Compliance plan a must for lab contracts

A column examining the ins and outs of contract issues

By Steven M. Harrisis a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column. Posted Aug. 1, 2005.

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Referrals by physicians to clinical laboratories in which they have a financial interest actually laid the foundation for the first Stark regulations. And signing an agreement with an outside lab doesn't absolve you of them.

So before you sign such a deal, review it carefully to make sure the contract doesn't violate any anti-kickback provisions.

The Office of Inspector General recently issued an advisory opinion that brings this issue to the fore again.

On June 13, the OIG stated that a laboratory services company would risk administrative sanctions if it provided free blood collection supplies to physicians and paid physicians to collect blood samples.

Under the proposed agreement the OIG reviewed, the physicians' patients would have their blood drawn during their office visit instead of going to a lab. The physicians asked the lab to provide free-of-charge blood-drawing supplies and a per-patient payment for drawing blood between $3 and $6 for each patient. The lab sought to enter into an agreement with physicians to provide the supplies and pay for the blood draws because competing labs were paying referring physicians for blood draws.

The OIG decided that this particular arrangement did not qualify for any exceptions to the anti-kickback statute, including the personal services and management contracts safe harbor. That's because the deal called for paying physicians on a per-patient basis, and compensation would not be set in advance or paid in the aggregate. Therefore this arrangement poses significant risk for fraud and abuse.

The provision of laboratory services has been highly monitored by the Centers for Medicare & Medicaid Services and the OIG due to the volume of utilized testing and services, reimbursement levels, and the potential for fraud and abuse. The physician is just as responsible as the lab to ensure that their arrangement is compliant under the law.

So if you're signing a deal for lab services, you should make sure it contains a provision stating that the lab has a compliance plan that adheres to the OIG's Compliance Program Guidance for Clinical Laboratories, issued in 1998.

The fundamentals of the compliance program should include writing policies, designating compliance officer and committee, developing and providing training and education, developing effective lines of communication, enforcing standards through well-publicized disciplinary guidelines, conducting internal monitoring and auditing, and responding promptly to detected offenses and developing corrective action.

Of course, OIG compliance is merely a start in determining whether the contract you're signing with a lab is a good one. Before signing an agreement with a company or group providing clinical laboratory testing services, here are some other issues you should consider:

Results, records and laboratory data. It is important that you include a provision requiring the lab to provide you with a written report containing specific information enabling you to track the tests provided, and the corresponding results.

Licensure. The lab should make certain representations and warranties that it is compliant with all licensing and certification requirements.

Specifically, the lab should be in compliance with the requirement of the Clinical Laboratory Improvement Amendments of 1988 and other applicable state and federal regulations.

Excluded provider provision. Also consider inserting a provision into your contract stating that each party represents and warrants that it has never been and is currently not an excluded provider.

An excluded provider is one who has been convicted of a crime related to health care or is currently listed by a federal agency as debarred, excluded or otherwise ineligible for participation in federally funded programs, including the Medicare and Medicaid programs. Each party also should be required to immediately notify the other party upon receipt of any notice that it has been deemed to be an excluded provider.

Fee schedule and compensation. The compensation paid by the physician to the lab most often hinges on the agreed-upon fee schedule. Make sure you receive and review a current fee schedule before signing a contract.

The fee schedule should identify each clinical laboratory test and service that is going to be provided by the lab, and the related compensation paid by the physician to the lab. If the lab is directly billing the patient, Medicare, Medicaid or other third-party payers, such invoices should directly correspond with the fees set forth in the exhibit.

Medicare coverage of lab services. CMS has issued national coverage policies for many diagnostic tests. Under these NCPs, Medicare will cover the test only if the specified conditions are met. Make sure you are in compliance with any applicable NCPs related to the lab services you are providing.

Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column.

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