SNFs and laboratories.

A hazardous relationship

THE GOVERNMENT HAS PROVIDED CERTAIN WRITTEN OPINIONS and documents concerning the relationships between SNFS and laboratories. This level of written opinion indicates that the government views these relationships as suspect and a focal point for scrutiny. With the advent of consolidated billing for laboratory services for Part A patients in SNFs, new legal and regulatory hazards come into play. When these changes are combined with a trend in the laboratory industry to move away from nursing home customers because of financial reasons, the implications for SNFs are significant. This article will examine briefly these various opinions and documents, make some predictions about the future of the lab-SNF relationship, and give SNFs some tips to follow when doing business with laboratories.

On March 27, 2000, the OIG posted the results of an audit of consolidated billing in SNFs with the objective of determining if duplicate payments (overpayments) are occurring. The audit of 147 claims revealed that 50 claims had been paid by both Part A through the prospective payment and by Part B as individually filed claims. The main reason for the overpayments is that Medicare contractors do not have edits in place in the Common Working File (CWF) to detect and prevent these duplicate claims.

Of the 50 claims paid incorrectly, 28 were for laboratory services. This was the largest group by nearly twice with the next group being radiology at 16 (see "Is duplicate billing still occurring," page 36). HCFA states in its letter responding to the audit report that the overpayments are considered to be made to the outside contractor (laboratory, in our case), not the SNF, and any recovery of money will be from the outside contractor. Efforts are underway to recover the money and place the appropriate edits in the CWF to prevent the payments in the future but, for the time being, there are no edits in place so there still exists the possibility of overpayments.

From the laboratory perspective, these duplicate payments occurred because the billing information provided by the SNF was inaccurate. In other words, the lab filed the duplicate claim because the SNF didn't tell it on the requisition or order that the patient was covered under Part A. This audit only serves to point out a fact that laboratories have been aware of for some time: SNFs and Home Health Agencies are some of the most costly and difficult customers to do business with and, because they are under scrutiny by the federal government, they present significant liability for a laboratory.

A fraud alert was distributed to contractors in November 1999 concerning this issue and HCFA will soon send a Program Memorandum instructing contractors in detecting and preventing these errors, particularly the most prevalent laboratory duplicate billing, and to educate providers.

It is important to note that the audit period was early in the implementation of PPS for SNFs when the chance of error was high because it was new. Now that both SNFs and laboratories are more experienced with consolidated billing, a similar audit conducted today might show the error rate is reduced.

Part B consolidated billing still coming

The Balanced Budget Act required consolidated billing for both Part A and Part B billing in SNFs. While Part A has been implemented, we are still waiting for Part B. A program Memorandum issued in January 2000 (PM A-00-01) indicated that the implementation is delayed "until further notice". When this part of the BBA requirement is implemented, the problems of duplicate billing will disappear because all billing for laboratory services on SNF patients will be done by the SNF with the laboratory billing the SNF for all services. Lab discounts to SNFs OIG opinion letter. This opinion, dated Sept. 22, 1999, was written in response to a query by a laboratory provider concerning an earlier Advisory Opinion (AO 99-2, February 1999) in which discount arrangements for ambulance services provided to SNFs were addressed. Basically, this opinion letter said that any arrangement between an ancillary provider (e.g., laboratory, radiology, durable medical equipment, ambulance) and a SNE that discounted the Part A business w ith the intent to obtain the referral of the fee for service Part B business would implicate the anti-kickback statutes.

Specifically, the Office of Inspector General (OIG) said that the determinative factor in evaluating such arrangements is whether the arrangement makes sense standing on its own without any other referrals between the parties. If there is any connection, either directly or indirectly, between the discounted business and the referral of other federally funded business, the arrangement would be suspect.

In another Advisory Opinion (AO 99-13, Dec. 7,1999) concerning discounts between laboratories and physicians, the OIG makes the comment that the mere referral of all other business, regardless of whether the referrals are explicitly required by the physician to obtain the discount, is suspect. In this opinion the OIG further implies, by citing language about billing substantially in excess of usual charges in the permissive exclusion authority, that the profit margin on the discounted business should approximate the profit margins on the business billed to the Medicare program for Part B services. Using this measuring stick, the only safe discount is one that can be related to the Medicare allowable for laboratory services and that is specifically based on savings associated with administrative simplification because the lab is billing the nursing home directly. Free services performed by clinical laboratories. In an opinion letter dated Oct. 2, 1997, the QIG says that free services such as chart review or i nfection control services that the SNF would normally have to pay for, confers a benefit to the SNF, This would include things such as free laboratory testing for environmental cultures or infection control purposes. If one of the intentions of such an arrangement is to cause referrals of laboratory tests from the SNF, it would be a direct violation of the anti-kickback statutes. The requester of this opinion was most likely a laboratory that was trying to address certain competitive practices in the marketplace. A key component of this letter is the statement by the requestor that the nursing homes and SNFs were soliciting these arrangements. Since it is a violation to solicit a kickback as much as it is to give one, this would imply that the SNF could be prosecuted based on asking for the free service.

The future of laboratory--SNF arrangements

Many laboratories have stopped seeking SNFs as clients. A good financial analysis will show any laboratory provider that these customers are low profit margin customers at best when consideration is given to the real costs of doing business with them. Add to this already questionable financial relationship the risk and liability associated with violations of anti-kickback laws and the intense scrutiny on these providers by the government, and one begins to wonder why a laboratory would do business with a SNF at all.

Here is what SNFs can expect from laboratories in the future:

* Tougher stance on discounts. Laboratories will be less willing to discount below Medicare allowable without some significant service concessions like reduced phlebotomy services.

* Laboratories will not provide any free services and any extra service will be charged.

* Amendments to contracts that provide for penalties to the SNF for not providing sufficient billing information to allow for clean claims to be submitted to Medicare and other third-party payers.

* Fewer laboratories will seek SNF customers.

* Amendments to contracts to permit audits of the SNFs billing practices.

* Contractual obligations for the SNF to have an effective compliance program that meets the government's requirements.

The laboratory industry has faced several years of price reductions from the government and from the managed care industry. It is among the most heavily prosecuted segments of health care for Medicare violations, having paid combined fines in excess of $500 million. It was the first segment of health care to have a compliance guidance published by the OIG and the only one to have it revised significantly. There is considerably less tolerance and room in its industry for marginally profitable business or for business that may draw the government's attention and cause additional prosecutions and fines. The audit recently conducted and cited, at left, may be the last straw that will drive honest laboratory providers away from SNF customers.

When dealing with laboratories, nursing homes should keep the following things in mind:

* SNFs may not have a great amount of leverage when trying to negotiate their arrangement with the laboratory. If the SNF is requesting extra services such as call-backs for additional phlebotomy services or weekend services, it will undoubtedly have to pay for those.

* It is essential that the SNF cooperate with the laboratory in finding ways to efficiently provide accurate and current billing information when ordering tests. If the laboratory is incurring additional costs because the SNF is not providing accurate billing information or is not having Advance Beneficiary Notices signed--both of which cause bad debt and write-off to occur--it will be hard for the laboratory to justify any discounts at all and most likely will result in some form of monetary penalty.

* Be wary of offers that are too good. Entering into an illegal arrangement with a clinical laboratory is a violation of the law whether or not the SNF solicited it or just accepted.

* Any free services that benefit the SNF are suspect and should not be accepted.

* Insure your laboratory provider is aware of the laws and regulations that govern arrangements between labs and their customers. Insure they have a compliance program in place.

* Reserve the right to audit the laboratory's plan and its billing practices.

* Do not play one laboratory provider against another to try to get a better deal without analyzing an offer in light of the laws and regulations that govern it. Consider asking the offerer to sign an attestation that the offer is within the law.

There are two possible scenarios that will emerge from these developments. One is that specialty companies will emerge that will provide packages of services to SNFs that include laboratory services. The second is that SNFs will set up and operate limited laboratories doing the simplest necessary testing in their facilities and making few referrals to outside laboratories. Whatever the outcome, it is sure that change is coming and SNFs will have one more thing they must deal with that will impact on their ability to serve their residents.

Phoenix-based Christopher Young is an independent consultant, author, and lecturer working primarily in the laboratory compliance, legal, and regulatory areas.

Is duplicate billing still occurring?

The Office of Inspector General's auditing section conducted an audit of Part A and Part B claims for patients in SNFs to determine if duplicate billing is occurring. Here is what it found:

The audit covered 18 SNFs and 4 FIs [fiscal intermediaries] for dates of service from 10/1/1998 through 4/30/1999.

Of 147 claims reviewed, 50 (34 percent) had been paid in duplicate by a Part B contractor. The duplicate claims breakout as follows:

The entire audit report, titled, "New OAS Reports: Review of Compliance with the Consolidated Billing Provision Under the Prospective Payment System for Skilled Nursing Facilities, (A-01-99-00531)" can be found at http://www.hhs.gov/progorg/oas/whatsnew.html. The report is in Adobe Acrobat format.