What Labs Need to Do as Payers Audit More Claims

Both government and private health plans are aggressively auditing labs for multiple issues

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CEO SUMMARY: Attorneys who advise pathologists and clinical laboratories on compliance issues say the number of audits from the government and third-party payers has increased sharply in recent years. In those audits, payers are looking for recoupment of overpayments. A lab’s failure to provide proper documentation during these audits can result in the need to pay sixand seven-figure amounts. Payers also are auditing out-of-network billing and patient balance billing.

CLINICAL LABS AND PATHOLOGY GROUPS are facing an unprecedented level of audits from healthcare payers, according to lawyers who represent medical labs and pathologists.

“In addition to a substantial increase in audits, more health insurers are scrutinizing how pathologists and labs handle outof-network billing, including how they balance-bill patients,” stated attorney Jane Pine Wood, of the national firm of McDonald Hopkins.

“Payers are also conducting more audits of pathology and lab claims to assess medical necessity,” she continued. “Much of this audit activity is associated with payer concerns about specific fraud and abuse issues triggered when a pathologist or laboratory offers benefits or payments to providers. Some of these issues were identified in an OIG advisory opinion issued on June 25, 2014.

“In this advisory opinion, the OIG described two specific trends it identified and described as ‘involving transfers of value from laboratories to physicians that it believes present a substantial risk of fraud and abuse under the anti-kickback statute,'” noted Wood. “One of these activities is the payment by laboratories to physicians for collection and handling services.

“Payments by laboratories to physicians for participation in studies or registries was the other activity discussed in the OIG advisory opinion,” stated Wood. She made these comments during a recent webinar produced by THE DARK REPORT.

Many More audits of Labs

“Probably the most significant development, however, is that both government and private payers are doing many more audits of labs’ and pathology groups’ billing practices than they have done in the past,” emphasized Wood. “In addition, federal investigators are looking closely at the need for documentation of special stains and test panels for toxicology, molecular, and genetic testing.

“In our law practice we see a tremendous uptick in the number of audits of our pathology and clinical laboratory clients by both government and third-party payers,” commented Wood. “Not only has the number of audits increased, but, compared with past years, a much greater number of third-party payers are conducting audits and seeking to recoup money from our pathology and laboratory clients.”

Wood identified areas of audit risk and discussed how labs should be prepared to handle such audits.

“It is important to respond appropriately to audit requests,” observed Wood. “Often, auditors will check only a few billing records. Then, if errors are found, they will extrapolate and hit pathologists and labs with bills for hundreds of thousands of dollars or more.

“If your practice or lab gets an audit request, look carefully at everything the auditor requests and supply everything that you can,” advised Wood. “If it’s not possible to assemble everything needed in time to meet the auditor’s deadline, request an extension and document in writing that the extension was granted. Next, do everything you can to send in all the requested information at one time.

Auditors Becoming Stricter

“This is important because increasingly we find that auditors are very strict,” she noted. “If your lab is missing any bit of information, the case gets denied.

“Keep in mind that these audits are part of an extrapolation process,” Wood stated. “If the auditors find an error rate of 50% in 20 to 30 charts and should any medical information be missing, then the auditors look back at all the CPT codes involved over the previous two years. Auditors then extrapolate that into an overpayment made to the pathology practice or lab.

“The next communication the pathology practice or lab will receive will be the extrapolated amount-which can be a sixor seven-figure dollar total,” she noted. “Your practice or lab does not get additional time to resubmit any information that was not included earlier. Thus, your
lab is now in a defensive position. So the more information collected and submitted up front, the better.”

Having explained the need to respond quickly and completely to any audit request, Wood next outlined how payers are asking for more documentation from labs, particularly additional documentation for claims involving special stains or test panels.

Asking For More Documents

“The common theme among these audits is the requirement for documentation of medical necessity,” explained Wood. “But thirdparty payers have a challenge in defining and determining medical necessity, particularly when dealing with physicians or ordering clinicians. Providers often question what role third-party payers have in determining medical necessity.

“In any discussion of payment policies and audits, it’s important for pathologists and lab managers to think of ‘medical necessity’ as code for what the payer considers to be a covered service,” continued Wood. “Therefore, defining ‘medically necessary’ is like ‘beauty’ in that it is determined somewhat in the eyes of the beholder.

“The criteria to establish medical necessity can be different from one setting to another because it depends on the payer’s view,” she said.

Defining Medical Necessity

“In fact for pathologists and labs that participate in health plans that serve as clearing houses for multiple payers, the individual plan or payers typically define medical necessity,” Wood explained. “As a result, even when a pathologist or lab bills one common payer, that payer could have multiple interpretations of medical necessity.

“Generally, government and private payers have three basic criteria for determining medical necessity,” she added. “To explain these criteria, it’s best to think about medical necessity as a payer would consider the need for an MRI scan. When any payer considers a payment for an MRI, the first criteria is typically to see evidence of documentation. If it’s not documented, the payer will assume it didn’t occur.

“So, the first step is to ensure your practice or lab has a physician’s signed order,” she explained. “In the pathology and clinical laboratory context, Medicare does not require signed orders for clinical lab tests and does not require a signed requisition. But still there is a requirement for documentation that a physician ordered a clinical laboratory test. Even in anatomic pathology which, according to Medicare, is different from the clinical lab world, there is still a requirement for a written order.

Health Insurers Now Want Documentation When Pathologists Order Special Stains

WHEN A PATHOLOGIST ORDERS a special stain, currently he or she does not usually include a signed order for this additional service. That may be changing, due to new polices by health insurers.

Jane Pine Wood, an attorney at McDonald Hopkins who advises clinical laboratories and pathology groups, says that government and private payers are beginning to request documentation from physicians when special stains are needed.

“When a pathologist orders a special stain, nothing excuses the pathologist from the same requirements that would apply to any other physician or any other service,” she stated. “This means the insurer needs to have a signed order from the pathologist for that additional service.

“The pathologist’s order could be a signed requisition,” she continued. “It could be something signed on a chart within the laboratory. Because of that lack of a signed order, we’ve seen payers rule against client pathology practices and pathology labs during these types of audits.

“Typically, the medical necessity to support the pathologist’s order for special stains will be in the report itself,” stated Wood. “This is why I urge pathologists to write down why they are ordering an IHC stain, for example. In addition, I’ve seen audits where private payers denied payment for FISH and flow cytometry tests due to lack of documentation. In particular, UnitedHealthcare is denying these payments.

“Should the health insurer not see documentation in the pathologist’s report about why he or she ordered these additional services, then payment could be denied,” commented Wood. “For pathologists currently not including such information in the reports, my suggestion is to prepare standard language that can be included in the report, as appropriate, to ensure payment.

“On this point, Palmetto GBA, the Medicare Administrative Contractor (MAC), has made an issue of the need for documentation for special stains,” she noted. “Other MACS and private health insurers sometimes follow Palmetto’s lead.

“Recently, there was a local coverage determination (LCD) from Palmetto about special stains that has been controversial,” explained Wood. “Despite complaints from the College of American Pathologists, among others, against the presumptive guidelines in the LCD, pathologists still need to comply with the LCD.

“In response to Palmetto’s policy, we see evidence that the other MACs are adopting this same policy,” concluded Wood. “There is also evidence that one private payer is in the process of adopting that policy.”

Physician Order Needed

“Again, it’s not necessary to have a signed requisition for clinical laboratory tests, but clinical labs and pathologists need some documentation signed by the physician showing that he or she ordered the test,” emphasized Wood. “It could be a signed requisition or an electronic signature sent through an EMR. Alternatively, the physician might document and sign in the patient chart that he or she ordered the particular service or lab test.

“In a worst-case audit scenario, it may be necessary to go back to the ordering physician and request a signed attestation stating that he or she ordered the tests in question,” she stated. “Such an attestation is not ideal, but would be better than not having any documentation.

“The second element that payers require is medical necessity documentation,” continued Wood. “This has gotten to be very difficult for a number of clients, particularly when test panels are involved.

“We now see payers asking many questions about test panels in toxicology and in genetic and molecular testing,” she noted. “It’s not such a problem in anatomic pathology at this point.

“Payers want to see something in the patient’s medical record where the attending physician documented why that test would be necessary for the patient,” stated Wood. “For example, if a genetic test was ordered, the payer wants to know what factors in the patient’s medical condition led the physician to order that test.

Test Panels Draw Scrutiny

“Pain management is a good example because these physicians often have a panel of tests that they order for certain classifications of patients,” she said. “Payers now ask for documentation that every test in that panel is necessary. And if these tests are ordered frequently for a particular patient or group of patients, payers want documentation that such frequency of testing is required.

“The same is true for genetic testing, particularly in pharmacogenetics,” she continued. “If the test is ordered as a comprehensive genetic panel, payers want to see documentation in the patient chart that there is medical necessity for each test being ordered.

“One aspect that labs need to consider is the design of the lab requisition,” warned Wood. “Back in the 1990s and early 2000s, there were large Medicare settlements for labs that offered panel testing without the ability of physicians to select individual tests. In such cases, federal healthcare officials view automatic prepackaged bundling as fraud and abuse.

“I have seen significant recoupments from some of our lab clients recently,” she added. “That’s because the design of their requisitions did not give physicians the ability to order individual tests and the physician’s medical records didn’t adequately document the medical necessity for every test in the panel.

New Document Requirement

“The third element about medical documentation is a new requirement from payers that we’ve seen in several audits,” noted Wood. “Payers want to see documentation in the patient record of the use or review of the information by the referring physician.

“This happens often, for example, when a neurosurgeon orders an MRI,” she continued. “Almost invariably, there will be mention in the medical record that the neurosurgeon reviewed the MRI and discussed results with the patient. If nothing else, that’s standard documentation from a liability standpoint. This is something payers want in the document, but we have yet to see that happen with clinical lab testing.”

In closing, Wood explained that clinical lab directors and pathologists need to address the need for documentation. “As the laboratory or pathology provider, you’re the ones who got the money. So if a repayment is needed, it will not come from the ordering physicians. That repayment comes from your laboratory,” she emphasized. “So it is prudent to do everything you can to educate physicians about proper ordering and documentation for lab tests and pathology services.”

Contact Jane Pine Wood at 508-385-5227 or jwood@mcdonaldhopkins.com.

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