Clinical Laboratory Compliance.pdf

7/28/2019 Clinical Laboratory Compliance.pdf

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428 LABMEDICINE jVolume 40 Number 7 jJuly 2009 labmedicine.com

Clinical laboratories were the first health care entities tocome under regulatory scrutiny by the Office of the InspectorGeneral (OIG) as far back as 1992. The OIG had embarkedon Project Lab Scam to investigate fraudulent billing practicesby clinical laboratories. As a result, Laboratory Corporationof America (LabCorp) was fined and paid $187 million toresolve civil penalties under the False Claim Act (FCA) forallegedly submitting claims for medically unnecessary tests.Also, in 1996, Damon Clinical Laboratories entered into asettlement agreement of $119 million with the Department ofJustice (DOJ) in civil and criminal penalties for allegedly sub-mitting false claims to the Medicare and Medicaid programs.

The largest settlement of $325 million was paid by Smith-Kline Beecham Clinical Laboratories for similar allegationsof violations involving the Medicare, Medicaid, CHAMPUS,and Railroad Retirement Board health care programs. All told,the OIG reported more than $820 million in recoveries fromclinical laboratories nationwide through Project Lab Scam.

A watershed outcome of Project Lab Scam for the indus-try was the Compliance Program Guidance for Clinical Labo-ratories, one of the first such guidance issued by the OIG in1998. It should be noted that OIG compliance program guid-ances are not requirements; rather, they should be viewed asrecommendations for best practices. The OIG makes it clear,however, that laboratories should have a compliance program

in place. Compliance is to the business side of laboratorieswhat the Clinical Laboratory Improvement Amendments(CLIA) of 1988 is to the analytical and regulatory side. Com-pliance is all about money and doing the right thing: Pay theright amount to the right provider for the right beneficiaryfor the right reason for the right test. While this article is anintroduction to compliance and its complexities as it relatesto laboratories, ideally, laboratories have compliance officerswho educate staff relative to the ropes to know and the ropesto skip. A glossary of acronyms can be found in this article forthose who are less familiar with the concepts presented.

Special fraud alerts were the forerunner of all the com-pliance program guidances that followed. The alerts covered13 areas of practice. Since the issuance of the OIGs guid-ance, fraudulent billing practices by clinical laboratories have

remained an area of concern and scrutiny in nearly everyannual work plan released since 2000. As a result, almost allclinical laboratories, whether independent or hospital-based,have adopted and implemented compliance programs toaddress the obligations and risk areas outlined in the 1998guidance. Given the maturity of these compliance programs,it would not be unexpected for the clinical laboratory indus-try to become somewhat complacent about compliance as itenters into a new era of joint ventures, mergers and acquisi-tions, and research and development to leverage moleculardiagnostic technologies. Yet, constant vigilance by the indus-try remains an expectation by regulatory agencies while new

risk areas emerge from ongoing scrutiny and new rules andregulations. In fact, the 2009 OIG work plan reiterated itsintent to scrutinize laboratory billing practices.

The 1998 OIG guidance document emphasized that eachlaboratory organization should develop and implement itsown compliance plan that addresses unique compliance ob-ligations as well as operational complexities. At a minimum,each plan must include the 7 essential elements described inthe original OIG guidance and rely on written standards ofconduct, policies and procedures, and education to instill aculture of compliance and ethics organization-wide. As a re-minder, the 7 essential elements include: ACodeofConductaswellasstandardoperatingprocedures

designed to provide direction and guidance to everymember of the work force in adhering to laboratory-wideprinciples of compliance and ethics in day-to-day activities;

AComplianceOfficerandComplianceCommitteewithdefined charter, composition, role, and responsibilities;

Effectivestafftrainingandeducationonaregularbasis,including as a part of new hire orientation programs;

Assuringaneffectivelineofcommunications,includingaconfidential hotline available to all work force members;

Implementingeffectivedisciplinaryprocessestoassureadherence to applicable rules and regulations anddocumented actions in response to demonstrated violations;

Regularauditingandmonitoringpractices;and Establishingprotocolsforpromptresponsestodetected

violations and effective remediation.

Clinical Laboratory Compliance: Something Old,Something NewMelissa Scott, BS, CHC, CPC, Dinh Nguyen, MT(ASCP), CHC

(Sinaiko Healthcare Consulting, Los Angeles, CA)

DOI: 10.1309/LM6EXL41OZEVFDXJ

AbstractThe health care industry has relied onelectronic technologies to manage the vastamount of information generated in mostclinical laboratories and to submit claims topayors. While highly efficient and reliable,such systems must be carefully monitored toensure the accurate flow of critical informationthroughout the preanalytical, analytical and

post-analytical phases of laboratory operations.Many billing errors, such as duplicate

billing, often stem from a failure to validate thesoftware prior to installation and to monitorcontinued accuracy through software upgrades/revisions/customizations post-installation.Other billing errors may result from undetectedfailures in the interfaces between accessioningmodules at the front end, the analytical

equipment, and the billing system at the backend. While laboratory compliance programshave matured and evolved since 1998, ongoingscrutiny and new regulations make it essentialfor such programs to be reviewed in the newcontext and in light of many recently issuedadvisory opinions and work plans from the OIG.

After reading this article, readers should be able to discuss laboratorybilling compliance, be familiar with practices that are not compliant, andhave an understanding of safeguards to mitigate potential risk.

Compliance exam 110901 question and answer form is located afterthis CE Update on page 436.


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labmedicine.com July 2009 j Volume 40 Number 7 jLABMEDICINE 429

Althoughneveradoptedasafinalrule,aneighthelementdefining roles and responsibilities and assigning oversightresponsibility was added in the Draft OIG Guidance forRecipients of Public Health Service Awards in Novemberof 2005.

Clinical laboratories have been penalized for engaging inclaim submission and billing practices that are not compliantwith applicable rules and regulations of the Centers for Medi-care & Medicaid Services (CMS). Some examples of inap-propriate practices that have resulted in administrative or civilmonetary penalties include seeking reimbursement for testsnot performed, tests performed but not ordered, tests orderedby a nonauthorized individual, tests already reimbursed inanother claim or by another payor, and test results obtainedby calculation only. Additionally, penalties have been as-sessed for adding non-ordered tests to automated organ ordisease-oriented panels approved by the American MedicalAssociation (AMA), substituting tests with higher reimburse-ment for those actually ordered, modifying test orders withoutthe expressed consent of the requesting physician or otherauthorized individual, offering customized automated profiles

that are not medically necessary or specifically requested bya physician, offering reflexive testing that is not medicallynecessary or requested, and inaccurate/inappropriate selectionand reporting of diagnosis (ICD-9) and procedure (CPT)codes. While there are clearly many areas of risk associatedwith laboratory billing practices, there are also a number ofsafeguards a laboratory may implement in order to mitigatepotential risk. A vast number of coding and billing resourcesare available to assist laboratories. These include the AMACPT Assistant, CAP CPT coding Q&A, CodeCorrect, Code-Map, Dennis Padgets Pathology Service Coding Handbook,and Flash Code.

Sales and marketing staff typically serve as the first and

ongoing point of contact between the laboratory organizationsand the physician community. While recruiting staff with acombined expertise in marketing and laboratory science maybe a challenge for some organizations, it remains their obliga-tion to ensure sales and marketing staff are thoroughly familiarwith the applicable rules and regulations affecting the industry.In turn, sales and marketing staff are expected to educate thephysician community about compliance obligations and theapplicable rules and regulations. For example, discount pricingstrategies must be structured in such a way to avoid the percep-tion that such discounts are exclusively volume-based or payor-based. Similarly, the OIG frowns upon strategies designed toinfluence the decision making process of the requesting physi-

cians in an effort to optimize laboratory reimbursement. Prac-tices such as the creation of customized, non-AMA approvedtest panels that encourage overutilization or offering analytes ingroupings but not making them available to be ordered indi-vidually on a test requisition should be discouraged. Laboratoryrequisitions should be designed to assist the ordering physicianin selecting only medically necessary tests and should clearlydisclose the composition or any panels or profiles. Laborato-ries that choose to offer customized panels are obligated toinform providers of the panels individual test components andCPT codes used to bill Medicare on an annual basis. As a bestpractice, the laboratory should exercise due diligence to obtainsigned acknowledgment of these annual notices from providerswho utilize customized panels to ensure compliance and mini-mize the potential for regulatory exposure.

The OIG continues to scrutinize marketing practicesdesigned to recruit Medicare beneficiaries through gifts andother inducements to have unnecessary tests performed forwhich reimbursement is subsequently sought from the pro-gram. A similar level of scrutiny by the OIG has focused onarrangements between laboratory organizations and physi-cians intended to promote increased utilization of specificlaboratory services for beneficiaries of federally-funded healthcare programs. One example may involve providing servicesand supplies in a physician office that are not used for thesole purpose of test ordering, specimen collection, and resultreporting. Another example would be direct or indirect remu-neration to physicians who refer program beneficiaries to alaboratory organization in return for discount pricing on ser-vices rendered to non-program beneficiaries. A third examplewould be to bill the ordering physician at a significant (belowcost) discount and allowing the ordering physician to seekhigher reimbursement directly from Medicare and Medicaid.

Federally-funded health care programs such as Medicareand Medicaid do not intend to restrict physicians from or-dering laboratory tests they believe are appropriate for theirpatients conditions. However, these programs will only pay

for tests that are covered, reasonable, and necessary. Labora-tories that perform tests not meeting coverage determinationsshould ensure Advanced Beneficiary Notice (ABN) forms areproperly executed when appropriate, according to NationalCoverage Determinations (NCDs), or in the absence thereof,Local Coverage Determinations (LCDs). ABNs are designedto allow the beneficiary the option of declining the tests asordered or to assume financial responsibility for them. Failureto execute an ABN with the patient and providing tests at nocharge may expose the laboratory to potential regulatory andfinancial liability.

The industry has increasingly relied on electronic tech-nologies to manage the vast amount of information generated

in most clinical laboratories and to submit claims to payors.While highly efficient and reliable, such systems must becarefully monitored to ensure the accurate flow of criticalinformation throughout the preanalytical, analytical and post-analytical phases of laboratory operations. Many billing errorssuch as duplicate billing often stem from a failure to validatethe software prior to installation and to monitor continuedaccuracy through software upgrades/revisions/customizationspost-installation. Other billing errors may result from unde-tected failures in the interfaces between accessioning modulesat the front end, the analytical equipment, and the billingsystem at the back end. Taking the time to ensure informa-tion remains accurate from the point of order, to testing,

to reporting, to claim submission is critical, especially whenreliance is on multiple systems working together to produce aclean claim.

Something New

Since the inception of the program guidance, CMS andthe OIG have continued to scrutinize the laboratory industryin the wake of focused audits, new rules and regulations, ret-rospective reviews of paid claims, and special investigations inselected geographical markets.

Another important guidance was jointly issued by theOIG and the American Health Lawyers Association (AHLA)in 2004. This collaborative effort defined and emphasized the


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fiduciary and ethical obligations of the governing boards forhealth care organizations, including those in the nonprofitsector.

Subsequently, revisions to the U.S. Sentencing Guide-lines reintroduced the concept of corporate governance in thecontext of compliance and strongly encouraged the governingboards of health care systems to be knowledgeable about andprovide vigilant oversight of the organization-wide culture ofcompliance and ethics. Onerous regulatory obligations underSarbanes-Oxley added to the compliance burden of manypublicly traded health care entities in the for-profit sector.

More recently, the OIG and AHLA collaborated againto produce a new guidance document articulating the respon-sibilities of governing boards with respect to quality of care,an essential element of the mission of the laboratory industry,upon whose services the physician community relies heavilyto improve the quality of care. With the industry and tech-nology changing faster than most can adapt, newly identifiedrisk areas may be derived from AHLA list serves, annual workplans, advisory opinions, fraud alerts, special advisory bul-letins, and program transmittals and newsletters issued by theOIG and CMS since 2004.

Budgetary constraints have forced many laboratory or-ganizations to engage in make or buy decisions regardingwhich tests should be performed in-house and which proce-dures should be referred to external laboratories. Once out-sourcing decisions are made, the referring laboratory mustexercise considerable due diligence in selecting external labo-ratories. The selected reference laboratory must be properlylicensed and accredited by the appropriate federal and stateregulatory agencies, such as the College of American Patholo-gists (CAP) and/or the Joint Commission for the Accredita-tion of Health Care Organizations (JCAHO), and must meetCLIA requirements to perform the referred tests. The labora-tory must be enrolled as a supplier of laboratory services in

federally-funded health care programs, not be debarred, deli-censed, or otherwise excluded from participation in federally-funded health care programs, and not employ staff that isdebarred, delicensed, or otherwise excluded from participationin federally-funded health care programs. Exclusion statusmay be verified by using the OIGs List of Excluded Individu-als/Entities (LEIE) that is available online. The laboratorymust also demonstrate it has implemented a compliance pro-gram that is well-designed and effective in meeting regulatoryobligations unique to its structure and operations and refrainfrom engaging in deceptive sales and marketing practices.

In turn, the referring laboratory is obligated to imple-ment internal control processes to validate the quality of the

services provided by the reference laboratory and the resultsupon which its physicians rely for patient care and the qual-ity of care. This includes verification that test reports clearlyindicate the name and address of the performing referencelaboratory, reporting the test cost and reference laboratoryname, address, CLIA number, and National Provider Identi-fier (NPI) on the claim, use of modifier 90 on the claim toindicate the test was referred, and ensuring fees charged bythe reference laboratory are passed through to Medicareand Medicaid. The referring laboratory should also be able todemonstrate that contractual or pricing arrangements negoti-ated with the reference laboratory do not violate permissiblediscounting practices and/or Anti-Kickback Statutes.

While clinical laboratories are obligated to perform onlytests requested by a physician or other authorized individual,

they must ensure the ordering practitioner has not been de-barred, delicensed, or otherwise excluded from participationin federally-funded health care programs. Again, the LEIEsearch is a great tool to use when setting up new providers toensure they are authorized to order laboratory tests on behalfof program beneficiaries that are reimbursable by Medicareand Medicaid. It can also be used for annual or periodicreview to ensure ongoing compliance. While many may notrealize this responsibility applies to clinical laboratories, clini-cal laboratories are obligated to do so when they are reim-bursed directly by federally-funded health care programs forservices provided to their beneficiaries. As a result, seekingreimbursement for tests ordered by providers who are de-barred, delicensed, or otherwise excluded from participation

Glossary of Terms

ABN Advance Beneficiary Notice

AHLA American Health Lawyers Association

AMA American Medical Association

ASCP American Society for Clinical Pathology

CAP College of American Pathologists

CHC Certification in Healthcare Compliance

CLIA Clinical Laboratory Improvement AmendmentsCMS Centers for Medicare and Medicaid Services

(formerly HCFA)

CPT Current Procedural Terminology

DOJ Department of Justice

DRA Deficit Reduction Act

FCA False Claims Act

FDA Food and Drug Administration

FTC Federal Trade Commission

HCCA Health Care Compliance Association

HCPCS Healthcare common procedure coding system

IVDMIA In vitro diagnostic multivariate index assay

ICD-9-CM International Classification of Diseases,9th edition, Clinical Modification

IUO Investigational use only

JCAHO Joint Commission on Accreditation of

Healthcare Organizations

LCD Local Coverage Determination

LDT Laboratory developed test

LEIE List of excluded individuals/entities

MAC Medicare administrative contractor

MIP Medicaid integrity program

MUE Medically unlikely edit

MUP Mark-up prohibition

NCCI National Correct Coding Initiative

NCD National Coverage Determination

NPI National Provider Identifier

OIG Office of the Inspector General

PC Professional component

QLC Qualification in laboratory compliance

RAC Recovery audit contractor

RUO Research use only

TC Technical component


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in federally-funded health care programs places laboratoryorganizations at risk of claim denial and potential liability.

Since 2003, laboratories have been required by CMS tocapture and report the diagnostic information provided by therequesting physician or authorized individual in either narra-tive format or ICD-9 format. Diagnostic information is reliedupon by CMS to determine whether the tests in question arereimbursable. Claims submitted without this critical informa-tion are always scrutinized and frequently denied, with adverseimpact on laboratory reimbursement and possible regulatoryexposure. This particular CMS requirement underscores theessential educational role of the sales and marketing staff. Be-cause they serve as the point of contact between the laboratoryand the physician community, they are in the ideal positionto ensure the necessary diagnostic information is capturedand reported in the correct ICD-9 format on the requisitionform by the ordering physician or his or her staff. Placing thisresponsibility on laboratory staff further removed from thepatient encounter with the physician adds operational com-plexity and regulatory liability to the laboratory.

A new reimbursement challenge presented itself in theexpansion of the diagnostic test Mark-Up Prohibition (MUP)

Final Rule. In summary, the rule states the anti-markuppayment limitation will apply in cases where a physician doesnot share a practice with the billing physician or other sup-plier, either under the substantially all services or site ofservice test. It should be noted that the rule does not applyto independent laboratories. If a physician who supervises thetechnical component (TC) or performs the professional com-ponent (PC), or both, furnishes at least 75% of his or herprofessional services through the billing physician or othersupplier, none of the performing physicians services will besubject to the MUP payment limitation under the substan-tially all services requirement.

Under the site of service analysis, the MUP will apply

only when the TC is conducted and supervised and the PC isperformed in the office of the billing physician or other sup-plier by a physician owner, employee, or independent con-tractor of the billing physician or other supplier. The officeof the billing physician or other supplier is defined as anymedical office space, regardless of the number of locations,in which the ordering physician regularly furnishes patientcare, including space where the billing physician or other sup-plier furnishes diagnostic testing, if the space is located in thesame building. For a physician organization, the office ofthe billing physician or other supplier is defined as space inwhich the ordering physician provides a substantial range ofpatient care services. Under the MUP, the Medicare payment

for the TC or PC of the diagnostic test is the lower of thecosts (less the applicable deductibles and coinsurance paid byor on behalf of the beneficiary) of the performing suppliersnet charge to the billing physician or other supplier; billingphysician or other suppliers actual charge; or fee scheduleamount for the test that would be allowed if the performingsupplier billed directly.

The MUP further states that the net charge must be de-termined without regard to any charge that reflects the costof equipment or space leased to the performing supplier bythe billing physician or other supplier. Perhaps the biggestimpact of the increased regulation involves pod or condolaboratories, which are located in a facility to service severalphysician groups. Typically, the physician groups are respon-sible for the overhead expenses of the pod or condo laboratory

and purchase the testing at a predetermined flat rate. Thephysicians then add a markup to the purchase price and billthe insurance companies directly for the testing, in turn mak-ing a profit off the services. Such arrangements are no longerpermitted.

The use of recurring orders for diagnostic testing hasbeen a long-standing practice in health care. However, thereare very specific conditions under which a standing order ispermissible when it is reimbursed by Medicare. Recurring orstanding laboratory orders must meet all the following criteriain order to be reimbursed:(1) each ordered test must be appropriate for the known or

suspected diagnosis;(2) each ordered test must be appropriate for the individual

patients clinical circumstances;(3) each test performed must be necessary for the individual

patients management;(4) the frequency of repeated testing must not be greater than

medically necessary;(5) the number of repeated studies must not be greater than

medically necessary;(6) the diagnosis must be indicated for each test with sufficient

clarity to permit accurate ICD-9-CM coding to the highestlevel of specificity;

(7) the order for the recurring test must be renewed at leastannually or sooner if required by state law or the patientsclinical circumstances;

(8) the treating physician must review each tests result, makingany indicated adjustments in frequency and number ofrepeated studies; and

(9) the documentation must demonstrate that all laboratorytests were reviewed and appropriate clinical action taken.Routine standing orders for a population of patients who

have the same or similar condition do not fall within Medi-care criteria. Also not allowed are preprinted orders for use

with patients undergoing a specific procedure or admission,even when such orders are specific to patients being treatedby a specific practitioner. Standing orders must be medicallynecessary and specific to an individual patients course oftreatment.

With the vast array of tests available, and the seeminglylimitless number of diagnosis codes, it is no wonder laborato-ries sometimes receive ambiguous test orders from physicians.Missing digits on ICD-9 codes, incomplete or nonspecificnarrative descriptions, and use of nonstandard test abbrevia-tions are examples of orders lacking clarity. When dealingwith ambiguous test orders, a laboratory should not takeaction without first consulting the ordering provider for

clarification. It is not appropriate for a laboratory to submita claim for services not supported by a physician order. Itis equally inappropriate for a laboratory to submit a claimwith diagnosis codes not directly obtained from the orderingphysician, or to infer diagnostic information from a previousorder. As a best practice, laboratories should develop specificpolicies and procedures and deliver targeted training to staffprocessing test orders to minimize potential risk when facedwith such ambiguity.

Going Forward

In 2007, CMS added the Medically Unlikely Edit(MUE) project to the already existing National Correct Coding


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Initiative (NCCI) which is designed to improve the accuracyof Medicare payments. The intent of the MUE project is toreduce errors due to clerical entries and incorrect coding basedon anatomic considerations, HCPCS/CPT code descriptors,CPT coding instructions, established CMS policies, natureof a service/procedure, nature of an analyte, nature of equip-ment, and unlikely clinical treatment. There are a numberof scenarios in a laboratory that may trigger an MUE. Forexample, billing a Pap smear on a male patient or billingmultiple units on the same date of service for a test requiringan extended specimen preparation period. MUEs restrict thenumber of units reportable on a single date of service. Theedits, which are based on the unit of service reported per lineitem, are triggered when quantity limits are exceeded.

However, there may be circumstances in which it is ap-propriate for a laboratory to perform the same test more thanonce on the same date of service for the same patient when itis necessary to obtain multiple results in the course of treat-ment. Standard CPT codes should be reported when availableto describe a series of tests. For example, CPT 80400 shouldbe reported to indicate 2 cortisol levels (CPT 82533 2) wereperformed as an ACTH stimulation panel.

In the event a comprehensive CPT code does not exist,modifiers 91 and 59 may be used. Modifier 91 should bereported on a claim to indicate the same test was performedmore than once on the same date of service, such as serialtroponin levels. Modifier 59 should be reported on a claim toindicate the same test was performed on multiple, separate,and distinct anatomical sites, such as a throat and eye culture.It is not permissible to use modifiers when tests are repeatedfor result confirmation, due to specimen or testing problems,or for any other reason when a single reportable result is allthat is required.

Molecular and genomic testing offer great potential inthe future of medicine and there is every indication that ex-

plosive growth in these areas will continue for many yearsto come. Physicians often rely on laboratory professionalsand pathologists to help them understand the complexi-ties of these diagnostic advances as they integrate them intotheir patient care plans. One significant implication of suchrapid evolution in the laboratory industry is many payorshave lagged behind diagnostic development in approvingreimbursement for a wide range of molecular diagnostic andgenomic tests. CPT code assignment can even become dif-ficult as technologies are introduced faster than the AMA canassign new codes. Many marker studies are considered to bescreening tests to help physicians predict the probability ofdisease occurrence based on a variety of clinical and genetic

conditions. Typically, screening tests are not reimbursableunder the strict definition of medical necessity. Resolution ofthese reimbursement challenges may involve a combination ofexecuting ABNs when necessary or perhaps seeking approvalfrom the medical directors of each payor or local MedicareAdministrative Contractor (MAC) for reimbursement on thebasis of clinical indications, family history, genetic predisposi-tion, and medical necessity.

Often referred to as home brew reagent systems, labo-ratory developed testing (LDT) has been the subject of con-siderable debate and scrutiny. LDT has been defined as testsdeveloped by a single clinical laboratory for use only in thatlaboratory, under strictly defined circumstances approved bythe medical director of the laboratory. Subject to applicableCLIA requirements for analytical and clinical validation, the

FDA has generally exercised enforcement discretion over LDTthat uses primarily analyte-specific reagents, general-purposereagents, general-purpose laboratory equipment, other labora-tory instrumentation, and controls.

More recently, a new breed of LDT has come into exis-tence as In Vitro Diagnostic Multivariate Index Assays (IVD-MIAs). Based on observed correlations between multivariatedata and clinical outcome, the FDA does not feel IVDMIAsprovide clear, transparent results that can be independentlyderived or verified by patients, laboratorians, or the treatingclinician. Rather than relying on generally accepted informationfrom the clinical community, the clinician requires informationfrom the test developer in order to interpret the result in patientmanagement. Due to the high-risk nature and complex medicaldecision making associated with IVDMIAs, the FDA issued aDraft Guidance for Industry, Clinical Laboratories, and FDAStaff on July 26, 2007. The guidance recommends IVDMIAsshould meet FDA pre- and post-market device requirements.

For laboratories that introduce test systems not subject toFDA clearance or approval, or that modify FDA-approved testsystems, CLIA requirements stipulate each test system mustmeet the following performance characteristics: 1) accuracy; 2)

precision; 3) analytical sensitivity; 4) analytical specificity; 5)reportable range of test results for the test system; 6) referenceintervals; and 7) any other performance characteristic requiredfor test performance. Laboratories that perform unmodified,FDA-approved test systems are required to demonstrate onlythat they can obtain accuracy, precision, and reportable rangesconsistent with those established by the manufacturer and toverify manufacturers reference intervals are appropriate forthe laboratorys patient population.

Laboratory tests designated for research use only (RUO)or investigational use only (IUO) have not yet been ap-proved for diagnostic use and therefore fall outside CLIArequirements. Hence, RUOs and IUOs are not eligible for

reimbursement by CMS as well as most nongovernmentalpayors. Billing for laboratory tests not regulated by CLIAcould potentially be viewed as submission of a false claim. Asa result, laboratories should exercise caution and introducesystem edits to preclude the submission of claims for RUOor IUO tests.

All Medicare reimbursed laboratory tests are subject tothe direct billing requirement, meaning tests must be billeddirectly to Medicare by the laboratory or physician perform-ing the test. If an outside laboratory performs a test on areferral, the reference laboratory may legally bill for the test.The only exemption to the direct billing rule comes when thereferring hospital or laboratory meets one of the following

conditions:(1) the referring laboratory is located in, or is part of, a ruralhospital;

(2) the referring laboratory is wholly owned by the entityperforming such test, the referring laboratory wholly ownsthe entity performing such test, or both the referringlaboratory and the entity performing such test are wholly-owned by a third entity; or

(3) the referring laboratory does not refer more than 30% ofthe clinical laboratory tests for which it receives requests fortesting during the year (not counting referrals made underthe wholly owned condition described above).Only when one of these conditions are met may a refer-

ring entity bill for clinical laboratory diagnostic tests based onthe clinical laboratory fee schedule for Medicare beneficiaries


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performed by a reference laboratory. Laboratories must alsoaccept assignment when billing Medicare for their services,meaning the laboratory must accept the Medicare reimburse-ment as payment in full for any covered laboratory test. It isnot permissible to balance-bill Medicare patients for anyadditional amounts.

In addition to Medicare and other federally fundedhealth care programs, laboratories often seek reimbursementfrom nongovernmental payors such as other health insurers,other health care providers, physicians, and even patients.Since laboratory fee schedules rarely have an impact on pay-ments, their importance is often overlooked. This can be asignificant area of compliance concern. California AttorneyGeneral Edmund G. Brown, Jr., recently filed suit againstseven independent laboratories related to overcharging thestates Medi-Cal program. Laboratories should take care to en-sure pricing is never set below cost, particularly when it comesto panels and profiles. Setting different fee schedules for dif-ferent payors could be perceived as discrimination by payorcategory. Offering a lower cost to one payor and not extend-ing the same rate to Medicare or another federally fundedhealth care program may expose the laboratory to potential

sanctions for violation of the Anti-Kickback Statute.A laboratory may choose to offer self-pay patients a dis-

count from its published fee schedule. This should only bedone through a documented Charity Care Policy that pre-defines the criteria for eligibility and discount methodology. ACharity Care Policy should be applied uniformly to all appli-cants and should not vary on a case-by-case basis. Discountsfor Charity Care should be reported as a writeoff and shouldbe periodically audited in the accounting system to ensurecompliance with policy guidelines.

The Federal Trade Commission (FTC) may have delayedenforcement of the Red Flags Rule until May 1, 2009, butthe compliance deadline for covered entities remained as was

previously set forth on November 1, 2008. The Red FlagsRule applies to any creditor that maintains any coveredaccounts. Any laboratory, whether for-profit or nonprofit,that extends credit or defers payment by not requiring pay-ment in full at the time of service is considered a creditorunder the Red Flags Rule. Since most laboratories do notknow patient liability at the time of service, and hence do notcollect deductibles, coinsurance, and copayment amounts,many will meet FTC criteria as a creditor. There are twotypes of covered accounts. One is an account used mostly forpersonal, family, or household purposes that involves multiplepayments or transactions, including continuing relationshipswith consumers for the provision of medical services. The

other is one for which there is a foreseeable risk of identitytheft, where consideration is given to the risks associated withhow the accounts may be opened or accessed and the type ofinteraction and documentation required. In order to comply,laboratories subject to the Red Flags Rule should develop awritten policy and procedure designed to identify relevantred flags, detect red flags, and prevent and mitigate identitytheft. FTC guidelines also require laboratories to update theirRed Flag Program periodically, and the program clearly in-dicates how it will be administered. The program should beappropriate to the size and complexity of the organization, aswell as the nature of the operations. The program should beapproved by the Board or Senior Employee, and appropriatestaff training should ensue. Failure to comply may result incivil monetary penalties and vulnerability to private law suits.

What once was a three-state demonstration program isnow permanent and will be expanded to all 50 states no laterthan 2010 under Section 302 of the Tax Relief and HealthCare Act of 2006. The Recovery Audit Contractor (RAC)program has provided Medicare with a new mechanism forretrospectively detecting improper payments and preventingfuture payments, refunding inappropriate overpayments to theMedicare Trust Funds, and identifying monies that need tobe returned to providers. The demonstration program, whichlooked at Medicare payments in six states between 2005 and2008, resulted in over $900 million in overpayments beingreturned to the Medicare Trust Fund and nearly $38 millionin underpayments returned to health care providers. Over-payments can occur when laboratories submit claims thatdo not meet Medicares coding or medical necessity policies.Underpayments can occur when laboratories submit claimsfor a simple procedure but the medical record reveals a morecomplicated procedure was actually performed.

A major implication of the Deficit Reduction Act (DRA)is the requirement as a condition of participation that anyhealth care provider, including laboratories, receiving at least$5 million annually in Medicaid payments, design and dis-

tribute written policies and procedures to educate employeesabout health care fraud laws, the providers processes for pre-venting and detecting fraud, waste and abuse, and the rightsof employees to act as relators or whistleblowers. The policiesand procedures should provide detailed information relatedto the False Claims Act, federal administrative remedies forfalse claim submission and statements, state laws pertainingto civil and criminal penalties for submitting false claims, andthe protection for whistleblowers created under these laws.In addition to explaining the role of federal and state laws inpreventing and detecting fraud, waste, and abuse, they shouldinclude a detailed explanation of the providers own policiesand procedures for detecting and preventing waste, fraud,

and abuse. Employee handbooks should be revised to includespecifics on each of the required elements, and complianceprograms should be reviewed to ensure DRA requirements areincorporated in order to maintain eligibility to receive Medic-aid reimbursement.

Also under the DRA, the Department of Health andHuman Services was directed to establish a Medicaid IntegrityProgram (MIP) designed to provide the CMS the resourcesnecessary to combat fraud, waste, and abuse in Medicaid.Section 6034 of the DRA not only established the MIP, butit requires states to cooperate with MIP efforts. MIP alsoincreased funding for Medicaid fraud and abuse control ac-tivities as well as CMS staffing to ensure MIP integrity, and

expanded the Medicare-Medicaid date match program.

Conclusion

While laboratory compliance programs have maturedand evolved since 1998, ongoing scrutiny and new regula-tions make it essential for such programs to be evaluated foroptimal effectiveness on a regular basis. Such evaluations areessential in the new context and in light of many recently is-sued advisory opinions and work plans from the OIG. Assess-ment of compliance program effectiveness by an independentthird party is an area whose benefits are often overlooked. TheOIG Model Compliance Guidance for Clinical Laboratoriesrecommends regular performance of periodic audits of the


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laboratorys operations, with particular attention paid to bill-ing, sales, marketing, notices and disclosures to physicians,requisition forms, pricing, and activities of phlebotomists andothers involved in the ordering of laboratory services. Thegoal should be to ensure compliance with the laboratoryscompliance policies, the laboratorys compliance plan, andall applicable federal and state laws. Inclusive within this re-view should be emphasis on contracts, competitive practices,marketing materials, CPT/HCPCS coding and billing, testinformation, reporting, and record keeping. While it maysound like a lofty task, taking a proactive approach when itcomes to monitoring and auditing a compliance program cansignificantly reduce a laboratorys risk in an ever-changing andhighly scrutinized industry.

The American Society for Clinical Pathology (ASCP)offers a Qualification in Laboratory Compliance (QLC) forlaboratorians who complete additional specialized trainingand successfully pass an examination on the topics of audit-ing, billing, coding, compliance education, and policies.However, the ASCP has announced the QLC program will bediscontinued in July 2009. Another resource for complianceeducation and certification is the Health Care Compliance

Association (HCCA). The HCCA sponsors and hosts trainingon a variety of regulatory topics throughout the year. Quali-fied candidates may take an examination to become Certifiedin Healthcare Compliance (CHC) through the ComplianceCertification Board. By nature and training, clinical labora-tory professionals are dedicated and detail-oriented. Theyshould be encouraged to apply such attributes to nonanalyti-cal aspects of laboratory operations to ensure optimal compli-ance and fiscal health in a highly competitive and intenselyregulated environment. LM

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Clinical Laboratory Compliance.pdf

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