Attorney Cautions Laboratories Against Waiving Patient Fees

Mix of federal and state laws, plus payer policies, creates heightened risk from misinterpretation

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WHEN A CLINICAL LAB WAIVES patients’ fees in exchange for lab test referrals, competing labs face a legal dilemma.

If the competing lab does not match the offer, it could lose volume to this aggressive sales technique. But if the lab does match the offer, it could run afoul of health plan requirements not to waive fees and it could face investigations from federal and state regulatory agencies for offering an inducement to the referring physician or to the patient.

Peril for Regional Labs

“The situation is most pressing for small and regional labs when a large national lab offers to waive patients’ fees because the smaller labs find it difficult to compete by doing that testing for free,” stated Jeffrey J. Sherrin, a health law attorney with O’Connell & Aronowitz PC in Albany, N.Y., who has extensive experience representing clinical laboratories.

Public lab companies have been the most prolific users of this scheme, known as “waiver of charges for managed care patients.” It is based on an OIG Fraud Alert issued in December 1994. (See TDR, August 26, 2002.)

One recent example of its use surfaced in Florida. A physician there was given a letter signed by a representative of Quest Diagnostics Incorporated. In the letter, Quest Diagnostics stated it would not submit lab test charges to “UnitedHealthcare Fully-Insured Products, Golden Rule, The Empire Plan, United Medical Resources and Oxford.” Laboratory Corporation of America has an exclusive national lab contract with UnitedHealth. (See TDR, December 7, 2015.)

After learning that Quest Diagnostics Incorporated had offered to waive fees for a physician in Florida, THE DARK REPORT asked Sherrin to comment. “This is a complicated area of law and laboratory operations, and there is much room for misinterpretation,” he said.

Sherrin noted that the Office of Inspector General of the federal Department of Health and Human Services has issued two opinions on the practice of waiving fees. Attorneys for clinical labs often disagree on how to interpret those opinions.

For Sherrin, however, the bottom line is clear: Clinical labs that offer to waive patients’ fee should not assume they are free from risk simply because they believe that they are not providing a direct benefit to referring physicians.

Fee Waivers Will Proliferate

“It’s important to understand that policies such as the Quest waiver of charges letter will proliferate in the industry because it’s a matter of survival for laboratories that are kept out of participation agreements due to exclusive contracts,” he explained. “This is not a life or death problem for Quest, but it is a life and death problem for many community clinical laboratories that are increasingly being shut out of business by managed care plans and insurance programs that limit network participation to one or a few laboratories.

“In my opinion, the attention should not be on prosecuting smaller laboratories that have to adopt competitive measures to stay in business,” noted Sherrin. “Instead attention should be devoted to stopping this practice of exclusive managed care contracts that are based purely on price, and that do nothing to enhance the quality of services to patients.

“One other issue to keep in mind is that the Anti-Kickback Statute deals with referrals that are paid for under the Medicare or other federal healthcare programs,” he advised. “Since the Quest letter relates to managed care programs, Quest is not dealing with Medicare referrals. So, the question under the federal Anti-kickback Statute is whether this waiver of private pay charges induces the referral of Medicare or other federal healthcare business. That is not an easy burden for the OIG to prove.

“And, it brings up another issue, which is the risk—not from a federal anti-kickback prosecution—but from a civil action or false claims lawsuit being brought by a commercial insurer against a lab company, such as what Aetna and Cigna recently have done,” advised Sherrin. “These lawsuits depend on laws in individual states. The theories in these lawsuits are interesting, innovative, and—in many ways—more troublesome to labs than the possibility of a federal anti-kickback prosecution.”

Insurers Becoming Proactive

Clinical lab executives and their legal advisors should take notice of Sherrin’s comments. He is pointing out that health insurers are becoming more proactive in pursuing non-participating labs that employ billing practices that, insurers claim, undermine their plan relationships with members. This includes more aggressive audits of claims, and, as Sherrin noted above, an increased number of lawsuits in which a health insurer is suing a lab company to recover payments it asserts were the result of false claims arising out of waivers of patient responsibility, whether copays, deductibles, or even balance billing.

“There has been much more activity in this area than in federal anti-kickback prosecutions,” he added. “That is why I would caution laboratories to seek legal guidance on these potential liabilities, with a concern that is as much or more than their concerns with federal prosecution.”

Managed Care Risks

Having addressed the potential risks labs face from managed care plans, Sherrin then turned to the issues related to OIG Advisory Opinion 15-04, which the Office of Inspector General issued last year in response to a request from an unknown lab with operations in many locations throughout an unnamed state. In the opinion, the OIG said a lab offering to waive such fees may run afoul of anti-kickback laws.

“Based on the facts certified in your request for an advisory opinion and supplemental submissions, we conclude that the Proposed Arrangement could potentially generate prohibited remuneration under the anti-kickback statute and that the Office of Inspector General (“OIG”) could potentially impose administrative sanctions on [name redacted] under sections 1128(b)(7) or 1128A(a)(7) of the Act (as those sections relate to the commission of acts described in section 1128B(b) of the Act) in connection with the Proposed Arrangement,” the OIG said in its opinion.

Sherrin noted that Advisory Opinion 15-04 does not definitively oppose such arrangements. “It also does not change what the OIG had said when it issued a special fraud alert on the subject in 1994, known as ‘Routine waiver of Medicare Part B copayments and deductibles,’” he said.

“I do not find 15-04 to dramatically change the approach of the OIG from the 1994 Special Fraud Alert,” he said. “Labs need to understand that the Anti-kickback Statute prohibits remuneration intended to induce referrals of services payable by a federal healthcare program. There is no question in my mind that the purpose of the Quest waiver letter is to induce referrals. By itself, that is not illegal, a factor commentators often overlook.“So the question becomes whether the waiver of charges to the patient and the health insurance plan results in any remuneration to the referring physician,” Sherrin continued. “That is what the 1994 Special Fraud Alert addressed, and it discussed ways in which the physician might financially benefit from a waiver of charges.“A special fraud alert is designed to address a problem that is of increasing concern nationally to the OIG,” he observed. “It is not addressing a particular laboratory or provider’s situation. It is designed to give guidance to the industry.

Purpose of Advisory Opinion

“An Advisory Opinion, such as 15-04, serves a different purpose. It tells a specific provider (that seeks an opinion, called a requestor) whether that provider is immune from, or at some risk of, prosecution under the specific facts the requestor presents,” Sherrin explained. “In 15-04, the OIG recognized first that the arrangement would not fit within a safe harbor.

“Thus, the next question the OIG had to answer was whether it could give an assurance to the requestor laboratory that it would not face any risk of prosecution under the Anti-Kickback Statute, or the Substantially-in-Excess law,” he stated. “The OIG opined that it could not give that immunity because there was a possibility that the physician could receive some remuneration. Further, the OIG did not find an overriding clinical or cost benefit to the arrangement that would outweigh the possibility of an anti-kickback violation. This OIG advisory opinion does not change the law at all.

Some State Laws Address Waiver of Charges Issue

INDEPENDENT OF FEDERAL LAW, several states have statutes that address inducements and kickbacks. One attorney who saw the waiver of charges letter given to the Florida doctor by Quest Diagnostics is J. Marc Vezina, of the Vezina Law Group in New Orleans and Birmingham, Michigan.

In a story THE DARK REPORT published on December 7, 2015, Vezina said that the letter could be the basis for a False Claim Act violation, and possibly could be a violation of Florida state insurance rules and regulations. “My preliminary analysis is that this is a straight kickback arrangement—nothing more, nothing less,” Vezina declared. “This is clearly an arrangement in which Quest is driving market share, and therefore utilization, in exchange for waiving patients’ fees. In that way, the letter plainly describes a kickback arrangement that could be illegal under the Anti-Kickback Statute. Quest Diagnostics is saying, ‘If you give us your market share we will waive the fees for your patients.’

“An out-of-network laboratory can benefit itself and the client physician if it waives the patients’ charges and has the physicians continue to refer patients to it,” he noted. “First, the arrangement obviously benefits the lab because it gets work it probably wouldn’t get because it is not an in-network provider. Second, it benefits the plan member who is not charged a fee for going out of network. Normally, a patient going out of network would be charged a fee for doing so and that fee usually is much higher than going to an in-network laboratory.”

Our December 7, 2015, issue included a statement by Wendy H. Bost, Director, Corporate Communications at Quest, on this matter. She said, “Quest Diagnostics carefully evaluates our billing practices and has a vigorous compliance policy designed to comply with applicable laws and regulations. We have reviewed the March 2015 OIG advisory opinion (AO 15-04). Our position on this recent AO is aligned with that of our trade group, the American Clinical Laboratory Association (ACLA).”

“The factor in 15-04 that is disturbing is the type of benefit that the OIG says it could consider in deciding whether there is unlawful remuneration,” Sherrin added.

One month after the OIG issued its Opinion 15-04 in March 2015, the American Clinical Laboratory Association wrote to the OIG to say it had serious reservations about the opinion and that the opinion contained “novel theories” that could be misapplied to labs using “otherwise permissible arrangements.” The ACLA referred to a federal court case, U.S. v. Hagstrom et al, (No. CR-04-120-R, Dec. 28, 2004), that was similar.

Seeking Precedent

On this issue, Sherrin stated, “The ACLA letter is correct in that the Hagstrom federal court case in 2004 held that this sort of benefit would not constitute unlawful remuneration under the Anti-Kickback Statute. The problem is that there are really no other decisions from courts that address this question, and the OIG has never issued any statement that it would not consider these types of benefits to be unlawful remuneration.

“I do not agree with the ACLA letter, however, to the extent that it overstates the meaning of 15-04, and that it has reversed the 1994 Special Fraud Alert,” he added. “Basically, 15-04 says that each case has to be viewed individually, and there is no bright-line rule about what charges can be waived and what cannot be waived. The government would still have to prove that there was remuneration to the referring physician.”

So, now the question is whether Opinion 15-04 prohibits Quest Diagnostics from waiving fees, as it offers to do in the letter to the Florida physician. “I don’t think the waiver letter goes against 15-04, because it requires the referring physician to certify that he or she receives no financial benefit as a result of the waiver,” noted Sherrin. “The problem is that 15-04 does not lay out what can constitute a financial benefit or unlawful remuneration.

Much Uncertainty

“And, as we can see from the 1994 Special Fraud Alert, the Hagstrom decision, 15-04, and the ACLA letter, there is much uncertainty about what constitutes remuneration,” noted Sherrin. “Therefore, while the Quest letter purports to try to obtain a certification of compliance with the law, it will not insulate the parties from prosecution if the OIG decides to interpret remuneration much more broadly than Quest does.”

Sherrin also disagreed with another statement in the letter from ACLA. “I don’t think the ACLA letter correctly identifies an increased risk of prosecution,” he wrote. “This is because 15-04 tells one laboratory that its arrangement could potentially generate illegal remuneration, but the OIG does not have enough information upon which to give a definitive opinion.

“The concern with 15-04, which the ACLA letter correctly points out, is that it specifically identifies forms of benefit that, to the OIG, might constitute remuneration that were not previously identified, and for which there is very strong argument that it would not be remuneration. So what 15-04 does is to tell the lab industry to be careful, and not to assume that just because the laboratory is not directly benefitting the physician financially, it is free from risk,” Sherrin wrote.

In conclusion, he added, “The questions for clinical labs are these: How big is the risk, and how risk adverse are the parties involved?”

Contact Jeffrey J. Sherrin at 518-462-5601 or


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