CEO SUMMARY: Florida law has long prohibited clinical laboratories from giving kickbacks and other forms of remuneration to physicians to induce specimen referrals. Specifically, state regulations have prevented labs from placing specimen collectors in physicians’ offices. Despite these clear prohibitions, labs regularly violated state rules by placing specimen collectors and other lab employees in physicians’ offices. Now a new law enacted by the 2012 Florida legislature specifically prohibits these activities.
AS OF APRIL 27, FLORIDA has a new state law that prohibits a number of common lab industry sales practices, including placement of a lab-employed phlebotomist in a doctor’s office and the leasing of phlebotomy space in a physician’s office by a laboratory.
Recognizing that labs often flout the state’s regulations, the Florida legislature passed HB 787, “An Act Relating to Health Care Facilities,” in the most recent legislative session. This bill was signed into law last month by Governor Rick Scott.
Ongoing violations of existing state laws and regulations by laboratories were the impetus behind passage of the new legislation. Often, investigators from Florida’s Agency for Health Care Administration (AHCA) couldn’t get a straight answer to a simple question.
Acting on a complaint or a tip, AHCA investigators would arrive at a physician’s office and find that a laboratory company had placed personnel in the physician’s office. It is against the agency’s regulations for labs to place personnel in a physician’s office to collect blood or other specimens, stated Craig Smith, the former general counsel for AHCA, which regulates clinical laboratories in the state.
After arriving at the doctor’s office, the investigators would ask the laboratory personnel, “What are you doing here?” The investigators almost always got conflicting answers and rarely got the truth, observed Smith, who today is a lawyer in Miami and Tallahassee with Hogan Lovells, serving a variety of healthcare clients. Smith has reviewed publicly available documents on AHCA’s lab inquiries.
A Trend in other States?
Florida joins New York and California as states that prohibit the placement of personnel in physicians’ offices, said Howard Appel, President of Millennium Laboratories, Inc. in San Diego, California. Pennsylvania also has rules prohibiting the placement of personnel in physicians’ offices but they do not go as far as the rules in these other three states.
“Florida’s legislators acted decisively in addressing flagrant violations by laboratories that compromise honest and unsuspecting doctors and their patients in the name of profit,” declared Appel. “Despite previous multiple warnings and actions from regulators in Florida, these bad behaviors continued. Now, violators will be forced to either quit their irresponsible conduct or quit the state entirely.”
Florida’s new law prohibits clinical laboratories from providing personnel to perform functions or duties in a physician’s office unless the laboratory and the physician’s office are owned and operated by the same entity. (See sidebar below.) The new law also prohibits clinical laboratories from leasing space in a physician’s office and requires the agency to investigate complaints, impose fines, and deny an application for a license or license renewal under certain circumstances.
Violations Were Common
It was ongoing violations of existing Florida statutes by laboratories that triggered passage of the new law. “There already were a number of Florida laws— including a provision in the clinical laboratory licensure chapter—that prohibit any person from giving a physician kickbacks or any form of remuneration in return for referrals,” explained Smith. “Broad anti- kickback laws already exist in Florida and in federal law.
“When you read Florida’s statutes and regulations prior to this new legislative amendment, you can see that a laboratory is prohibited from giving remuneration to physicians to induce their referrals, including by placing a person in a physician’s office to collect specimens,” he said. “This was one activity that was specifically called out in the regulations as a kickback.
“But there were a number of lab companies attempting to circumvent that prohibition in different ways,” continued Smith. “One way was for the laboratory to enter a so-called ‘space lease’ in a doctor’s office, then place their own employee in that leased space. “In so doing, the labs still were subject to regulatory scrutiny,” he said. “But those labs often argued, ‘I haven’t placed a collector in a doctor’s office. That’s my leased space.’
Flawed Argument
“However, that argument has an obvious flaw: if it is an unlawful kickback to place a specimen collector in a physician’s office, how can it be okay to place the collector there and give the physician lease payments?” added Smith.
“Also, when investigating licensure complaints, AHCA staff would learn that a lab had placed a person in the physician’s office but would hear very conflicting statements about what the person was doing,” he noted. “The individuals involved would deny that any specimen collection was going on, which would lead to the question of why they were working within the doctor’s office. Unfortunately, investigators rarely got a straight answer.
“The agency’s rule says a lab cannot place its personnel inside physicians’ offices to collect specimens, but in truth, there’s a bigger issue,” Smith said. “The overarching statute essentially says you can’t give a physician remuneration of any kind to induce referrals to your lab.
“So now the legislature has decided to make it crystal clear in statute: labs cannot place personnel in physicians’ offices to perform any function whatsoever,” he explained. “There were a lot of arrangements that appeared to be suspect, and the legislature enacted this provision to make it very clear in the law that those types of arrangements are specifically unlawful. The new legislation also makes clear that labs are prohibited from using independent staffing companies or other indirect means to circumvent the prohibition.
Advisory Committee Created
“Since 2010, the agency has been looking into this issue,” noted Smith. “AHCA had convened a technical advisory committee that included representatives from the clinical laboratory industry to advise the agency on the need for more specific regulations or laws.
“When you have personnel from a lab in the doctor’s office to perform functions that the doctor’s office staff should be performing, it could open the door to many unscrupulous practices,” he observed.
“The federal Office of Inspector General (OIG) also has expressed concern about labs placing phlebotomists in physician’s offices,” observed Smith. “However, to date, the OIG has not announced a bright-line rule that the practice is unlawful.
“The core question in this context— under all types of anti-kickback laws—is this: ‘Does the lab intend to induce a referral by offering the physician something of value?’ Those prohibitions can apply,” he said, “whether that value appears in the form of cash payments or free personnel to perform services.”
New Florida Law Aims To Eliminate Ambiguity
FLORIDA LAW HB 787, titled “An Act Relating to Health Care Facilities,” defines precisely what labs cannot do regarding the placement of personnel in doctors’ offices. The law states:
A clinical laboratory is prohibited from, directly or indirectly, providing through employees, contractors, an independent staffing company, lease agreement, or otherwise, personnel to perform any functions or duties in a physician’s office, or any part of a physician’s office, for any purpose whatsoever, including for the collection or handling of specimens, unless the laboratory and the physician’s office are wholly owned and operated by the same entity.
A clinical lab is prohibited from leasing space within any part of a physician’s office for any purpose, including for the purpose of establishing a collection station.
The agency shall promptly investigate all complaints of noncompliance with subsection (1). The agency shall impose a fine of $5,000 for each separate violation of subsection (1). In addition, the agency shall deny an application for a license or license renewal if the applicant, or any other entity with one or more common controlling interests in the applicant, demonstrates a pat- tern of violating subsection (1). A pattern may be demonstrated by a showing of at least two such violations.
Level Playing Field Good for All Labs
ONE LAB INDUSTRY EXECUTIVE with extensive experience in lab sales and marketing for large health systems and public laboratory companies points out that compliance with both federal and state laws should help small labs in Florida compete more effectively.
“By eliminating the ability to put phlebotomists in doctor’s offices, this new Florida law will help to level the playing field,” stated Julie Pantalone, who is Vice President of Sales at Atlas Medical in Calabasas, California.
“Smaller labs—with a proportionally higher cost structure—often feel they are at a disadvantage against larger labs because it’s hard to justify the added financial impact of putting a phlebotomist in a doctor’s office,” explained Pantalone. “Physicians— especially high-volume specialists—ask labs to put phlebotomists in their offices.
“Many labs, when signing agreements for these arrangements, spell out what the phlebotomists can and can’t do,” she said. “But just because the lab has a piece of paper signed by the doctor and the lab, that doesn’t mean the phlebotomists will follow those guidelines. Plus, how does a small lab justify putting an employee in place to draw 20 patients a day when that phlebotomist could do 40+ patients a day in a patient service center?”
