Laboratory Billing Pitfalls That Can Haunt Individuals, Laboratories and Hospitals

Insurers and the government are scrutinizing laboratory billing arrangements where small, financially challenged hospitals contract with Medical Service Organizations (MSO) to perform laboratory marketing services for the hospital laboratory (referred to as Hospital Out-Patient Department or HOPD). The hospitals are small, having financial difficulty but have favorable reimbursement rates for in-network insurance contracts with larger insurance carriers. 

The goal is for the MSO to refer patient specimens (generally routine hematology and chemistry) to the hospital laboratory where the testing will be performed. The hospital in turn will bill the insurer for those tests actually performed in the hospital laboratory. However, the hospital/MSO contract will also stipulate that the hospital will bill the in-network insurers for testing performed at reference laboratories and represent these tests as having been performed in the hospital laboratory. Generally, the reference laboratories are performing high volume toxicology, pharmacogenomics and genetic testing.

However, the hospital/MSO contract will also stipulate that the hospital will bill the in-network insurers for testing performed at reference laboratories and represent these tests as having been performed in the hospital laboratory. Generally, the reference laboratories are performing high volume toxicology, pharmacogenomics and genetic testing.

At the same time the contract is signed with a hospital, the MSO sales department will contract with medical practices, rehabilitation facilities and the like to have specimens referred for testing at MSO contracted laboratories. 

The MSO has contracts with reference laboratories performing those tests not performed at the hospital.  Some of these laboratories are owned by the MSO.  These toxicology and genomic laboratories agree to allow the hospital to bill for the tests they perform (toxicology and genomic) in those instances where the hospital has more favorable contracts with insurers than does the specialty laboratory. 

This arrangement provides the reference laboratories, the MSO and its owners with significantly higher reimbursement than they could otherwise receive.  The hospital receives and retains the reimbursement for those tests actually performed in the hospital, and, in addition, a percentage of the receipts it has received for those tests performed in the reference laboratories.  This then also becomes a financial win for the hospital. 

Since the bottom line is the hospital laboratory is billing insurers using the hospital NPI number for all tests, regardless of where performed, and representing them as all being performed in the hospital laboratory and the patients being tested being patients of the hospital’s outpatient department, insurers contend this type hospital billing violates the contract with the hospital.  Generally, hospital/insurer agreements contain exclusivity of services by hospital credentialed providers for their patients and the contracts include anti-assignment language. 

Many times the MSO will offer the referring entity (medical practice or a rehabilitation facility etc.) some form of remuneration.  In some instances, this in the form of ownership shares in the MSO; in other cases, there may be provision of an MSO employee in the referring practice to provide specimen collection services and in still other instances cash reimbursements for each specimen submitted may be given.  There is concern that many of these arrangements with both hospital and medical practices not only run counter to the hospital/insurer contract but also federal and state law.  Depending on how arrangements are made, they could be considered fee splitting, kickback and/or self-referral.      

The insurers have challenged the hospitals in court with claims that they are violating the terms of their contracts.  Insurers include Blue Cross Blue Shield of Mississippi, Anthem and its Blue Cross Blue Shield Affiliates and United HealthCare so be aware insurers and the government are looking at these agreements.

It is essential that if you are entering into any arrangements with an MSO to do marketing for your laboratory or to be the middle-man to refer your practice specimens to a reference laboratory, be very wary.  This is particularly true if the laboratory work is being billed by an out of state hospital or if there are any inducements offered to you or your practice for the referral of specimens.