LabCorp’s Smith Speaks On New Pathology Trend

In-house anatomic pathology laboratories may prove a compliance trap for specialist docs

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CEO SUMMARY: During the past decade, Laboratory Corporation of America’s Brad Smith faced the spear point of evolving Medicare/Medicaid compliance initiatives which changed so many laboratory industry business practices. Smith believes that business models for in-house anatomic pathology labs now being offered to specialist physician groups fail to meet important Medicare compliance criteria.

EFFORTS BY SPECIALIST PHYSICIAN GROUPS to make anatomic pathology an in-house ancillary service can trigger disruptive consequences in several ways. That’s the assessment at Laboratory Corporation of America, the nation’s second largest lab company, based in Burlington, North Carolina.

“This is a trend which is likely to be counterproductive to all stakeholders in healthcare, not just pathology,” declared Bradford T. Smith, Executive Vice President and Chief Legal Officer at LabCorp. “It has the potential to negatively affect patient care, to trigger a negative perception of all pathology labs, when federal healthcare regulators take action to stop these abusive practices, and to disrupt long- standing relationships between anatomic pathologists and the physicians who refer specimens to them.”

Major Threat To Pathology

Smith singled out the pathology condominium laboratory scheme for specific criticism. “We view this as a major threat to the anatomic pathology business—not just at LabCorp but throughout the profession,” he said. “It is a clear violation of the intent that existing compliance laws were designed to prevent. Pathology condominium labs are probably the most potentially abusive scheme to hit healthcare in fifteen years.

“Specialist physician groups that buy into this concept without good legal advice are venturing into troublesome territory,” explained Smith. “We’ve done extensive legal research and we think the pathology laboratory condominium scheme unquestionably violates the intent of the law.

“Among other legal concerns, the specialist group is making a relatively minor investment that has no risk—promoters tell them they can get their investment back in just a few months, because they control an existing volume of specimens from their own practice which guarantees their pathology laboratory condominium is profitable,” noted Smith.

“Next, does the anatomic pathology (AP) lab owned by the specialist group really meet the in-office ancillary service exception, when it is frequently located in another city, and even in another state?” Smith asked. “I don’t think federal health program investigators will agree that physicians from the specialty group are actually supervising their AP lab’s functions across that physical distance.”

“Most specialist physicians do not have the same level of awareness…about the compliance issues in lab testing which are closely watched by federal health program regulators.”

“Specialist groups, in their attempts to capture AP revenues, are starting down a Medicare Fraud and Abuse road already traveled by the laboratory industry in the last decade,” he continued. “That was when the compliance concepts of over-utilization and medically unnecessary laboratory tests were viewed by regulators as generating false claims to the Medicare/Medicaid programs.

“If the specialist physician orders a test on his/her patient, to be performed by the anatomic pathology laboratory owned by his/her group, and OIG investigators later deem such tests to be medically unnecessary, then the specialist group has generated false claims and will find itself in violation of the Medicare Fraud and Abuse law,” observed Smith.

Compliance Crossover

“The evolution of what constitutes acceptable behavior in Medicare and Medicaid compliance law is an important point,” he continued. “Compliance theories cross over from one area of healthcare to another. Providers often fail to notice this development and continue practices now considered, by the evolving body of compliance law, to violate Medicare statutes.

“Months or years later, federal investigators investigate the other health specialties,” noted Smith. “They often apply, by analogy, precedents (developed in another area of healthcare) to establish kickback or false claims violations.

“In the last decade, the new compliance concept was that laboratories were inducing physicians, through marketing techniques, to order medically unnecessary tests,” he said. “It’s not a big leap for federal investigators to apply that same concept to pathology lab condominium schemes and even to the anatomic pathology laboratories newly-created within a specialist group’s main clinic facility.

“If federal investigators can document a change in utilization and test ordering patterns before and after the in-house AP lab came into operation,” predicted Smith, “then the group practice may find itself facing allegations of false claims and other violations.”

Impact On Patient Care

Smith also believes that many AP lab arrangements have the potential to affect patient care. “No longer will the choice of an anatomic pathology provider be made on the basis of quality services and specialized clinical expertise,” he observed. “Rather, these decisions will be driven to use a source chosen by a doctor who profits from the referral of the AP specimen. This situation is one reason why Congress enacted the Stark Amendments.”

Smith has identified some major compliance land mines for this growing trend of in-house AP laboratories at specialist physician groups. Based on his considerable experience in the field of laboratory compliance, he has a high degree of confidence that these arrangements will be closely-scrutinized by federal health program investigators. The question is how quickly such scrutiny occurs.

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