Government Regulators Transforming Lab Industry

New compliance guidelines for laboratories represent watershed change for the industry

CEO SUMMARY: Medicare/Medicaid regulators get serious about laboratory billing and reimbursement practices. Industry observers say it represents a major shift and will have immense financial and operational impact on every clinical laboratory in the United States.

FOLLOWING YEARS of “benign neglect” toward Medicare billing practices, regulators will now scrutinize laboratory reimbursement activities with full vigor.

During the press conference announcing the $325 million settlement with SmithKline Beecham Clinical Laboratories on February 24, government officials unveiled a model compliance program for clinical laboratories.

Deliberately timed to coincide with the SmithKline announcement, June Gibbs Brown, Inspector General for Health and Human Services, introduced the model compliance program as an effort toward “promoting a high level of ethical and lawful corporate conduct and preventing future scams.”

The model compliance program is a consequence of the ongoing investigation of laboratory industry practices. It represents a watershed change in how federal regulators will interact with clinical laboratories and the healthcare industry in general.

“This will be one of the most challenging times in the laboratory world,” declared Dennis Weissman, Publisher of the National Intelligence Report in Washington, D.C. “The events now unfolding represent some of the greatest changes to laboratory practices since the introduction of DRGs in the early 1980s.”

“The model compliance guide- lines place new responsibilities on clinical laboratories which have never before existed,” warned Weissman.

Weissman’s comments were made in a speech at the American Hospital Association’s annual laboratory conference held last week in Las Vegas. Weissman described how the regulatory climate toward clinical laboratories is undergoing radical change. These fundamental shifts will have far-reaching impact on how both hospital-based and commercial laboratories operate.

“The model compliance guidelines place new responsibilities on clinical laboratories which have never before existed,” warned Weissman. “The guidelines make corporate managers accountable and responsible for the activities of their laboratory.”

Wiessman advised that laboratory managers should give these new developments full and serious attention. Because Weissman has 20 years experience in advising the laboratory industry on regulatory and other issues, his opinions carry both credibility and authority.

As regulators introduce new guidelines and management practices into the laboratory industry, laboratory administrators and managers must respond appropriately. Failure to do so can be costly. Federal investigators will now hold managers personally accountable for how laws and regulations were enforced by individual laboratories.

Model Compliance Guidelines For Labs

Here are 11 elements which federal regulators recommend be part of every laboratory’s internal compli- ance program:

  1. Written standards of conduct for employees.
  2. Development and distribution of written policies addressing specific areas of potential fraud.
  3. Designation of a Chief Compliance Officer within the organization who is charged with operating the compliance program.
  4. Development and offering of education and training programs for all employees.
  5. Use of audits or other evaluation techniques to monitor compliance.
  6. Development of a code defining improper or illegal activities and use of disciplinary proce- dures to enforce that code.
  7. Investigation and remediation of identified systemic and personnel problems.
  8. Promotion of and adherence to compliance as an element in evaluating supervisors and managers.
  9. Development of policies addressing the non-employment or retention of sanctioned individuals.
  10. Maintenance of a hotline to receive complaints and the adoption of procedures to protect the anonymity of complainants.
  11. Adoption of requirements applicable to record creation and retention.

Federal Regulators

Most of the laboratory industry is not aware that federal regulators have quietly taken a greater role in the day-to-day management of the larger commercial laboratories. Within those laboratories, a higher standard of compliance and management accountability is already in place.

Starting in March 1995, Allied Clinical Laboratories was the first company to sign a compliance agreement with the federal government. Since that date, five other laboratories have also signed compliance agreements.

They are Quest Diagnostics Incorporated, Laboratory Corporation of America, Spectra Laboratories, Meris Laboratories and SmithKline Beecham Clinical Laboratories.

These compliance agreements resulted from federal investigations. They were part of the resulting settlement conditions. For a term of five years, the laboratories agree to perform annual reviews of their compliance activities, certify that they are in compliance and report and disclose the results of such reviews and internal audits to the federal government.

Federal regulators call these “corporate integrity agreements.” Some laboratories have released statements touting their new corporate integrity agreements as a positive step in compliance. In reality, federal regulators required the companies to execute these agreements in order to resolve outstanding allegations of Medicare fraud.

Enforcement Activity

Taken collectively, the actions of federal regulators in obtaining corporate integrity agreements and issuing model compliance guidelines to the laboratory industry demonstrate that enforcement activity will continue.

The broad extent of regulatory influence on laboratory practices will become apparent as further guidelines affecting billing, reimbursement and medical necessity are announced during the next 24 months.

Weissman discussed several of these initiatives during his speech in Las Vegas. He also provided a list of common laboratory billing infractions. Expect regulators to closely scrutinize eight specific areas as follows.

Unprovided Services

One, billing for unprovided services. Both Quest and SmithKline settled charges that they had billed Medicare for tests not performed or reported.

Two, misrepresenting a patient’s diagnosis to justify services performed. One example of this would be if a laboratory does not get a diagnosis code from the physician, but provides one that was used for an earlier test by the same patient.

Three, deliberately billing multiple payers for the same test.

Four, unbundling or “exploding” charges. This is one area of federal investigation which will rapidly expand outside the laboratory and into hospitals and physicians’ offices.

Five, misrepresenting the services rendered, the amounts charged for the services rendered, the identity of the per- son who received the services, or the dates on which the service was performed.

Six, billing for uncovered services. Seven, participating in schemes that involve collusion between providers or suppliers that result in higher charges to Medicare.

Eight, utilizing split billing schemes.

The government is providing extensive information about regulatory issues on an internet site. The site is maintained by Human Health Services and the Office of the Inspector General. It can be reached through the internet address of

Six Laboratories Signed Corporate Integrity Pacts

As part of the settlement of allegations of Medicare fraud, six clinical laboratories signed and implemented corporate integrity agreements with the federal government:

Allied Clinical Laboratories.
March 20, 1995
Corning Clinical Laboratories
(Now Quest Diagnostics Inc.)
October 9, 1996
Laboratory Corporation of America
November 20, 1996
Spectra Laboratories
December 10, 1996
Meris Laboratories
February 12, 1997
SmithKline Beecham Clinical Labs
February 24, 1997

Whistleblowers Play Big Role In SmithKline Laboratory Case

WHISTLEBLOWERS PLAYED A SIGNIFICANT ROLE in the recent settlement between the federal government and SmithKline Beecham Clinical Laboratories (SBCL). At least seven different whistleblowers filed suit against SBCL and will share in the settlement. Federal statutes permit judges to award up to 25% of the settlement to whistleblowers. This means whistleblowers could split as much as $81 million of the $325 million settlement. A ruling on this phase of the lawsuit is expected shortly.

The major whistleblower was Robert Morena. He worked in data and systems management at SmithKline’s national billing center in Collegeville, Pennsylvania. Public records indicate that when Morena noticed billing problems four years ago, SmithKline executives ignored his requests that billing irregularities be addressed and solved. After filing his suit almost three years ago, Merena assisted federal investigators in understanding subpoenaed documents and how billing processes worked at the billion- dollar laboratory. He resigned his $50,000 per year position with the company as part of a negotiated settlement of his qui tam lawsuit.

The medical director of SmithKline’s laboratory in San Antonio, Texas was another whistleblower. Charles W. Robinson, M.D. raised questions about both marketing and billing practices. According to his attorney, John Clark, Dr. Robinson was told, “Thanks for telling us, but we know what we are doing.” He resigned his job in 1993 and filed his whistleblower lawsuit that same year.

The original laboratory industry whistleblower, Jack Dowden, had also filed suit. Dowden was the individual who launched the National Health Laboratories case. He and Kevin Spear filed an action against SmithKline and will share in the settlement. Other whistleblowers who will share in the settlement between the federal government and SmithKline are Glenn Grossenbacher, a San Antonio attorney; Jeffrey S. Clausen of Gwinnett County, Georgia; and William St. John LaCorte, M.D. of New Orleans, Louisiana.

With the federal government tightening compliance requirements for clinical laboratories, THE DARK REPORT expects to see more whistleblower actions. These would be originated by employees in smaller regional labs and inside hospital-based laboratories. For that reason, it is recommended that laboratory executives act swiftly to perform legal due diligence. Timely actions to insure that the laboratory is in full compliance can forestall both whistleblower  lawsuits and federal investigations.


Leave a Reply


You are reading premium content from The Dark Report, your primary resource for running an efficient and profitable laboratory.

Get Unlimited Access to The Dark Report absolutely FREE!

You have read 0 of 1 of your complimentary articles this month

Privacy Policy: We will never share your personal information.