Medicare “Bill Back” Policies Vary By Lab

Different approaches to compliance may generate competitive advantage

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CEO SUMMARY: When it comes to the subject of Medicare medical necessity, the classic “compliance conundrum” is again at work. Laboratories with conservative, strict compliance policies believe they are at a disadvantage at retaining physician-clients and winning new accounts when compared to other laboratories in their city which may be operating with more liberal, looser compliance policies.

MEDICARE MEDICAL NECESSITY DENIALS remain one of the thorniest issues in Medicare compliance for the coding and billing of laboratory tests.

The well-publicized competitive battles for market share of laboratory testing, particularly in North Carolina, has stimulated an extra level of scrutiny among lab competitors on a host of operational, sales, and compliance practices. Among other things, it seems that differences in how individual laboratories handle Medicare medical necessity denials has become a point of interest and debate.

Lab executives and pathologists are familiar with the problem. Whenever a referring physician fails to provide either appropriate documentation, diagnosis codes to support the medical necessity of the ordered tests, or valid ABNs, then Medicare denies payment and the laboratory which performed the test is left with a decision. Should it bill the cost of the test back to the referring physician? Or should the laboratory just eat the cost of the unreimbursed Medicare test?

Today the problem is not as severe as it was when new Medicare requirements for medical necessity were instituted in the second half of the 1990s. Most physicians have adjusted to this new fact of Medicare life and have done a better job of providing the documentation and information needed by the laboratory to correctly and successfully file reimbursement claims.

Troublesome Situation

But despite this improvement in physician cooperation, the situation remains troublesome for laboratories. First, a lab faces the unending dilemma of whether it should aggressively “back bill” physician-clients for tests denied by Medicare on grounds of inadequate documentation of medical necessity.

To not bill the physician means the laboratory must absorb the cost of the unreimbursed test. To “back bill” the physician for such tests creates stresses in what otherwise may be a strong business relationship.

Second, a lab faces competitive pressure in the marketplace whenever other laboratories in the same city pursue a more liberal policy, even going so far as to seldom “back bill” a physician who habitually fails to provide the needed documentation for lab tests ordered on Medicare patients.

Strict Versus Loose Policies

Because such decisions involve dollars, there are always physicians who will direct their laboratory testing business to labs which are less aggressive at back billing their physician-clients. Call it the “compliance conundrum.” Laboratories which take a strict and conservative approach in their Medicare compliance policies feel like they lose client accounts to laboratories which offer looser, more liberal compliance policies. Since Medicare regulators are notoriously reticent to issue clear regulations and opinions, laboratories are left to make difficult and subjective decisions about their compliance programs.

Intensified marketing wars in different regions around the country have again brought this issue to the fore- front, particularly in the Carolinas. In some cases, laboratories are asking their legal counsel to review the Medicare medical necessity policies of their competitors.

Legal Review Requests

“I am seeing more such requests, particularly in cities where the competition is extremely intense,” stated Jane Pine Wood, an attorney at MacDonald, Hopkins of Cleveland, Ohio. “Labs call me with rumors that another laboratory in their community is more lenient in requesting the required information from physicians, and may not be back-charging the physicians for all the Medicare tests which were denied because of inadequate documentation of medical necessity. Commonly they say something like ‘this other lab doesn’t require as much information as we do and the doctor is directing his account to that lab for that reason.’

“In such cases, it is difficult to properly assess the situation,” explained Wood. “My laboratory client is frequently responding to information it got from a physician. Because the physician may have a financial motive to beat down the price of laboratory tests, particularly in states that allow a physician to mark up lab tests, the reliability of their statements about the policies and practices of competing labs must be questioned.”

Conservative Compliance

Wood correctly identifies the competitive problem with a conservative laboratory compliance program. Some physicians do direct their laboratory testing business to labs which take a more liberal position on Medicare/Medicaid compliance.

“Laboratories with a relatively looser policy on compliance walk a very fine line,” observed Wood. “At some point, their approach to compliance can put them in violation of several Medicare and Medicaid statutes.

“First is the obvious violation. By not diligently requiring the physician to provide necessary documentation prior to the test being billed to Medicare, the laboratory is failing to comply with the basic statutes governing medical necessity,” said Wood. “Physicians are required by federal law to provide diagnostic information.”

“Second, a relatively lax requirement for documentation may trigger anti-kickback issues,” she continued. “For example, since the physician and staff are not providing all the information, it is saving them time and money. This could be considered inducement. Moreover, such a lax policy might also be encouraging the physician’s non-compliance with appropriate Medicare statutes.

“Third, Medicare expects every laboratory to make an effort to bill and collect for the tests it performs. If the laboratory’s general policy is to never back bill the referring physician for Medicare tests denied due to chronic inadequate documentation of medical necessity, then the laboratory may be in violation of this Medicare requirement.

“Fourth, there are some interesting issues about whether this creates discrimination among Medicare patients,” said Wood. “Assume two doctors are clients of the same laboratory that has a lax back-billing policy. Doctor A is diligent about medical necessity documentation and ABNs and Dr. B is not. If the laboratory is not back billing Dr. B, then his Medicare patients are getting free services that Dr. A’s patients are not.”

Focus On Finances

Attorney Wood’s observations high- light the dichotomy of the law versus actual practice in the marketplace. Because many Medicare laws and regulations are written ambiguously and without clarity, providers struggle to implement a compliance program which meets both the requirements of the law and the intent behind the law.

But this same ambiguity opens the door for some providers to adopt a liberal, more lax compliance policy. With medical necessity documentation for laboratory testing, one laboratory’s more liberal compliance policy can generate competitive advantage if it encourages a physician to select it over a laboratory which maintains a more conservative compliance program.

Not surprisingly, this compliance dichotomy surfaces most frequently in regions of the United States where two or more laboratories are fighting fiercely to expand their share of the physicians’ office testing market. Most recently, North Carolina fits this description. If some physicians consider a lab’s more lax compliance policy on Medicare necessity documentation and “bill-backs” to be in their financial benefit, the laboratory with the more liberal Medicare medical necessity documentation policies can win the account.

This is how competitive advantage accrues to a laboratory that chooses to operate a relatively loose compliance program. Until healthcare regulators from the federal government offer more detailed guidance, or take enforcement action against laboratories they deem to have violated existing laws and regulations, the “compliance conundrum” will continue to create an unequal playing field among laboratory competitors in cities around the United States.

NHIC Issues Reference About Medicare Policy

IN ITS APRIL 1992 Educational Outreach publication, the NHIC referenced the following on page 17:

Information has come to the carrier that some providers are telling their clinical labs that these requirements are too prohibitive and that they’ll take their business to another clinical lab where they don’t require ABNs or ICD-9 codes. Medicare must obviously take exception. If another clinical lab truly is not requiring diagnosis codes from the physician, then one of two things is occurring:

1)The laboratory is billing, taking the denials as a loss, and hoping to make a profit with the provider’s other tests. This is referred to as “inducement” and could constitute fraud under Medicare.

2)The laboratory is plugging in payable diagnosis codes from the carrier’s published local medical review policies. This is fraudulent activity on the part of the lab.

If you know that a clinical laboratory is practicing either of these two fraudulent activities, please call the fraud and abuse hotline at 800/952-8627 or 800/HHS-TIPS.


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