CEO SUMMARY: Criminal charges in the case against three ex-UroCor executives will likely alter existing compliance practices that affect how a lab offers price discounts to physicians and the way a lab uses “waiver of charges” in situations where it is an out-of-network provider. Attorney Jane Pine Wood was one of the first to see the federal indictment and offers a first assessment of its potential impact.
ONE LAB INDUSTRY ATTORNEY who’s had a careful look at the federal indictment of three ex-UroCor executives believes it creates new concerns regarding the compliance of specific laboratory sales and marketing practices.
“To my knowledge, this is the first time federal investigators have filed criminal charges against laboratory executives for such marketing practices as price discounting and waiving charges to out-of-network managed care patients,” declared Jane Pine Wood, Partner at McDonald Hopkins, based in Cleveland, Ohio.
Initiate A Legal Review
“The charges listed in these indictments break new ground,” she noted. “My recommendation is that every laboratory and pathology group practice should have their legal counsel study the indictment and discuss how it may affect existing sales and marketing practices.”
In an exclusive interview with THE DARK REPORT, Wood offered in-sights about the three types of marketing tactics which the federal attorney claims violated the Medicare and Medicaid anti-kickback law.
“Let’s take the easiest one first,” she began. “That’s the criminal charge involving UroCor’s ‘consulting service agreements’ with certain urologists. This will be relatively simple to prove. If there is no documentation or proof that UroCor received consulting services from the urologists paid under these agreements, then it is a likely the jury will vote to convict.
“However, use of these types of agreements is not common within the laboratory industry,” observed Wood. “So this part of the indictment shouldn’t have much impact on the laboratory industry.
“Next are the criminal charges based on how UroCor used discounted billing,” said Wood. “Laboratories need to do their homework on this topic. This case may establish some new precedents. However, UroCor’s willingness to offer very deeply-discounted pricing sets it apart from most laboratories in the United States.
“The indictment lists examples where UroCor discounted laboratory test prices by as much as 90% of the Medicare reimbursable rate. This allowed client urologists to benefit by creating larger mark-ups when they billed those tests to private payers and patients. From the perspective of the federal attorney, there is certainly an argument that UroCor offered these inducements to physicians as a way to gain access to Medicare specimens,” explained Wood.
“Are there comparable examples of such deep price discounting to be found among laboratories today?” asked Wood. “I don’t think so. But there is a compliance concern.
Price Discounting Issues
“This is one federal attorney who believes that price discounting by laboratories to referring physicians is a violation of Medicare anti-kickback laws. If the jury convicts the ex-UroCor lab executives on this particular charge, then it will force both federal health program investigators and laboratories to determine where the line is now drawn between an acceptable price discount to a physician and a discount level which violates the Medicare anti-kickback law.
“Since no one yet knows what evidence the government will offer, nor what type of defense will be mounted, it is difficult to predict how the eventual decision will change the way Medicare officials view discount pricing for laboratory services. This creates uncertainty for lab managers and pathologists. That’s because when federal health officials take enforcement action, they often go back five or more years when identifying the acts which they consider in violation of Medicare regulations and statues. In the case of UroCor, this indictment was filed in 2004 for criminal acts spanning the years 1990 through 1999.”
What About Indictments Of Urologist-Clients?
WHEN IT COMES to Medicare anti-kickback violations, it takes a party to offer the inducement and a party to accept it. So if UroCor is indicted for paying inducements, why haven’t any of its urologist-clients been indicted yet?
“The key word is ‘yet’,” declared Jane Pine Wood, Partner at McDonald Hopkins, the Cleveland law firm with an extensive national healthcare practice. “It is a two-way street when it comes to anti-kickback law. The law is violated anytime someone either pays or receives the inducement. It would be reasonable to infer that, given the extent of anti-kickback activity covered in the UroCor indictments—which spans nine years—the federal attorney has a list of urologist-clients to also indict on criminal charges.
“The first indictments target UroCor’s executives because those are easier cases to prosecute and win,” she explained. “It’s actually a sound legal strategy.
“Step one is to convince a jury that UroCor’s executives paid kickbacks to urologist-clients of that laboratory company,” continued Wood. “If the jury votes ‘guilty’, then the federal attorney goes to the next step. He files criminal charges against those urologist-clients of UroCor who received the kickbacks.
“That gives him a powerful case. He first states to the jury that the Medicare anti-kickback law makes it a crime to pay a kickback and to receive a kickback,” she continued. “He next tells the jury that the UroCor executives were convicted by another jury, based on this evidence, of paying kickbacks. Thus, the outcome of the previous trial adds credibility to the evidence that these urologist-clients accepted those kickbacks. That is why the indictments and trials of the ex-UroCor executives comes first. Only after convictions in this trial may we see indictments of UroCor’s urologist-clients.”
Third Marketing Tactic
It is the third marketing tactic which gives Wood the greatest concern. “The issue of waiving test charges for man- aged care plans with which the laboratory remains out of network can turn into a serious change in compliance policy,” she said. “Of all the criminal charges in the indictment, this is the one which most disturbed me.
“There are often times when a smaller laboratory, in order to retain a major client’s lab testing business, will agree to handle specimens for which it is an out-of-network provider,” commented Wood. “Although it knows it may not be paid for such test claims, the laboratory wants time to negotiate with the payer to become a contract provider, using the physician’s account to justify why the payer should agree. In any event, this may be one reason why the OIG issued its fraud alert of December 1994, which defined the circumstances when such a waiver of charges would be appropriate.
Federal Prosecutor’s Intent
“What I read into the indictment is a different intent by the federal attorney,” she said. “The indictment specifically declares that UroCor offered to waive testing fees when it was out-of-network in situations where the physician’s volume of Medicare patients would generate enough revenue to offset the losses of free testing. The attorney describes how the physician would benefit, thus documenting an inducement produced by the arrangement.
“The ‘waiver of fees’ charges include UroCor acts beginning in 1992 and running through April 1999. This predates the OIG’s Fraud Alert of December 1994. My conclusion is that the federal attorney is pursuing a kickback argument: UroCor’s offer to waive charges created a benefit to the physician (identified as ‘saving staff time that would be spent packaging and sending specimens to different laboratories as required by their patient’s managed care plans’). The physician benefit was the inducement and thus a violation of the Medicare anti-kickback law,” commented Wood.
Wood believes criminal charges involving “waived fees” will be toughest to prove. “In the case of consulting service agreements and discounted pricing, the obvious inducement is that the urologist-client made money. In general, a waived-fees agreement is not designed to put additional money in the doctors’ hands. It may be tougher to convince the jury that this activity violated the Medicare anti-kickback statute.”
From her reading of the indictment, Wood has a recommendation for laboratories and pathology group practices. “Laboratories using any of these marketing tactics should be concerned. This is the first federal prosecution centered around what seems to be UroCor’s extreme abuses of these methods,” she said. “Any criminal trial or plea agreement is likely to create new compliance requirements and redefine what constitutes an inducement anytime a laboratory and a physician enter into one of these arrangements. Laboratories should have their legal counsel track developments and advise them appropriately.”
“My final admonition is to remember that these criminal indictments are breaking new ground,” declared Wood. “It may take several years for the full impact of this trial to work its way into Medicare and OIG compliance policies.”