Executive Summary

Recently, the U.S. Department of Justice ("DOJ") announced a $256 million settlement with one of the nation's largest urine drug testing ("UDT") laboratories ("Lab").  According to a False Claims Act ("FCA") complaint in intervention filed by the U.S., from January 1, 2008 through May 20, 2015, the Lab "systematically" billed the federal health care programs for unnecessary and excessive urine drug testing by encouraging/pressuring referring physicians to set up "custom" profiles (essentially, standing orders) for numerous expensive urine tests to be performed on every patient sample without regard to an individualized assessment of the patient's needs.  The Lab billed on average more than 17 procedure codes, many with multiple units, per single urine sample.    In addition, the Lab is alleged to have provided physicians remuneration in violation of the Stark Law and Anti-Kickback Statute ("AKS") in the form of free "point of care" drug test cups1 in exchange for the physician's promise to send the urine specimens to the Lab for follow-up of highly sophisticated and well-paid confirmatory testing.  

The Lab also allegedly submitted false claims for unnecessary genetic testing to determine pain medication resistance from January 2012 through May 20, 2015. 

The case originated with multiple separate whistleblower actions filed under the FCA.  The U.S. elected to intervene in several of the actions regarding the UDT allegations.  The Lab is alleged to have engaged in a number of different fraudulent schemes to induce lab referrals for tests that were not reasonable or medically necessary for the diagnosis and treatment of patients, resulting in numerous false claims and multi-million dollar damages.  As a condition of the settlement, the Lab was required to enter into a Corporate Integrity Agreement with the U.S. Health and Human Services Office of Inspector General ("OIG").  The DOJ announcement of the settlement can be found here.

Background

The Lab specializes in the provision of UDT to determine the presence and amount of prescription drugs or illicit drugs in a patient's system.  When used appropriately, UDT provides valuable information about the efficacy of a substance abuse or pain management treatment program and helps to ensure that prescribed controlled substances are not being improperly diverted.  For example, UDT can be used to monitor whether patients are taking prescribed drugs as directed or taking or abusing drugs not prescribed.  Urine (referred to by a Lab sales representative as "liquid gold") is the most common medium used for drug testing and the predominant medium for testing used by the Lab. 

Suspect UDT Lab Billing Practices 

The following practices were identified by the government as abusive and should be avoided by other labs that specialize in UDT.

  1. The Lab routinely did follow-up confirmatory testing for in-office test results that were negative and consistent with clinical expectations at great expense to the federal health care programs with little, if any, clinical value. For example, the Lab  billed and received from Medicare more than $15 million for UDT for the drug phencyclidine (a/k/a "PCP" or  "angel dust") even though abuse of this drug is "virtually non-existent" in the Medicare population.  It also billed and collected over $55 million for UDT for tricyclic antidepressants, also, not commonly abused by the elderly.  In other words, many confirmatory tests encouraged and performed by the Lab did not meet criteria for medical necessity and clinical appropriateness and therefore should not have been ordered or paid by the federal health care programs.
  2. The Lab falsely claimed and provided specious research support for the proposition that POC tests have very high "false negative" rates.  This caused physicians to lose confidence in POC testing and to believe that confirmatory testing on all negative results was necessary.  The Lab even suggested that physicians could be subject to regulatory action by the Drug Enforcement Administration if they "profiled" patients (i.e., took a patient-specific approach to testing) and also would risk legal liability if they relied on POC test results without doing follow-up confirmatory quantitative testing.
  3. A core element of the Lab's business model was to direct and encourage referring physicians to establish "custom profiles" (also referred to as "standing orders" or "test protocols") for lab testing to be performed on ALL patients regardless of individualized need and conditions, usually a minimum of 12 or more tests.  Indeed, the Lab required physicians to have a "robust" custom profile on file otherwise it would not accept and process physician referred lab samples or provide free POC Cups (see #6 below).  Sales representatives were at risk of losing their commissions on referring physician accounts not producing enough revenues for the Lab.
  4. Physicians were encouraged to order "specimen validity testing" to determine whether a urine sample had been tampered with even when this was not clinically indicated.
  5. The Lab gave physicians formal written notice that tests used for routine screening of patients without regard to individual needs are not usually covered by Medicare and are not reimbursed, but its actual sales practices were inconsistent with the boilerplate notification.
  6. The Lab paid illegal kickbacks to referring physicians by giving them free POC Cups valued at $5-6 each in exchange for physicians agreeing to send all confirmatory testing to the Lab and agreeing not to bill insurers for the POC Cup tests.  The Lab would monitor the number of free POC Cups it sent to physicians and the referrals it received back under the free POC Cups arrangement. The free POC Cups generated more than $90 million in tainted Medicare reimbursement.  The free POC Cups provided physicians valuable instantaneous clinical information for the evaluation and management of patients and provided substantial cost savings for the in-office testing strips physicians otherwise might have purchased even if they did not bill third party payors for the tests.
  7. The POC Cups were not used solely to transport, process or store specimens for Lab confirmatory testing - a permissible practice - but served as a "test vehicle" for physicians for free, thus violating the Stark Law and the AKS.  Further, the Lab ignored warnings from its employees, consultants, customers and competitors advising that the POC Cup arrangement - free cups for referrals - violated the Stark Law and the AKS. 
  8. The Lab provided other miscellaneous payments to induce UDT referrals, including speaker's fees, an EHR interface, watches, jewelry, gift cards and electronics.  The gifts were in violation of the Lab's own compliance policies.
  9. The Lab provided for some physician practices Laboratory Service Assistants ("LSAs") employed by the Lab to process specimens to be sent to the Lab.  The LSAs were instructed by their supervisors to complete lab requisition forms and always check the "Use Custom Profile" box.

The DOJ Voices an Opinion in a Related Case

Less than two months before the DOJ filed its complaint in intervention in this case, it also filed an amicus brief in an unrelated civil case filed by a competing lab against the Lab subject of this article.  In that civil case claiming unfair competition and tortious interference with business relationships based on the Lab's provision of free POC Cups to physicians in violation of the Stark Law and the AKS, the jury returned a verdict for the plaintiff lab and the defendant Lab appealed.  The DOJ filed the brief to assert that provision of free POC Cups constituted unlawful remuneration in violation of the Stark Law and the AKS.  The DOJ agreed that items, devices or supplies "used solely to collect, transport, process or store specimens" for the entity providing the items, devices or supplies, falls within the Stark Law exclusion to the broad definition of remuneration, as the Lab contended.  However, the DOJ believed that the POC Cups did not satisfy the core requirement that the items be used "solely" to collect, transport, process or store specimens to the Lab, because the test strips embedded in the POC Cup were used by physicians of the Lab in the treatment of patients, not for collection, transport, etc., benefiting the Lab.  Thus, the DOJ's opinion on POC Cups was consistent in two different cases.

Practical Takeaways

Don't Do What They Did; Vet Your Lab Structure and Practices with Compliance Counsel.  The Lab's aggressive tactics to obtain as many test orders per urine sample as possible made the Lab a huge amount of money until it all came crashing down in multiple FCA qui tam actions.  Labs in the UDT business should pay close attention to the Lab practices summarized above and avoid these practices because they are viewed by the government as fraudulent and abusive.  Compliance cases such as the one described here are very fact-sensitive; a finding of a violation of the Stark Law, AKS or FCA (or not) may turn on the particular details of an arrangement. We recommend that labs consult with experienced health care compliance counsel before proceeding with marketing and operations strategies.

Labs Should Review OIG's 1998 Compliance Program Guidance for Clinical Labs.  While the DOJ's complaint in intervention did not focus heavily on OIG's 1998 Compliance Program Guidance for Clinical Laboratories2 (the "Guidance"), we commend the Guidance to labs because it still reflects the government's current view on lab compliance.  The DOJ briefly cited the Guidance for several important points of which all labs should take note:

  • Lab order forms should emphasize the need for a justification and assessment of each test ordered and be structured to ensure the physician has made an independent medical necessity decision for each test the lab will bill;
  • Medicare may deny payment if the medical records do not support that the tests were reasonable and necessary for a specific patient; and
  • Standing orders while not prohibited with an extended course of treatment, often lead to abusive practices.  OIG discourages their use.  Standing orders in and of themselves are not usually acceptable documentation of medical necessity of the tests.

A whistleblower cited additional points from the Guidance in its complaint:

  • Labs should "periodically monitor standing orders" to ensure they have a fixed term of validity and are currently valid.
  • Labs that offer clients the opportunity to request custom profiles should provide an annual written notice that explains:
    1. How Medicare reimburses each test requested in the custom profile; and
    2. How custom profiles may result in the ordering of tests not covered, reasonable or necessary and that these tests will not be billed. 
  • OIG suggests labs should have physicians sign an acknowledgement stating that the physician understands the potential implications of ordering custom profiles. 
  • Labs should help to ensure appropriate billing of tests and determine whether physicians are being encouraged to order medically unnecessary tests.  "If the laboratory discovers that it has in some way contributed to the ordering of unnecessary tests, the OIG believes the laboratory has a duty to modify its practices, as well as notify the physician(s) . . . of its concerns and recommend corrective action."

We recommend that labs review the Guidance for other important information including OIG-recommended methods for determining excessive utilization of lab services.