CEO SUMMARY: In today’s market for anatomic pathology services, local pathology practices are facing tough competition from national pathology companies that are quite aggressive at using EHR donations and discounted client bill arrangements to win new clients. Attorney Jane Pine Wood of McDonald Hopkins identifies federal safe harbor requirements governing EHR donations involving laboratories and referring physicians, then discusses compliance issues triggered by discounted client billing arrangements.
IT CONTINUES TO BE A TOUGH MARKET for local pathology groups. Larger pathology companies often use deeply-discounted client bill pricing to win business. Now EHR donations are being used for competitive advantage.
In recent years, federal rules on EHR (electronic health record) donations have created another way for the bigger pathology laboratories to win business away from community hospital-based pathologists.
Use of these competitive strategies in the anatomic pathology marketplace recently motivated one pathologist to write the letter to the editor published on the preceding pages. (See pages 13-14.) This pathologist described several examples of why his local pathology laboratory is at a disadvantage when attempting to retain the business of long-standing clients in his community because of how larger pathology companies use these two strategies.
THE DARK REPORT sent the letter from this pathologist to attorney Jane Pine Wood of McDonald Hopkins, for her review and comment. Wood and her colleagues maintain a sizeable legal practice with pathology groups and clinical laboratories throughout the United States.
Wood responded that the pathologist who wrote that letter writer faces a common occurrence in the lab business. “I wish the issue involving your anonymous letter writer was unique, but it is not,” she said. “This pathologist describes two competitive strategies often used by larger pathology companies to win new client accounts.
“First is the use of EHR donations,” explained Wood. “The second is when a laboratory offers discounted client bill prices to a physician who refers laboratory specimens. It is important for all pathologists to understand what the compliance requirements are for each activity.
“In order to donate an EHR to an office-based physician practice, a laboratory must follow the safe harbor and Stark requirements spelled out in federal regulations,” stated Wood. “It was in 2006 when various federal agencies published these requirements.
“In 2006, the Department of Health and Human Services Office of Inspector General (OIG) and the Centers for Medicare & Medicaid Services (CMS) issued a safe harbor under the federal anti-kickback law and an exception under the federal Stark physician self-referral law,” she said, “that permits certain donations of EHR software and/or information technology, along with associated training services.”
Encourage EHR Adoption
Wood noted that, “The OIG’s stated purpose for the safe harbor and Stark exception was to ‘lower the perceived barriers to the adoption of health information technology’ by promoting ‘the adoption of open, interconnected, inter-operable EHR systems.’ The goal is to encourage office-based physicians throughout the United States to implement and use EHR systems. The safe harbor and exception are scheduled to end in 2013.
“Under the EHR safe harbor and exception,” continued Wood, “laboratories and other permitted donors can subsidize the cost of compliant EHR technology to physi- cians at 85% of the cost of such technology.
“However, the Office of the Inspector General (OIG) has informally acknowledged concerns about the potential for abuse by ancillary service providers and suppliers, including laboratories,” added Wood. “The OIG says it will be alert to patterns of increased utilization correlated with transfers of non-monetary remuneration in the form of EHR technology.”
Under the safe harbor and Stark guidelines published by CMS and the OIG in 2006, both the donor and recipient must meet specific requirements. “These final rules offer protection only if the recipient pays 15% of the donor’s cost of the technology,” explained Wood. “This payment is required to be made before the recipient’s receipt of the items and services being donated.
“Further, the cost-sharing agreement must include all donated software and health information technology, along with the cost of training services,” she stated. “Any updates, upgrades, or modifications to the donated EHR system that are not covered under the initial purchase price for the donated technology are subject to separate cost sharing obligations by the recipient (to the extent that the donor incurs additional costs).
“Laboratories should note that donors (and their affiliated individuals and entities) are prohibited from providing, financing, or making loans to recipients to fund the recipient’s payment for the technology,” added Wood. “The donation should be documented in a written agreement that specifies the items and services being provided; the donor’s cost of those items and services; and the amount of the recipient’s contribution. The agreement must also cover all of the EHR items and services to be provided by the donor (or any affiliate).
Other Safe Harbor Criteria
“To meet all the safe harbor and Stark criteria, there are several other requirements for the donor laboratory and the recipient,” noted Wood. “These requirements address predominance, interoperability, certification, and electronic prescribing.
“This is why there is plenty of attention and publicity surrounding federal guidance relating to certification of EHRs and the definitions of interoperability as they relate to these EHR donation safe harbor and Stark requirements,” she said.
“In response to the pathologist who wrote the letter to the editor, the main point is that the federal health establishment has created the EHR donation safe harbor and Stark exception as a way to encourage hospitals, ancillary providers, and laboratories to provide funds that encourage and allow office-based physicians to acquire and use an electronic health record system,” noted Wood. “So long as the donor and recipient meet all the safe harbor and Stark requirements, this is an activity that complies with current federal law.”
In considering the second issue raised in the pathologist’s letter to the editor on discounted client bill arrangements, Wood observed that client billing for clinical laboratory and anatomic pathology testing is a practice that reaches back decades. “In and of itself, offering a physician discounted prices via a client bill arrangement is an activity that is permitted, so long as the arrangement does not violate Medicare and Medicaid anti-kickback statutes and Stark law,” commented Wood. “The issue of client billing is difficult to assess without knowing more about the specifics of the case to which the letter writer alluded. However, the Medicare and Medicaid anti-kickback law is clear.
“It prohibits the payment, receipt, offering, or solicitation of remuneration in exchange for the referral of services or items covered by Medicare or Medicaid,” she emphasized. “Thus, because a physician who contracts with a pathology provider is a source of Medicare and Medicaid referrals to the pathology provider, the Medicare and Medicaid anti- kickback law must be considered when negotiating the compensation arrangement between the physician and the pathology provider.
“As a general matter, if the prices paid by the physician for the pathology services are less than fair market value, an allegation could be made that the physician has received a kickback from the pathology provider (in the form of below-market prices) in exchange for the physician’s continued referrals to the pathology provider.
“Therefore, it is critical that pathology providers charge—and physicians pay— reasonable amounts for the pathology services,” commented Wood. “It is significant that fair market pricing is an important theme throughout the Office of the Inspector General’s (OIG) model compliance guidance for both physician practices and pathology providers.
OIG Advisory Opinion 99-13
“Pathologists and their business advisors may want to review OIG Advisory Opinion 99-13, which provides parameters for discounted billing for pathology services,” she said. “This Advisory Opinion explains that pathology providers and the physicians who purchase pathology services risk violating the Medicare and Medicaid anti-kickback law if they have deeply-discounted pricing arrangements.
“The OIG wrote that suspect discounts include—but are not limited to— discounted prices that are below the pathology provider’s cost,” said Wood. “In determining whether a discount is below cost, the OIG explained that it will consider the total of all costs (including labor, overhead, equipment, etc.) divided by the total number of tests.”
In response the pathologist who wrote the letter to the editor printed on pages 13-14, this legal expert has provided the requirements for an EHR donation policy and client bill arrangements to meet appropriate federal laws. These are competitive business practices which are not likely to disappear anytime soon.
Deep Discounts for Client Bill Arrangements Have a Chequered History over Two Decades
DEEPLY-DISCOUNTED CLIENT BILLING ARRANGEMENTS have dogged the laboratory testing industry for almost 25 years. The frustration of the pathologist who wrote the letter to the editor published on pages 13-14 is representative of other individuals in the laboratory profession.
Many in the lab industry would argue that federal guidelines and federal enforcement of anti-kickback statutes have failed to provide a clearly-demarcated line to help laboratories comply with this law. There is no simple, objective test which can be used to determine situations where the discount offered to a physician in a client bill arrangement would represent an inducement to the referring physician—and thus a violation of the Medicare anti-kickback law.
Long-time readers of THE DARK REPORT are familiar with specific published guidance by federal officials during the past two decades. During this same time, there have been few successful civil settlements and criminal convictions when the federal government challenged certain laboratories alleged to have used deeply-discounted client bill prices as an inducement to physicians in violation of Medicare anti-kickback laws.
In its ongoing coverage of discounted client billing, THE DARK REPORT has recognized that, as a general characteristic of the laboratory marketplace, it is the larger pathology laboratory companies which seem to be more aggressive at offering physicians client bill prices which are deeply discounted. Sometimes these prices are significantly below the level of reimbursement paid by the Medicare Part B laboratory test fee schedule.
Local pathology groups and hospital laboratory outreach groups have long complained about this situation. They note that when a lab company offers such deeply-discounted prices, in many instances, it can only sustain service to that client’s account because of the Medicare case referrals.
In the view of these competing laboratories, such deeply-discounted client bill prices represent remuneration to the physician (who can bill third-party payers and patients for the full value of the tests). If discounting client bill prices to this level was considered remuneration to the referring physician, these lab competitors argue that such laboratories would be offering inducements for Medicare case referrals and that would violate Medicare anti-kickback statutes.
Dianon Offers Urologists EHR Donations Per Policy
ONE PATHOLOGY COMPANY that has an EHR donation policy posted on its web site is DIANON Systems, Inc. Laboratory Corporation of America. The policy is designed to meet the safe harbor requirements for EHR donations. Here are highlights from the document:
…Under the EHR safe harbor and exception, laboratories can donate to physicians up to 85% of the eligible costs of compliant EHR technology.
DIANON Systems, Inc. (“DIANON”) is offering an EHR donation program for urology physicians and practices utilizing EHR vendors, including meridianEMR, who have obtained Certification Commission for Healthcare Information Technology (CCHIT) approval and are deemed inter-operable.
DIANON will donate $7,500 per provider or 85% of the eligible costs for the EHR technology, whichever is less, consistent with the requirements of the anti-kickback safe harbor and Stark exception. DIANON will not be responsible for any future upgrades or ongoing maintenance of the donated technology.
This donation is nonmonetary remuneration that consists of items and services in the form of software or information technology and training services used predominantly to create, maintain, transmit, or receive electronic health records. Examples of protected technology include interface software, licenses, and intellectual property related to such software. Donors are not permitted to provide unrestricted hardware under these rules. Additionally, the urology physician or practice must contribute at least 15% of the cost of the donated technology before receiving it.
The attached Eligibility Certification document establishes the participation eligibility of the urology physician or practice that requests an EHR donation and outlines the initial understanding between DIANON and the recipient regarding the terms of the donation, consistent with applicable law.