Considering out-of-state lab services

Dec. 1, 2010

Q Our lab is considering expanding our service area to one or more adjacent states. Are there any particular payment or regulatory issues that we should consider?

A This question raises many issues. Regulations under the Clinical Laboratory Improvement Amendments of 1988 (CLIA) provide clinical laboratory testing standards that apply throughout the country. Similarly, the Federal Anti-Kickback Statute (FAS), the Federal Self-Referral Statute (Stark Law), and Medicare statutory provisions addressing payment for lab services apply on a national basis. Nevertheless, state laws differ. Additionally, operation of multiple laboratory facilities raises issues that require close attention.

If a lab facility is established in another state, it will have to comply with applicable state-licensure requirements. These may be different from those that apply to the laboratory’s current facility and personnel. In some states, a license or permit is also required to operate a patient service center. Some states, such as Maryland and New York, require a laboratory to hold a state license in order to test specimens originating from the state, even if testing will be conducted outside of the state’s borders. These state-licensure laws may subject lab personnel to more stringent education and training requirements than those imposed under CLIA and the regulations of the state in which they provide services. They may require lab personnel to obtain a license or permit from the particular state. Frequently, pathologists performing interpretations will be required to obtain a medical license from a state from which they receive patient specimens.

A laboratory also may have to alter its business practices when it offers services in another state. In some states, client-bill arrangements under which the lab bills physicians for tests on a discounted basis may not be possible. Similarly, there may be particular risk that discounted charges offered to physicians will have to be made available to the state Medicaid program. An arrangement with referring physicians that is permissible under federal statutes and regulations may violate applicable state laws. For example, the New York Department of Health recently advised laboratories that their provision of electronic health-record systems in accordance with a specific FAS safe harbor and related exception to the Stark Law’s self-referral prohibition violated the state’s laboratory business practices and physician self-referral prohibition. Similarly, New Jersey regulations include specific prohibitions related to a lab’s operation of a collection station within a physician’s office and its operation of patient service centers.

Medicaid billing and payment requirements may differ from the state in which the existing laboratory is located. There may also be differences in how Medicare is administered. Medicare contractors may issue local coverage decisions that control when a particular test will be considered medically necessary and may apply Medicare requirements differently.

Anticipated arrangements between the existing laboratory and any new out-of-state facility require analysis. The out-of-state lab is likely to refer tests to the existing lab. This may require the existing lab to obtain a license from the state from which the specimen is obtained. Additionally, it must be determined which lab will bill Medicare for these tests. The existing lab that performs the test (performing lab) may submit the claim. The out-of-state lab that referred the test (referring lab) may be permitted to claim payment for the test instead — if it is an independent clinical laboratory and certain requirements are satisfied. Generally, a referring lab can bill Medicare for tests performed by another unrelated laboratory only if it does not refer more than 30% of the clinical lab tests for which it receives requests for testing. An out-of-state lab may, however, be permitted to submit claims for tests performed by a related, existing lab without being required to perform that volume of testing. The Medicare statute permits a referring lab to bill Medicare for tests performed by the performing lab if 1) the referring lab is wholly-owned by the performing lab; 2) the referring lab wholly owns the performing lab; or 3) both the referring lab and the performing lab are wholly-owned by a third entity.

Whether the referring lab relies on its performance of 70% or more of its tests or on its common ownership with the performing lab to bill for tests performed by another lab, a true lab-to-lab referral is necessary. This would generally require that the out-of-state lab accession the lab test and enter the test request into its computer system before the specimen is transported to the existing lab for testing. In many states, however, this arrangement would not comply with Medicaid regulations which may require the lab performing the test to submit the claim. But this will be possible only if the existing lab is able to enroll in the state Medicaid program as an out-of-state laboratory.

When a hospital operates a laboratory in another state, it must be determined whether the out-of-state laboratory is required to submit Medicare claims as an independent clinical lab or as a hospital lab and whether tests that it performs will be subject to Medicare rebundling rules or the three-day payment policy, or DRG window.

Finally, financial and regulatory liability is a significant concern. If, for example, the CLIA certificate of the out-of-state laboratory is revoked, the agency will revoke the existing laboratory’s CLIA certificate if it is deemed to have the same owner or operator..

Robert E. Mazer, Esquire, a principal with Ober|Kaler, Baltimore, MD, represents healthcare clients, particularly in connection with legal, regulatory, and business issues related to clinical laboratory and anatomic-pathology services.

MLO’s “Liability and the lab” is intended to provide information of a general nature; it is not intended to provide specific legal advice. If you require legal advice, the services of an attorney should be sought. Contact us at [email protected].