“Waiver of Charges”: What Makes It Work

December 1994 OIG fraud alert forms basis of this particular lab marketing strategy

CEO SUMMARY: Little-used in the 1990s, when laboratory test ordering and billing practices were under intense scrutiny by federal regulators, the strategy of “free testing” is popping up in more regions around the country. To comply with compliance guidelines, labs using this strategy generally ask the physician to sign contracts representing and warranting that circumstances of the arrangement meet the guidelines published in the OIG fraud alert.

WHEN THE Office of the Investigator General (OIG) first published the fraud
alert addressing “Waiver of Charges to Managed Care Patients,” it was not a good time for commercial labora- tory companies.

The month was December 1994 and most of the nation’s public laboratory companies were under federal subpoena to deliver records pertaining to billing and reimbursement practices involving Medicare and Medicaid patients. The federal government’s investigation gen- erated plenty of fines. Those laboratories which settled allegations of Medicare fraud and abuse entered into compliance agreements with federal prosecutors that gave the government the right, for up to five years, to come in and inspect company records if further infractions were suspected.

Not surprisingly, for the balance of the decade, executives at public laboratory companies decided that offering “free testing” to physicians in situations that met the criteria of the 1994 fraud alert was not a good idea, con- sidering their immediate experiences with federal investigators.

However, the OIG’s fraud alert did not go unnoticed. Nearly every public laboratory company conducted legal due diligence into this opportunity. Most developed formal corporate policies for its use in the marketplace, along with contracts to be signed when establishing “free testing” arrangements with physician-clients.

More Use Of The Strategy

In recent years, public laboratory com- panies and some regional laboratories have begun to use the “free testing” strategy more aggressively in situations where they do not hold contracts with specific payers to provide lab services.

As use of the “free testing” strategy increased, many hospital laboratory outreach programs had their health system legal teams review the 1994 OIG fraud alert. However, the reaction of most hospital and health system lawyers to this marketing concept was negative. Permission for the lab outreach programs to deploy “free testing” to local physicians was seldom granted.

That is why there is an interesting dichotomy in today’s laboratory marketplace. It is generally public lab companies which use the “free testing” strategy. In contrast, only a tiny num- ber of hospital laboratory outreach programs are known to use it.

Besides the reluctance of their legal counsels to endorse use of “free testing” as a way to protect market share and expand lab test volume, most hospital laboratories cannot afford the cost of giving “free testing” to physician-clients. Many hospital laboratory administrators are also quick to point out that giving away testing for free to one managed care program is not a healthy business practice over the long term. Other payers in the region are sure to notice and use “free testing” examples to further drive down the reimbursement they offer for laboratory testing.

In the sidebar above, THE DARK REPORT has provided the exact language of the OIG’s December 19, 1994 fraud alert pertaining to “Waiver of Charges to Managed Care Patients.” The full fraud alert, which contains guidelines on other lab compliance issues, can be found at www.oig.hhs.gov.

When laboratories establish a business relationship with physicians that includes “free testing” and meets the criteria detailed in the OIG’s fraud alert, the common procedure is to have the physician sign a contract acknowledging specific facts of the arrangement.

Similar Language In Forms

Examples of contracts used in the past by the Two Blood Brothers are shown on the proceeding pages. It is no surprise that each example contains language that is quite similar. Both laboratory companies want the physician to represent and warrant that the business arrangement meets the OIG’s criteria for “Waiver of Charges to Managed Care Patients.”

In particular, these contracts require the physician to warrant that he or she receives no financial benefit nor any form of remuneration from the managed care plan whose patients will receive “free testing” from the laboratory. Further, the physician warrants that he/she will notify the laboratory, if at any time, any representation made in the agreement changes.

Docs Have Responsibility

“From one compliance perspective, the laboratories have placed a significant legal burden on the physician,” observed Jane Pine Wood, Attorney and Partner at McDonald Hopkins, based in Cleveland, Ohio. “It is the physician’s representations and warrants that are used to document that the criteria set out in the OIG’s “Waiver of Charges to Managed Care Patients” fraud alert have been met. It is also now the legal responsibility of the physician to notify the laboratory if there is a change in any of the representations and warrants involving financial benefit and remuneration change.

“In our healthcare practice, we have had physicians come to us with these types of contracts,” she continued. “As we review the representations and warranties they are being asked to make, along with the potential legal consequences, many are surprised at how much responsibility they will assume in validating the circumstances required for the laboratory’s “free testing” arrangement to meet the OIG’s fraud and abuse criteria.”

There is some irony in this situation. It is the laboratory which has initiated this arrangement. It will trade “free testing” for patients enrolled in a managed care plan as a way to get the physician to agree to refer his/her remaining lab specimens.

Potential Legal Exposure

Yet, in signing the laboratory’s contract, the physician is making specific representations and warranties. If a subsequent OIG investigation was to determine that these were untrue from the start of the business relationship, or that the physician failed to notify the laboratory that some aspect of financial benefit or remuneration changed, that physician could face allegations of Medicare fraud and abuse.

Despite these facts, there is ample evidence in the marketplace that physicians are willing to sign these agreements and cooperate with “free testing” arrangements. That is one reason why Tennessee’s Medicaid managed care plan, TennCare Select has taken steps to remind physicians about which laboratory is the contracted provider for “included testing services.” If physicians continue to accept these arrangements, and if the OIG finds no compliance violations in their use, then the lab industry may see growing use of the “free testing” strategy.

OIG Defines “Waiver of Charges Criteria

HERE IS THE EXACT LANGUAGE from the December 19, 1994 OIG fraud alert that addresses the subject of “Waiver of Charges to Managed Care Patients.”

[Federal Register: December 19, 1994]
Publication of OIG Special Fraud Alerts
AGENCY: Office of Inspector General, HHS.

Waiver of Charges To Managed Care Patients

Managed care plans may require a physician or other healthcare provider to use only the laboratory with which the plan has negotiated a fee schedule. In such situations, the plan usually will refuse to pay claims submitted by other laboratories. The provider, however, may use a different laboratory and may wish to continue to use that laboratory for non-managed care patients. In order to retain the provider as a client, the laboratory that does not have the managed care contract may agree to perform the managed care work free of charge. The status of such agreements under the anti-kickback statute depends in part on the
nature of the contractual relationship between the managed care plan and its providers. Under the terms of many managed care contracts, a provider receives a bonus or other payment if utilization of ancillary services, such as laboratory testing, is kept below a particular level. Other managed care plans impose financial penalties if the provider’s utilization of services exceeds pre-established levels. When the laboratory agrees to write off charges for the physician’s managed care work, the physician may realize a financial benefit from the managed care plan created by the appearance that utilization of tests has been reduced.

In cases where the provision of free services results in a benefit to the provider, the anti-kickback statute is implicated. If offered or accepted in return for the referral of Medicare or State health care plan business, both the laboratory and the physician may be violating the anti-kickback statute. There is no statutory exception or “safe harbor” to immunize any party to such a practice because the Federal programs do not realize the benefit of these “free” services. See 42 CFR 1001.952(h)(3)(iii).

12-01-03 image 2


Leave a Reply


You are reading premium content from The Dark Report, your primary resource for running an efficient and profitable laboratory.

Get Unlimited Access to The Dark Report absolutely FREE!

You have read 0 of 1 of your complimentary articles this month

Privacy Policy: We will never share your personal information.