. In October 2015, LabCorp terminated its contract with DirectLabs. “At the time that it terminated its contract with DirectLabs, LabCorp had no other contracts with virtual accounts offering direct access testing to New York consumers through the internet,” the agreement said.

In addition to paying $225,000, LabCorp agreed to comply with certain requirements of the settlement and file reports about its compliance with the AG’s office.

DirectLabs paid $24,500 plus $5,500 in restitution, and was ordered to track which customers processed their refund payments and “make all commercially reasonable efforts to refund all customers with unused requisitions.” DirectLabs also agreed to file compliance reports with New York State.

Within 210 days of the date of the agreement, DirectLabs was ordered to pay the AG the difference between $5,472 (the total amount of potential refund payments) and the actual amount in refunds.

Contact Doug Cohen at 212-416-8060 or doug.cohen@AG.NY.gov.

 

Settlement Agreements Spell Out Business Model for DAT Used by DirectLabs and LabCorp

DOCUMENTS FROM THE NEW YORK STATE ATTORNEY GENERAL show that LabCorp was the exclusive lab partner of DirectLabs for its direct access testing business in New York. These documents explain how the two labs worked together.

DirectLabs instructed customers to verify that a LabCorp location was nearby, to bring the DirectLabs requisition to LabCorp, then pay LabCorp for the testing “at special rates to DirectLabs customers,” the agreement said. After consumers brought their requisitions to LabCorp PSCs and had their specimens drawn, LabCorp made the results available to DirectLabs through an online portal.

“In 2012, LabCorp contracted with DirectLabs to process requisitions for laboratory testing submitted by DirectLabs in New York, at a fee schedule negotiated by the parties,” the agreement said. “Pursuant to a separate management agreement, LabCorp provided DirectLabs access to an electronic interface that enabled DirectLabs to generate requisitions for laboratory tests, transmit customer information to LabCorp, and receive its customers’ test results. LabCorp also provided DirectLabs with requisition forms, report papers, and printing accessories,” the agreement said.

LabCorp’s contract with DirectLabs required that, “before submitting a requisition for laboratory testing… [DirectLabs] shall ensure that all requests for tests have been reviewed and approved by a physician licensed in the applicable patient’s state of residence,” the agreement said.

“When DirectLabs customers appeared at New York LabCorp PSCs with DirectLabs- issued requisitions, LabCorp staff did not check whether a New York-licensed healthcare provider (HCP), acting within the scope of their license requested the testing, or whether New York-licensed HCPs examined those patients before taking and examining specimens from those consumers,” the agreement said. “In some instances, for unknown reasons, the names of other non-New York HCPs appeared on requisitions generated internally by LabCorp,” the agreement added.

“LabCorp processed approximately 130 tests listed on DirectLabs-issued requisitions that are outside a chiropractor’s scope of practice, including tests for cancer antigen, rheumatoid arthritis factor, prostate specific antigen, and tacrolimus,” the agreement said.

“LabCorp considered DirectLabs to be a ‘virtual account,” a company not located in a typical medical practice that owns a web site that offers consumers direct access testing. Since 2009, LabCorp has maintained a diligence checklist for its ‘virtual accounts’ in which LabCorp assesses, among other things, whether the account has a licensed healthcare provider on staff and contracted to order testing in each state, and how the account will document that the licensed ordering provider approved the request that a test be performed. LabCorp did not complete the diligence checklist for DirectLabs because it already had a contract with that entity that addressed these items,” the agreement said.

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