Clinical laboratories under increased scrutiny 

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Clinical laboratories large and small are experiencing the increased scrutiny of the federal government, states and private insurers.  This focus has developed because payers have identified several areas in which they believe improper billing is occurring.  The primary targets are toxicology and molecular diagnostic laboratories. Many audited laboratories have spoken of the aggressiveness of the oversight and that the audits seek to recoup significant dollar amounts.



The effort is targeting medical necessity; test frequency and standing orders; inappropriate financial arrangements between medical practice laboratories and reference laboratories.  Some examples of what would be considered inappropriate financial arrangements include: placement of reference laboratory employees in referring laboratories, reimbursement of referring laboratories for specimen collection and preparation, balance billing or lack thereof, and any suspicious arrangements potentially leading to improper remuneration to laboratories by the government and insurance carriers.

An area of great concern to me is the increasing individual liability Laboratory Directors, laboratory executives and individual practitioners have experienced when they run afoul of the regulations and federal and state law.  The individual liability was first espoused in the “Yates Memo” issued by the US Department of Justice in 2015.  The memo instructs Department of Justice investigators, prosecutors and US Attorneys that when going after corporate misconduct to “absent extraordinary circumstances or approved department policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation”.  The memo also indicates that no corporate financial resolution of a government claim will provide protection from criminal or civil liability of any individual.  It spells out that this liability will deter future illegal activity from both the individuals involved and also from those who might be contemplating similar misconduct.  It instructs those performing an investigation to focus on individuals from the inception of the investigation!  It also advises civil attorneys to focus on individuals as well as the company and further evaluate whether to bring suit against the individuals.

In view of this, if you are entering into any laboratory financial arrangement be it with another laboratory, a third party Medical Service Organization, or other entity involving laboratory medicine, it behooves you to obtain a legal opinion since the government agencies and the insurers are watching all of us in the laboratory financial arena very closely.

Over the next weeks I will discuss some of the landmines that been most problematic and hopefully this will prove beneficial for you.

Also, don't forget to stay connected and join our Quality Lab Group on LinkedIn!

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About the author

Dr. John Daly

John T. Daly, M.D. is Chief Medical Officer of COLA. Dr. Daly received his MD degree at Weill Cornell University Medical College, performed his internship and residency in Anatomic and Clinical pathology at Duke University Medical Center and a residency in Forensic Pathology at the Office of the Chief Medical Examiner in Chapel Hill, N.C. He is board certified in anatomic, clinical and forensic pathology. Through the course of his career, Dr. Daly has had extensive experience directing and advising laboratories of all sizes including physician office practices, Federal Health Clinics, surgical centers, Community Hospitals and the integrated academic health system clinical laboratories of Duke Medicine. He retired as Director of Laboratories of Duke Medicine, and continues his affiliation as a member of the emeritus staff. He then joined the accreditation organization, COLA, as the Chief Medical Officer. In this role he continues to provide guidance that helps labs improve safety in labs, standardize and streamline operations while achieving CLIA compliance.


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