CEO SUMMARY: Within the laboratory industry, there has been a decade-long debate over whether offering discount prices in client bill states could violate some Medicare regulations. UroCor, Inc. decided that an OIG opinion issued in December to a pathology company signaled a potential change in how HCFA and the OIG might begin to view client bill discounting practices by the laboratory industry.
FOR MANY YEARS, THE WIDESPREAD lab industry practice of discounting client bills has caused uneasy debate in the closed conference rooms of more than one laboratory.
Now UroCor, Inc. has squarely confronted the issue of client bill discounting and decided to cease the practice. The Oklahoma City-based company recently sent letters to all its physicians announcing this policy change.
Amended Client Accounts
UroCor’s letter stated that “new guidelines from the federal government have prompted us to re-evaluate the potential risk of federal scrutiny of even the most compliant laboratory account billing arrangements… Therefore, our recent decision to amend our Client Bill accounts was made in keeping with UroCor, Inc.’s mission to provide high quality items and services in compliance with all federal, state and local laws and regulations.” (See sidebar below)
UroCor’s action came at least partly in response to Advisory Opinion 99-13, posted by the Office of the Inspector General (OIG) on December 7, 1999. The Advisory Opinion was in response to the request by an anatomic pathology company for guidance on the practice of “account billing”? physicians on a monthly statement, where the physicians would then turn around and bill third party payers and patients for the purchased pathology tests.
It was noted that the discounted prices to the physicians were always lower than the Medicare allowable amount. Sometimes the discounted prices were below the cost of providing that item or service.
The OIG’s response was that the specific facts of that case might violate several aspects of the Anti-Kickback Statute. It did not comment on other potential code violations that might be triggered by the billing arrangements referenced in the Advisory Opinion.
Apparently UroCor decided that increased scrutiny by the OIG into all aspects of healthcare coding and billing arrangements, combined with the con-clusions of Advisory Opinion 99-13, meant that federal regulators may be rethinking the legality of at least some longstanding lab industry billing practices.
Officials at UroCor were very specific in their responses to inquiries by THE DARK REPORT. “UroCor definitely wanted to maintain the high road on this ambiguous issue,” stated Joel Brandon, UroCor’s Manager of National Accounts and
Managed Healthcare Systems.
“Full legal compliance is a high priority at our company,” he continued. “We also want to help our clients stay compliant with all laws and regulations and clear guidelines make this easier.”
Feedback from UroCor’s physician clients is favorable. “Clients agree that it’s the right thing to do,” noted Brandon. “Doctors share our concerns about compliance and our decision to be proactive on this rather fuzzy issue.”
Advisory Opinion 99-13 was issued in response to a request by attorney Jane Pine Wood of Cleveland-based MacDonald, Hopkins, Burke & Haber on behalf of her client, a three partner pathology group.
“My client was seeing client bill discounts of as much as 50% of Medicare,” said Wood. “Where deep discounting can only be sustained if the client also refers the Medicare business to the discounting lab, there is a potential to trigger inducement issues and potential anti-kickback violations.
Clients Support Decision
“I had many conversations with the OIG as they developed this Advisory Opinion,”? continued Wood. “Their final opinion does indicate that, at some level, deeply discounted client bill pricing for tests would become a violation. The easy test for this would be if the laboratory would continue the account at those discounted prices even if they got no Medicare referrals whatsoever.”
Wood believes that UroCor’s new policy on client bill discounting is a reasonable response to ongoing changes in how HCFA and the OIG view laboratory billing practices. “I’m glad to see UroCor take this public position,”? she said. “I expect the OIG to increase their scrutiny of deeply-discounted client bill pricing practices. As they do, larger laboratories will have the most risk. I also believe that, along with the anti-kickback law, Medicare’s ‘usual charge rule’ may soon become an issue.”
Discounting Client Bills
Commercial labs began the practice of discounting client bills during the 1980s. It was a competitive tool for capturing physicians’ business and expanding the market share of labs offering discounted test prices to clients.
However, this strategy backfired against the lab industry. In states which permit physicians to mark-up and bill third-party payers and patients for lab tests, prices for routine tests were bid down to unprofitable levels.
Thus, many laboratories found themselves in a double dilemma. First, discounted client bills were proving unprofitable. But ceasing the practice gave competing labs, still willing to discount, the opportunity to steal away those accounts. Second, the ambiguity about whether discounting the prices of client-billed tests violated any of several Medicare regulations made many lab managers uneasy at the possibility that federal prosecutors might one day declare such billing arrangements to be in violation.
UroCor’s decision should be hailed as bold, farsighted, and honest. It is the first publicly-traded laboratory company in the United States to openly declare that it will not discount client bills.
UroCor Will Benefit
UroCor will benefit from this decision in the long run. Physician clients who are only interested in the cheapest price will flock to competitors. Physicians who continue to refer tests to UroCor will be doing so because they value UroCor’s quality and service.
For the clinical laboratory industry, UroCor’s decision to cease discounting of client bills now raises ethical standards to a higher level. Will laboratories which continue offering discounted prices to clients find themselves under increased scrutiny by federal investigators?
Further, are federal investigators now beginning to view discounted prices on client bills as a violation of Medicare statutes? Remember, test bundling was thought to be legal in the late 1980s and early 1990s. But when federal prosecutors came to believe it was illegal, it cost the lab industry billions of dollars in settlements and fines, along with at least a couple of jail sentences.