United States: New OIG Special Fraud Alert Focuses On Suspect Practices Of Labs And Referring Physicians

Shannon Hartsfield Salimone is a Partner in our Tallahassee office.

Certain Payment Arrangements May Be a Violation of the Federal Medicare/Medicaid Anti-Kickback Statute (AKS)


  • The U.S. Department of Health and Human Services' Office of Inspector General (OIG) issued a new Special Fraud Alert on June 25, 2014, that focuses on certain compensation arrangements between laboratories and referring physicians.
  • Paying physicians more than fair market value for services, or providing free or below-market goods to referring physicians, could run afoul of the federal Medicare/Medicaid Anti-Kickback Statute (AKS). Both sides of the transaction – physicians and clinical laboratories – could face criminal liability for entering into arrangements that violate the AKS.

The U.S. Department of Health and Human Services' Office of Inspector General (OIG) issued a new Special Fraud Alert on June 25, 2014, that focuses on certain compensation arrangements between laboratories and referring physicians. Since issuing its prior laboratory fraud alert almost 20 years ago, the OIG has emphasized repeatedly that paying physicians more than fair market value for services, or providing free or below-market goods to referring physicians, could run afoul of the federal Medicare/Medicaid Anti-Kickback Statute (AKS).

Claims for laboratory services that result from a violation of the AKS do not meet Medicare's coverage criteria and may constitute false claims under the False Claims Act – even if the services were otherwise medically necessary. The OIG noted that these payment arrangements raise four potential concerns:

  1. corruption of medical judgment
  2. overutilization
  3. increased costs to federal healthcare programs and beneficiaries
  4. unfair competition

This is because making payments that are not commercially reasonable in the absence of referrals, or providing free or below-market goods or services, could induce physicians to choose laboratories, not based on quality or clinical appropriateness, but instead based on which laboratories provide them with remuneration in exchange for the referrals. The OIG observed that these types of arrangements are particularly concerning in the laboratory context because patients have little or no input regarding choosing the entity that will perform the tests. Those decisions are largely controlled by physicians.

Specimen Collection Arrangements

The Special Fraud Alert focuses on two particular types of arrangements. The first involves blood specimen collection, processing and packaging arrangements. Some laboratories pay physicians for specified duties such as blood collection, centrifuging, maintaining the specimens at a particular temperature and packaging them. These payments are often made on a per-patient or per-specimen basis, and often involve expensive tests.

The OIG acknowledged that Medicare allows a small specimen collection fee when a medical professional draws a blood sample through venipuncture. However, this payment is not allowed in all situations. Medicare will pay for this service only when it is the accepted and prevailing practice among physicians in the locality, and the physician performing the services customarily bills separate charges for drawing or collecting the specimen.

Medicare does not allow separate payments for processing and packaging specimens for transport to a laboratory. Instead, these are paid through a bundled code in the Medicare Physician Fee Schedule. When a laboratory pays a physician for these services, the AKS may be violated if there is an intent to reward or induce referrals of federal healthcare program business. Since Medicare is already paying the physician to process and package the specimen, it is more likely that the payment is for an illegitimate purpose.

Specimen processing arrangements that may be unlawful could have various characteristics. For example, payments made directly to the ordering physician, rather than his or her group practice, could be suspect. The OIG stated that payments on a per-specimen basis for more than one specimen collected during a single patient encounter, or a per-patient, per-test or other basis are problematic because they take into account the volume or value of referrals. Additionally, paying the physician for services actually performed by the laboratory's or a third party's phlebotomist could signal an AKS concern.

Some laboratories and physicians attempt to reduce their AKS risks by "carving out" federal healthcare program beneficiaries from these types of questionable arrangements. For example, the physician may receive a payment for patients covered under private insurance, but not Medicare or Medicaid. The Special Fraud Alert makes it clear that these carve-outs can still be problematic. Physicians typically refer to a limited number of laboratories. Therefore, these arrangements can be a disguised way of rewarding Medicare and other federal healthcare program business.

Footnote 5 of the Special Fraud Alert is particularly interesting. The OIG stated that:

The same principles described in this Special Fraud Alert apply to arrangements that are similar or analogous to Specimen Processing Arrangements, including arrangements under which clinical laboratories ... provide free or below-market point of care urine testing cups to health care providers who use the cups to perform billable in-office testing.

Specimen cups are available that provide instant on-site test results for certain drug classes. These cups are much more expensive than the cups that do not provide such test results. For a number of years, laboratories providing the more expensive test cups to physicians at no charge have been a subject of controversy in Florida. In 2008, Florida's Agency for Health Care Administration issued a declaratory statement1 finding that providing physicians with free specimen cups violated agency rules.

Registry Payments

The Special Fraud Alert focuses on a second scenario in which laboratories establish databases purportedly to collect data on patients who have undergone or who may undergo certain tests performed by the offering laboratories. These registry arrangements are referred to using a variety of terms, such as "registries" or "observational outcomes databases." These registry arrangements are supposedly intended to advance clinical research or provide other benefits, but they often involve payments from the laboratories to the physicians for duties such as submitting data, answering patient questions, or reviewing reports.

While the OIG acknowledged that the AKS does not prohibit laboratories from paying compensation for legitimate research activities, the OIG stated that these arrangements may implicate the AKS, depending on the intent of the parties. While payments may be reasonable in certain circumstances, in the OIG's view the AKS prohibits the arrangement if one purpose of the payments is to induce or reward referrals. The Special Fraud Alert provides several examples of characteristics of a registry arrangement that may signal an unlawful purpose, including:

  • requiring physicians to perform tests with a certain frequency in order to receive compensation
  • compensation paid to physicians on a per-patient basis
  • registries that collect data only from the tests performed by a certain laboratory

Implications for Physicians and Laboratories

The OIG noted in the Special Fraud Alert that both sides of the transaction – physicians and clinical laboratories – could face criminal liability for entering into arrangements that violate the AKS. Therefore, it is critical that physicians, as well as laboratories, review their testing relationships carefully to ensure that there is no remuneration in exchange for referrals.


1 In Re: Petition for Declaratory Statement of Dominion Diagnostics, LLC, State of Florida Agency for Health Care Administration, FRAES No. 2008008228 (July 8, 2008).

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