OIG May Be Investigating AP Laboratory Condos

First evidence of an active OIG investigation has begun surfacing in the marketplace

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CEO SUMMARY: Attorneys for one of the companies which sells and manages anatomic pathology condominium laboratories have recently sent correspondence to owners of these lab condos. This correspondence discloses that the Office of the Inspector General (OIG) is examining the company. Knowledge of this situation is only now surfacing and few other details have become public.

DURING THE PAST TWO WEEKS, rumors about an investigation by the Office of the Inspector General (OIG) into at least one of the anatomic pathology laboratory condominium companies have been confirmed by THE DARK REPORT.

Vincent & Elkins, the law firm which represents UroPath, LLC has sent notification to owners of anatomic pathology (AP) laboratory condominiums managed by UroPath that the OIG is now looking at the company. Presumably the OIG is studying UroPath’s business model, its contracts and documentation, and its operational practices.

UroPath Is In FL and TX

UroPath is known to operate AP lab condo complexes in Leesburg, Florida and San Antonio, Texas. Another complex has been under construction in or around Dallas, Texas. Each pathology laboratory condominium is owned by a different urology, gastroenterology, or dermatology group.

Individuals who have either seen copies of this correspondence or have spoken to owners of AP lab condos confirmed this situation. These individuals say that the correspondence between UroPath’s legal counsel and AP condo lab owners acknowledges that the OIG is looking into UroPath.

Further, these individuals say that the law firm is putting the best spin possible on this situation. The correspondence declares that the law firm “welcomes” this examination by the OIG because it is an opportunity to demonstrate that their business model and the operation of anatomic pathology laboratory condominiums meets appropriate regulations and laws.

It must be pointed out that this law firm did the original legal review of UroPath’s business model. It has advised the company since its early days. Thus, any negative outcomes from the OIG’s look into UroPath will reflect badly on this law firm.

Veteran laboratory executives and pathologists will consider the OIG’s interest in UroPath’s AP lab condo business to be much more serious. That’s because a large number of laboratories faced similar inquiries by the OIG during the past 20 years. They know the OIG does not come knocking just to do a little fishing.

To the contrary, the OIG is rather stingy with its time because it has limited resources. From this perspective, its interest in looking into UroPath portends more serious developments for UroPath and its anatomic pathology laboratory condominium owners.

Attracted OIG’s Attention

After all, during the past 12 months, several events have demonstrated that the federal government has taken notice of AP laboratory condos. First was the public statement last spring by a senior OIG official acknowledging its awareness of such a business model.

Next, in the fall, the OIG issued Advisory Opinion 04-17 addressing one specific proposed business model for AP laboratory condominiums and provided an unfavorable opinion on the scheme. The OIG also declared that its 2005 Work Plan would include a review of “pathology services performed in physician’s offices…We will review the relationships between physicians who furnish pathology services in their offices and outside pathology companies.” (See TDR, November 1, 2004.)

Just The First Step

Now, only four months later, the OIG is actively reviewing such arrangements at UroPath. Based on how the OIG has investigated other laboratory testing service situations in the past, there is every reason to believe that the OIG intends to act upon whatever it finds.

THE DARK REPORT would like to offer some speculation. Over the past 20 years, a substantial area of enforcement action against laboratories was centered around over-utilization of laboratory tests. It is known that some promoters of these AP lab condo complexes did build their financial pro formas using the assumption of 100% utilization of 12-core prostate biopsies.
(See TDR, August 9, 2004.)

As most lab executives know, CMS now has sophisticated software capability that can analyze laboratory testing patterns by lab test, by laboratory, by physician, and by several other factors. Since a number of these AP laboratory condominiums have now operated for between 12 and 24 months, it may be that the OIG has analyzed the test ordering patterns of specialist physician groups which currently operate an AP laboratory condominium.

Before & After Utilization

Using this capability, it would not be difficult to look, by provider number, at utilization patterns of the anatomic pathology procedures ordered by physicians and groups before they owned their own AP laboratory condominium and after it came into operation. If this is true, let’s return to the specific example of prostate biopsies.

If the OIG possessed data which showed increased utilization after the group or physician became owner of an AP laboratory condo, and if there was no relevant change in that physician’s patient mix to justify the greater number of biopsies, then that medical group and/or physician would definitely catch the interest of the OIG.

THE DARK REPORT is first to alert the laboratory profession to what may be the early steps in a major enforcement effort by the OIG. It would be timely for pathologists to educate those physicians who persistently ask to share, through some arrangement, in the pathology technical or professional fees generated by their patient referrals. If past history is relevant, these types of arrangements—whether or not they were ever acceptable—are fast becoming compliance deathtraps for the unwary!

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