Physicians Should be Wary of Labs Offering Incentives to Refer

February 27, 2013

Physicians should think twice before doing business with laboratories that offer the opportunity to profit from your business relationship.

Are you paid a “handling” fee by the lab to which you refer testing? Does your lab provide you with free urine cups that you can use to provide point-of-care testing (and bill payers for such testing)?  Are you paying a flat-fee to a laboratory for testing and billing payers directly for the test (“pass through billing”)?  If you are involved in any of these practices, be aware that you may be in violation of the law.

It’s a common refrain for laboratories with which I work to complain when I advise them not to pay handling fees to physicians. These laboratory clients insist that physicians will demand the fee or send their referrals elsewhere. I assume that physicians who insist on this fee are under the impression that Medicare does not separately compensate providers for the handling and processing of urine specimens, and thus accepting a handling fee is payment for a “non-covered” service.  Would physicians still accept this fee if they were told this was not the case?

Medicare generally considers the handling of specimens to be part of a bundled payment with the service to which it is incident-to.  For example, if a physician conducts an office visit with a patient and orders a urine sample, payment received for the office visit includes payment for the collecting, handling, and processing of the urine specimen.  Many private payers take this same approach.  When a physician accepts a handling fee from a lab, this may not only be a double payment, but if the fee is intended to induce the physician to refer to the laboratory, this would likely be a kickback under federal law. It is also important to note that many states have their own kickback statutes that are implicated by these arrangements as well.

Another concerning trend is the provision by laboratories of free urine cups to physicians who conduct point-of-care testing, and then ship the specimens back to the same laboratory for confirmatory testing.  First, the cups are provided for free to the physicians who are then able to perform testing and bill payers for reimbursement.  The red flag is the free cup, which is clearly intended to induce the physician to refer the testing back to the lab for confirmatory testing (whether needed or not). This is of particular concern when every test is sent for confirmatory testing. Physicians should not accept free cups if they are going to use the cups for testing that will be billed to any payer.  Free urine cups that are provided merely for transportation of a sample to a lab are permissible.   Physicians should also be aware that when using point-of-care urine testing, they usually cannot bill a CPT code for each drug class in a screening; rather, there is typically just one CPT code for the entire screening under most government payer regulations and private health insurance policies.

Finally, pass-through billing is an arrangement in which a laboratory tests samples provided by a physician for a fee, and allows the physician to profit by billing payers directly for the laboratory services for more than the physician paid the laboratory.  This approach is typically avoided for Medicare and Medicaid patients by most physicians. However, even when federal patients are excluded, the government has warned that there may be a violation of the law.  This is because the opportunity the laboratory provides to a physician to bill payers for the non-federal patient services (at a profit), induces the physician to also send his or her federal patient business to the same lab.  This arrangement, which arguably swaps discounted non-federal business for profitable federal healthcare program business, has been deemed to present a serious risk under the Anti-Kickback Statute. Providers should also be aware that many states also have laws that prohibit such pass-through billing arrangements. 

Physicians need to be wary of doing business with laboratories that offer the opportunity to profit financially from the business relationship between the parties.  If you have been engaged in any of the above arrangements, or have been offered other creative benefits for doing business with a particular lab, please talk to health law counsel without delay.