The marketing of pathology and laboratory services has become quite competitive in recent years, raising the compliance stakes with respect to marketing techniques in securing new clients and retaining existing clients. There is significant pressure on hospitals and health systems to pursue outreach opportunities, and because of the level of competition, some facilities have resorted to providing benefits to those providers who agree to direct business back to the facility. However, any benefits provided to referral sources must be carefully considered in light of applicable federal and state fraud and abuse regulations, many of which carry criminal penalties in addition to substantial civil monetary fines. Among the most relevant federal restrictions are the following:

• The Medicare and Medicaid anti-kickback statute (42 US Code § 1320a-7b(b))—This federal law prohibits the knowledgeable and willful solicitation, payment, or receipt of any remuneration, whether direct or indirect, in cash or in kind, to induce a business agreement or in return for referrals for items or services covered by the Medicare, Medicaid, or other government health programs. Violations are punishable by civil monetary penalties, criminal penalties, and exclusion from the Medicare and Medicaid programs.
• The Stark Law (42 US Code § 1395nn)—This law prohibits a physician from making a referral for certain designated health services (including clinical laboratory and anatomic pathology services) for which payment may be made under the Medicare or Medicaid program, if the physician (or an immediate family member) has a financial relationship with the entity that provides the designated health services. The Stark Law contains limited exceptions and the penalties include civil, monetary penalties, as well as exclusion from the Medicare and Medicaid programs.

Specific Provisions
In order to gain a better understanding of the risks associated with an unconstrained or undisciplined outreach program, it would be wise to review the guidance provided by the Office of the Inspector General (OIG) with respect to the marketing of pathology and laboratory services. This guidance is most often presented in the form of Fraud Alerts, Bulletins, and Advisory Opinions (www.oig.hhs.gov). These reports have detailed activities over the years and address examples of benefits that have been given in the past for which there are specific requirements. Below is a sample of various reports as they apply to the provision of pathology and laboratory services:

• Provision of Free Goods (OIG letters dated July 1, 1997 and July 3, 1997)—In these two letters, the OIG covers the provision of computers to referral sources of laboratory services. If the referral source is free to use the computer for a variety of purposes in addition to receiving test results, the provision of that computer may constitute an illegal inducement. The OIG also explains that the analysis would be equally applicable to fax or scanning machines, consulting services, or gifts given to referral sources, either for free or at a cost below fair market value.
• Free Prostate Biopsy Needles (OIG letter dated August 4, 1997)—The OIG explains that biopsy needles have a clear independent value to physicians and that the cost of the needles may already be included in the practice expense portion of the Medicare payment made to the physician. Under these circumstances, an obvious inference is that biopsy needles are being provided to the physicians by the pathology laboratories in exchange for referrals.
• Free Services Performed by Laboratories (OIG letter dated October 2, 1997)—The OIG explains that a kickback violation can occur if the facility providing the lab services places a phlebotomist within the referral source’s office or facility, and that individual performs clerical or medical functions not directly related to the collection or processing of laboratory specimens. This letter also describes as suspect the situation wherein a clinical laboratory provides a variety of chart review and infection control services for nursing homes free of charge.

• Arrangements for the Provision of Clinical Laboratory Services (Fraud Alert dated October, 1994)—This fraud alert describes the following arrangements as suspect under the Medicare and Medicaid anti kickback law: the provision, without charge, of a phlebotomist in a physician’s office who performs additional tasks that are normally the responsibility of the physician’s office staff (reiterating the OIG letter above); below-market laboratory pricing for renal dialysis centers; free pickup and disposal of biohazardous waste products unrelated to the collection of specimens for the outside laboratory; the provision of computers or fax machines without charge, unless such equipment is integral to and exclusively used for the performance of the outside laboratory’s work; and provision of free laboratory testing for referring health care providers’ employees and their families.

Legal Exceptions
While the exceptions are minimal, the Stark self-referral law does contain an exception for non-monetary compensation. This exception sets a financial limit on the provision of certain non-monetary compensation to referring physicians in order to avoid violation of the Stark Law. The Stark limit is adjusted for inflation every year, and currently is $385 annually per physician. It is important to note that this exception covers only non-monetary compensation provided to a physician, and does not include cash, cash equivalence, or gift certificates.

Following the issuance of Section 1877 of the Social Security Act (42 US Code § 1395 nn)—commonly referred to as the Stark Law or Stark I—the Omnibus Budget Reconciliation Act of 1993 expanded the restrictions in Stark I, and this legislation became known as Stark II. In commentary to the Stark II regulations, the government provided guidance with respect to the provision of free supplies by laboratories for the collection of specimens. The government explained that low cost supplies used solely to collect specimens for the laboratory may be provided without charge to a physician. However, higher cost items used by the physician to perform the underlying surgical procedure, such as biopsy needles and snares, could violate the law.

Free Meals and Other Non-monetary Compensation
Items considered non-monetary compensation—such as boxed lunch or dinner meals, coffee mugs, or other small items and gifts—are commonly provided by pathologists and laboratories to referring physicians. These are the types of items subject to the $385-per-physician, non-monetary compensation limit, but the per-physician concept is a key point. If a hypothetical physicians office has five active physicians, then up to $1,925 worth of free meals may be provided annually, presuming no other monetary compensation is provided to any of the physicians during the year. Due to the tight restrictions against monetary gifts, as well as the strict $385 per-physician limit for non-monetary compensation, it is prudent for the pathology or laboratory services provider to maintain a detailed log of all such meals provided during the year, the exact cost of the meals, the date the meals were provided, and the physicians for whom the meals were provided.

It is important to note that the annual non-monetary compensation limit covers all non monetary items provided to physicians, including common trinkets such as coffee mugs, pens, and other incidental supplies, in addition to meals. So the per-item cost of each of these would also need to be accounted for in the annual limit. The provision of restaurant or other vendor gift certificates is strictly prohibited and doing so would violate the Stark Law.

Pap Results and Reminders
The provision of Pap result cards and annual appointment reminder cards poses difficult compliance issues. If a laboratory bears the expense of printing Pap result cards or reminder cards with the name and address of the referring clinician and/or the laboratory bears the postage expense involved in sending these cards, the government would likely view such activities as a violation of federal fraud and abuse laws. This is because the laboratory is absorbing an expense on behalf of the referral source. However, there is much less concern if a laboratory sends its own notices (referencing only the laboratory) informing patients of the results of testing performed by the laboratory. Therefore, while bearing the expense of Pap result cards with the clinician’s name on the card would be problematic from a compliance standpoint, the compliance risks are substantially reduced if the laboratory sends its own results card. Similarly, there are relatively minimal compliance risks if a laboratory sends a reminder card to patients for whom it has provided testing in the past, reminding the patients to contact their clinician (who should remain unnamed on the card) to schedule their annual examinations.



Speculums, Biopsy Needles, and Snares
Disposable speculums pose a clearer compliance risk. As mentioned, the commentary to the Stark II regulations clearly explains that laboratories may provide low-cost items to be used solely to collect, transport, process, or store specimens for the laboratory, such as cups used for urine collections or vials used to hold and transport blood to the laboratory. The government does not regard specialized equipment such as disposable or reusable aspiration and injection needles and snares as solely collection or storage devices. Instead, these items are also considered to be surgical tools that are routinely used as part of a surgical or medical procedure.

Speculums, for example, are used during a pelvic examination, for which the clinician submits a claim for services. A speculum is not used solely for the collection or transportation of the specimen that will be sent to the laboratory. Therefore, the provision of disposable speculums without charge by a laboratory to a clinician is a violation of the Stark Law, subjecting both the laboratory and the clinician to potentially significant penalties. In fact, CMS has issued an advisory opinion confirming that the provision of a speculum without charge to a physician would constitute prohibited remuneration under the Stark Law.

Similarly, the provision of biopsy needles and snares without charge would violate the Stark Law. The Stark II regulatory preamble clearly refers to biopsy needles and snares as surgical devices that are used by the clinician for the underlying surgical or medical procedure, and are not items that can be provided without charge to the physician. Another CMS advisory opinion determined that the provision of an endometrial biopsy brush without charge to the referring physician also can constitute prohibited remuneration under the Stark Law.

Conclusion
Clearly, outreach and marketing of pathology and laboratory services is a necessary and growing practice that will continue to expand and become more complex from a legal compliance aspect. While there are many potential benefits to providing lab and pathology services outside the walls of your facility, having a firm understanding of the legal constraints, and applying discipline to the ways in which staff members engage current or potential clients is imperative. Always keep in mind that a violation of the Stark Law or the Medicare and Medicaid anti-kickback statute subjects both parties to civil and criminal penalties, so the clinician and the laboratory are equally at risk. Furthermore, pathologists and laboratory administrators should consider any applicable state fraud and abuse laws, in addition to these federal laws.

Jane Pine Wood, JD, is an attorney with McDonald Hopkins LLC, based in Dennis, Massachusetts. She specializes in corporate, regulatory, reimbursement, and contractual matters in the representation of physicians, clinical and anatomic laboratories, hospitals, and other health care providers. Jane received her JD from Vanderbilt University and is a member of the Massachusetts Bar Association, the Ohio Bar Association, and the American Health Lawyers Association.