[Federal Register Volume 63, Number 163 (Monday, August 24, 1998)]
[Notices]
[Pages 45076-45087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22559]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General


Publication of OIG Compliance Program Guidance for Clinical 
Laboratories

AGENCY: Office of Inspector General (OIG), HHS.

ACTION: Notice.

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SUMMARY: This Federal Register notice sets forth the OIG's recently-
issued Compliance Program Guidance for Clinical Laboratories. The OIG 
had previously developed and published a model compliance plan for the 
clinical laboratory industry on March 3, 1997. This Compliance Program 
Guidance for Clinical Laboratories is intended to be more consistent 
with compliance program guidances issued by the OIG with respect to the 
hospital industry and to home health agencies, and serves to clarify 
various aspects of the original model plan. As with previously-issued 
compliance program guidances, we believe that the development of this 
guidance for clinical laboratories will continue as a positive step 
towards promoting a higher level of ethical and lawful conduct 
throughout the entire health care community.

FOR FURTHER INFORMATION CONTACT: Christine Saxonis, Office of Counsel 
to the Inspector General, (202) 619-2078.

SUPPLEMENTARY INFORMATION: As part of a major initiative to engage the 
private health care community in combating fraud and abuse, the OIG 
developed and published in the Federal Register a model compliance plan 
for the clinical laboratories (62 FR 9435; March 3, 1997). The 
compliance plan was intended to provide clear guidance to that aspect 
of the clinical laboratory industry that was interested in reducing 
fraud and abuse within their organizations. Since that issuance, the 
OIG has developed and issued specific compliance program guidance for 
the hospital industry and for home health agencies.
    This compliance program guidance is intended to refine and build on 
the original model guidance plan for clinical laboratories. In 
developing an effective compliance program, the OIG has identified 7 
fundamental elements. They are:
     Implementing written policies, procedures and standards of 
conduct;
     Designing a compliance officer and compliance committee;
     Conducting effective training and education;
     Developing effective lines of communication;
     Enforcing standards through well-publicized disciplinary 
guidelines;
     Conducting internal monitoring and auditing; and
     Responding promptly to detected offenses and developing 
corrective action.
    The development of this new Compliance Program Guidance for 
Clinical Laboratories has been enhanced

[[Page 45077]]

based upon changes in Health Care Financing Administration (HCFA) 
policy, private industry's comments on the original model plan and 
additional comments submitted by HCFA and the Department of Justice.
    While the key components of the original plan are still included, 
this Compliance Program Guidance sets forth a number of clarifying 
elements. Specifically, the compliance guidance:
     Focuses on the fact that while physicians can order any 
tests they believe are appropriate, Medicare will only pay for those 
tests which are covered, reasonable and necessary;
     Recognizes that individuals other than physicians may be 
authorized to order tests in some States;
     Recognizes additional claim information, such as 
requesting the diagnosis information contained in the medical record, 
can be obtained from an authorized person rather than directly from the 
physician;
     Notes that physicians are required to submit diagnostic 
information to the laboratory when ordering many--although not all--
laboratory tests;
     Emphasizes the need for the tests performed in accordance 
with standing orders to be reasonable and necessary; and
     Clarifies laboratories should not charge physicians a 
price below fair market value for non-federal health program tests in 
order to include their Federal health care business.
    In addition, while the original model laboratory compliance plan 
focused on the billing of automated multichannel chemistry tests, the 
American Medical Association has since deleted these codes from the 
1998 CPT coding handbook, and HCFA no longer recognizes these as 
billable or reimbursable codes. As a result, physicians now must 
individually order tests that once compromised a chemistry profile. 
This guidance specifically reflects this policy change.
    A reprint of the OIG's Compliance Program Guidance for Clinical 
Laboratories follows.

OIG Compliance Program Guidance for Clinical Laboratories

Introduction

    The Office of Inspector General (OIG) of the Department of Health 
and Human Services (HHS) continues in its efforts to promote 
voluntarily developed and implemented compliance programs for the 
health care industry. The following compliance program guidance is 
intended to assist clinical laboratories in developing effective 
internal controls that promote adherence to applicable Federal and 
State law, and the program requirements of Federal, State, and private 
health plans.1 The adoption and implementation of voluntary 
compliance programs significantly advance the prevention of fraud, 
abuse, and waste in the clinical laboratory industry while at the same 
time further the fundamental mission of all health care providers, 
which is to provide quality services and care to patients.
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    \1\ This guidance is a republication of the model clinical 
laboratory compliance plan issued by the OIG on February 27, 1997. 
This guidance has been amended to reflect HCFA policy changes and to 
be consistent with the OIG's Compliance Program Guidance for 
Hospitals. See 63 FR 8987 (February 23, 1998) and the OIG's web site 
at http://www.dhhs.gov/progorg/oig.
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    Within this document, the OIG intends to provide first, its general 
views on the value and fundamental principles of clinical laboratory 
compliance programs, and second, specific elements that each clinical 
laboratory should consider when developing and implementing an 
effective compliance program. While this document presents basic 
procedural and structural guidance for designing a compliance program, 
it is not in itself a compliance program. Rather, it is a set of 
guidelines for consideration by a clinical laboratory interested in 
implementing a compliance program. The recommendations and guidelines 
provided in this document must be considered depending upon their 
applicability to each particular clinical laboratory.
    Fundamentally, compliance efforts are designed to establish a 
culture within a clinical laboratory that promotes prevention, 
detection and resolution of instances of conduct that do not conform to 
Federal and State law, and Federal, State and private payor health care 
program requirements, as well as the clinical laboratory's ethical and 
business policies. In practice, the compliance program should 
effectively articulate and demonstrate the organization's commitment to 
the compliance process. The existence of benchmarks that demonstrate 
implementation and achievements are essential to any effective 
compliance program.
    Eventually, a compliance program should become part of the fabric 
of routine clinical laboratory operations.
    Specifically, compliance programs guide a clinical laboratory's 
governing body (e.g., Board of Directors), Chief Executive Officer 
(CEO), managers, technicians, billing personnel, and other employees in 
the efficient management and operation of a clinical laboratory. These 
employees are especially critical as an internal control in the 
reimbursement and payment areas, where claims and billing operations 
are often the source of fraud and abuse and, therefore, historically 
have been the focus of Government regulation, scrutiny and sanctions.
    It is incumbent upon a clinical laboratory's corporate officers and 
managers to provide ethical leadership to the organization and to 
assure that adequate systems are in place to facilitate ethical and 
legal conduct. Indeed, many clinical laboratories and clinical 
laboratory organizations have adopted mission statements articulating 
their commitment to high ethical standards. A formal compliance 
program, as an additional element in this process, offers a clinical 
laboratory a further concrete method that may improve quality of 
services and reduce waste. Compliance programs also provide a central 
coordinating mechanism for furnishing and disseminating information and 
guidance on applicable statutes, regulations and other requirements of 
Federal, State and private health plans.
    Adopting and implementing an effective compliance program requires 
a substantial commitment of time, energy and resources by senior 
management and the clinical laboratory's governing body.2 
Programs hastily constructed and implemented without appropriate 
ongoing monitoring will likely be ineffective. While it may require 
significant additional resources or reallocation of existing resources 
to implement an effective compliance program, the OIG believes that the 
long term benefits of implementing the program outweigh the costs.
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    \2\ Indeed, recent case law suggests that the failure of a 
corporate Director to attempt in good faith to institute a 
compliance program in certain situations may be a breach of a 
Director's fiduciary obligation. See, e.g., In re Caremark 
International Inc. Derivative Litigation, 698 A.2d 959 (Ct. Chanc. 
Del. 1996).
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A. Benefits of a Compliance Program

    In addition to fulfilling its legal duty to ensure that it is not 
submitting false or incorrect claims to Government and private payors, 
a clinical laboratory may gain numerous additional benefits by 
implementing an effective compliance program. Such programs make good 
business sense in that they help a clinical laboratory fulfill its 
fundamental mission of providing quality services as well as assisting 
clinical laboratories in identifying weaknesses in internal systems and 
management. Other important potential benefits include the ability to:

[[Page 45078]]

     Concretely demonstrate to employees and the community at 
large the clinical laboratory's strong commitment to honest and 
responsible corporate conduct;
     Provide a more accurate view of employee behavior relating 
to fraud and abuse;
     Identify and prevent criminal and unethical conduct;
     Improve the quality, efficiency and consistency of 
services;
     Create a centralized source for distributing information 
on health care statutes, regulations and other program directives 
related to fraud and abuse and related issues;
     Develop a methodology that encourages employees to report 
potential problems;
     Develop procedures that allow the prompt, thorough 
investigation of alleged misconduct by corporate officers, managers and 
other employees;
     Initiate immediate, appropriate, and decisive corrective 
action; and
     Through early detection and reporting, minimize the loss 
to the Government from false claims, and thereby reduce the clinical 
laboratory's exposure to civil damages and penalties, criminal 
sanctions, and administrative remedies, such as program exclusion. 
3
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    \3\ The OIG, for example, will consider the existence of an 
effective compliance program that pre-dated any governmental 
investigation when addressing the appropriateness of administrative 
penalties. Further, the False Claims Act, 31 U.S.C. 3729-3733, 
provides that a person who has violated the Act, but who voluntarily 
discloses the violation to the Government, in certain circumstances 
will be subject to not less than double, as opposed to treble, 
damages. See 31 U.S.C. 3729(a).
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    Overall, the OIG believes that an effective compliance program is a 
sound investment on the part of a clinical laboratory.
    The OIG recognizes that the implementation of a compliance program 
may not entirely eliminate fraud, abuse and waste from the clinical 
laboratory system. However, a sincere effort by clinical laboratories 
to comply with applicable Federal and State standards, as well as the 
requirements of private health care programs, through the establishment 
of an effective compliance program, significantly reduces the risk of 
unlawful or improper conduct.

B. Application of Compliance Program Guidance

    There is no single ``best'' clinical laboratory compliance program, 
given the diversity of laboratories within the industry. The OIG 
understands the variances and complexities within the clinical 
laboratory industry and is sensitive to the differences among large and 
small clinical laboratories. However, elements of this guidance can be 
used by all clinical laboratories, regardless of size, location or 
corporate structure, to establish an effective compliance program. We 
recognize that some clinical laboratories may not be able to adopt 
certain elements to the same comprehensive degree that others with more 
extensive resources may achieve. This guidance represents the OIG's 
suggestions on how a clinical laboratory can best establish internal 
controls and monitoring to correct and prevent fraudulent activities. 
By no means should the contents of this guidance be viewed as an 
exclusive discussion of the advisable elements of a compliance program.
    In drafting this guidance, we took into consideration the Model 
Compliance Plan for Clinical Laboratories issued by the OIG in February 
1997, the clinical laboratory industry's comments on that plan, changes 
in HCFA policy and the OIG's Compliance Program Guidance for Hospitals.
    As appropriate, this guidance may be further modified and expanded 
as more information and knowledge is obtained by the OIG, and as 
changes in the rules, policies and procedures of the Federal, State and 
private health plans occur. We recognize that clinical laboratories are 
already accountable for complying with an extensive set of statutory 
and other legal requirements, far more specific and complex than what 
we have referenced in this document. We also recognize that the 
development and implementation of compliance programs in clinical 
laboratories often raise sensitive and complex legal and managerial 
issues.4 However, the OIG wishes to offer what it believes 
is critical guidance for providers who are sincerely attempting to 
comply with the relevant health care statutes, regulations and other 
requirements of Federal, State and private health plans.
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    \4\ Nothing stated herein should be substituted for, or used in 
lieu of, competent legal advice from counsel.
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Compliance Program Elements

    The elements proposed by these guidelines are similar to those of 
the compliance program guidance for hospitals that was published by the 
OIG in February 1998 and of our corporate integrity 
agreements.5 The elements represent a guide--a process that 
can be used by clinical laboratories, whether an independent national 
laboratory, a hospital laboratory, or a small, regional laboratory. 
Moreover, the elements can be incorporated into the managerial 
structure of the clinical laboratory. As we stated in our compliance 
program guidance for hospitals, these suggested guidelines can be 
tailored to fit the needs and financial realities of a particular 
laboratory. The OIG is cognizant that with regard to compliance 
programs, one model is not suitable to every clinical laboratory. 
Nonetheless, the OIG believes that every clinical laboratory, 
regardless of size or structure, can benefit from the principles 
espoused in this guidance.
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    \5\ Corporate integrity agreements are executed as part of a 
civil settlement agreement between the health care provider and the 
Government to resolve a case based on allegations of health care 
fraud or abuse. These OIG-imposed programs are in effect for a 
period of 3 to 5 years and require many of the elements included in 
this compliance program guidance.
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    The OIG believes that every effective compliance program must begin 
with a formal commitment by the clinical laboratory's governing body to 
include all of the applicable elements listed below. These elements are 
based on the seven steps of the Federal Sentencing 
Guidelines.6 We recognize that full implementation of all 
elements may not be immediately feasible for all clinical laboratories. 
However, as a first step, a good faith and meaningful commitment on the 
part of the clinical laboratory will substantially contribute to a 
program's successful implementation.
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    \6\ See United States Sentencing Commission Guidelines, 
Guidelines Manual, 8A1.2 comment. (n.3(k)).
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    At a minimum, comprehensive compliance programs should include the 
following 7 elements:
    (1) The development and distribution of written standards of 
conduct, as well as written policies and procedures that promote the 
clinical laboratory's commitment to compliance (e.g., by including 
adherence to compliance as an element in evaluating managers and 
employees) and that address specific areas of potential fraud, such as 
marketing schemes, CPT/HCPCs coding issues, improper ICD-9 coding, and 
improper claims submission;
    (2) The designation of a chief compliance officer and other 
appropriate bodies (e.g., a corporate compliance committee) charged 
with the responsibility of operating and monitoring the compliance 
program, and who report directly to the CEO and the governing body;
    (3) The development and implementation of regular, effective 
education and training programs for all affected employees;
    (4) The maintenance of a process, such as a hotline, to receive 
complaints, and the adoption of procedures to protect the anonymity of 
complainants

[[Page 45079]]

and to protect whistleblowers from retaliation;
    (5) The development of a system to respond to allegations of 
improper/illegal activities and the enforcement of appropriate 
disciplinary action against employees who have violated internal 
compliance policies, applicable statutes, regulations or requirements 
of Federal, State or private health plans;
    (6) The use of audits and/or other evaluation techniques to monitor 
compliance and assist in the reduction of identified problem areas; and
    (7) The investigation and remediation of identified systemic 
problems and the development of policies addressing the non-employment 
or retention of sanctioned individuals.

A. Written Procedures and Policies

    Laboratory compliance programs should require the development and 
distribution of written compliance policies. These policies should be 
developed under the supervision and direction of the chief compliance 
officer or the equivalent and should, at a minimum, be provided to all 
individuals who are affected by the specific policy at issue. One 
convenient method of achieving this goal is to create a three-ring 
compliance policy notebook. This format permits the filing of new and 
amended or revised compliance policies and ensures that affected 
individuals have easy access to the laboratory's written policies. A 
master index should show when policies are changed.
1. Standards of Conduct
    Laboratories should develop standards of conduct for all employees 
that clearly delineate the policies of the laboratory with regard to 
fraud, waste and abuse and adherence to all statutes, regulations and 
other program requirements governing Federal, State and private health 
benefit plans. These standards should be made available to all 
employees; translated, interpreted (e.g., may be signed for hard of 
hearing or deaf employees) or put into Braille as necessary, and 
regularly updated as the policies and regulations are modified.
    When an employee first begins working for the clinical laboratory, 
and each time new standards of conduct are issued, employees should be 
asked to sign a statement certifying that they have received, read, and 
understood the standards of conduct. All employee certifications should 
be retained by the laboratory.
2. Medical Necessity
    Laboratory compliance programs, to be effective, should communicate 
to physicians that claims submitted for services will only be paid if 
the service is covered, reasonable, and necessary for the beneficiary, 
given his or her clinical condition. Laboratories should take all 
reasonable steps to ensure that it is not submitting claims for 
services that are not covered, reasonable and necessary.7 
Upon request, a laboratory should be able to produce or obtain from the 
treating physician (test ordering), authorized person on the 
physician's staff or other individual authorized by law to order tests 
the documentation to support the medical necessity of the service the 
laboratory has provided and billed to a Federal or private health care 
program. We recognize that laboratories do not and cannot treat 
patients or make medical necessity determinations. However, there are 
steps that such facilities can take to assure compliance with the 
applicable statutes, regulations and the requirements of Federal, State 
and private health plans.
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    \7\ In limited instances, HCFA does allow laboratories to submit 
claims when the lab believes the test may be denied. Such instances 
include, but are not limited to: when the beneficiary has signed an 
Advance Beneficiary Notice (ABN) (See Medicare Carriers Manual 
Sec. 7300.5) (Part D in this section further addresses ABN issues) 
and when the beneficiary requests the provider submit the claim (See 
Medicare Carriers Manual Sec. 3043). In the first instance the lab 
should include modifier GA on the claim which indicates the 
beneficiary has signed an ABN and in the latter instance the lab 
should note on the claim their belief that the service is noncovered 
and that it is being submitted at the beneficiary's insistence.
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    As a preliminary matter, the OIG recognizes that physicians or 
other authorized individuals must be able to order any tests that they 
believe are appropriate for the treatment of their patients. However, 
we believe that physicians must be made aware by the billing laboratory 
that Medicare will only pay for tests that meet the Medicare coverage 
criteria and are reasonable and necessary to treat or diagnose an 
individual patient. Section 1862(a)(1)(A) of the Social Security Act 
states, ``no payment may be made under Part A or Part B for any 
expenses incurred for items or services which * * * are not reasonable 
and necessary for the diagnosis or treatment of an illness or injury or 
to improve the functioning of a malformed body member.'' Therefore, 
Medicare may deny payment for a test that the physician believes is 
appropriate, but which does not meet the Medicare coverage criteria 
(e.g., done for screening purposes) or where documentation in the 
entire patient record, including that maintained in the physician's 
records, does not support that the tests were reasonable and necessary 
for a given patient. Laboratories can and should advise their clients 
that tests submitted for Medicare reimbursement must meet program 
requirements 8 or the claim may be denied.
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    \8\ See fn. 7.
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    Laboratories may implement the following steps through their 
compliance programs or some other appropriate mechanism to ensure that 
the claims they submit to Federal or private health care programs meet 
the appropriate program requirements:
    a. Requisition design: While HCFA does not design or approve 
requisition forms, laboratories should construct the requisition form 
to capture the correct program information as required by Federal or 
private health care programs and to promote the conscious ordering of 
tests by physicians or other authorized individuals. The laboratory 
should construct the requisition form to ensure that the physician or 
other authorized individual has made an independent medical necessity 
decision with regard to each test the laboratory will bill. 
Laboratories should encourage physicians or other authorized 
individuals to submit diagnosis information for all tests ordered, as 
documentation of the medical necessity of the service. The form should 
contain a statement indicating that Medicare generally does not cover 
routine screening tests.
    b. Notices to physicians: While HCFA does not impose educational 
requirements upon the laboratories, labs are in a unique position to 
educate their physician clients. Therefore, laboratories should provide 
all of their physician clients with annual written notices that set 
forth: (1) The Medicare national policy and Medicare contractor local 
medical review policy for lab tests; (2) that organ or disease related 
panels will only be paid and will only be billed when all components 
are medically necessary; and (3) the Medicare laboratory fee schedule 
and a statement informing the physician that the Medicaid reimbursement 
amount will be equal to or less than the amount of Medicare 
reimbursement. The notice must also provide the phone number of the 
clinical consultant. The clinical consultant is required under the 
Clinical Laboratory Improvement Amendment (CLIA) certification (42 CFR 
493.1453).
    In addition to the general notices above, laboratories that 
continue to offer clients the opportunity to request customized 
profiles should provide annual written notices that: (1) Explain the 
Medicare reimbursement paid for each component of each such profile; 
(2) inform physicians that using a

[[Page 45080]]

customized profile may result in the ordering of tests which are not 
covered, reasonable or necessary and that tests will not be billed; 
9 and (3) inform physicians that the OIG takes the position 
that an individual who knowingly causes a false claim to be submitted 
may be subject to sanctions or remedies available under civil, criminal 
and administrative law.
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    \9\ See fn. 7.
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    c. Physician acknowledgments: Although HCFA does not require 
physicians to sign acknowledgments, laboratories should have the 
physician sign an acknowledgment stating he or she understands the 
potential implications of ordering customized profiles.
    d. Use of Advance Beneficiary Notices: Advance Beneficiary Notices 
(ABNs) are used when there is a likelihood that an ordered service will 
not be paid. Before the service is furnished, the beneficiary should be 
notified, in writing, of the likelihood that the specific service will 
be denied. After being so informed the beneficiary has the choice to 
either (1) decide to receive the service and sign the agreement to pay 
on the ABN or (2) decide not to receive the service and therefore does 
not sign the ABN. Beneficiaries should not be asked to sign blank ABNs.
    As the entity furnishing and billing for services, it is ultimately 
the laboratory's responsibility to produce the ABN, upon request. In 
many cases, it is difficult for the laboratories to directly obtain an 
ABN from the beneficiary. Therefore, laboratories may wish to educate 
physicians on the appropriate use of ABNs.
    The notice must be in writing, must clearly identify a particular 
service, must state that payment for the particular service likely will 
be denied and must give the reason(s) for the belief that payment is 
likely to be denied.
    Routine notices to beneficiaries which do no more than state that 
denial of payment is possible or that they never know whether payment 
will be denied are not considered acceptable evidence of advance 
notice. Notices should not be given to beneficiaries unless there is 
some genuine doubt regarding the likelihood of payment as evidenced by 
the reasons stated on the ABN. Giving notice for all claims or services 
is not an acceptable practice.
    e. Test utilization monitoring: The OIG believes that laboratories 
can and should take the steps described in this compliance guidance to 
help ensure appropriate billing of lab tests. We also believe that 
there are steps laboratories can take to determine whether physicians 
or other individuals authorized to order tests are being encouraged to 
order medically unnecessary tests. More importantly, if the laboratory 
discovers that it has in some way contributed to the ordering of 
unnecessary tests, the OIG believes the laboratory has a duty to modify 
its practices, as well as notify the physician(s) or other authorized 
individual(s) of its concerns and recommend corrective action.
    There are many methods by which a laboratory may determine 
excessive utilization of laboratory services. One approach to self-
monitoring is to hire an outside consultant to analyze the laboratory's 
patterns of utilization, and investigate any potential problems or 
aberrancies.
    Another approach is to analyze test utilization data by CPT or 
HCPCS code, for the top 30 tests performed each year. Laboratories 
could do this by keeping track of the number of tests performed by CPT 
or HCPCS code or of the number of claims submitted for each test. The 
laboratories would then compute the percentage growth in the number of 
tests or claims submitted for each of the top 30 tests from one year to 
the next. We believe that if a test's utilization grows more than 10 
percent, the laboratory should undertake a reasonable inquiry to 
ascertain the cause of such growth. If the laboratory determines that 
the increase in test utilization occurred for a benign reason, such as 
the acquisition of a new laboratory facility, then the laboratory need 
not take any action. However, if the laboratory determines that the 
increase in utilization was caused by a misunderstanding or ignorance 
by the ordering physicians or other authorized individuals regarding 
the billing consequences of the tests they ordered or an action on the 
part of the facility, the laboratory should take any steps that it 
deems reasonably necessary to address the issue and to ensure 
misconduct is not occurring.
3. Billing
    Laboratory compliance policies should ensure that all claims for 
testing services submitted to Medicare or other Federal health care 
programs correctly identify the services ordered by the physician or 
other authorized individual and performed by the laboratory.
    a. Selection of CPT or HCPCS Codes: Laboratory compliance policies 
should ensure that the CPT or HCPCS code that is used to bill, 
accurately describes the service that was ordered and performed. 
Laboratories cannot alter the physician's order in any way either 
increasing or decreasing the number of services performed without the 
express consent of the ordering physician or other authorized 
individual. To ensure code accuracy, laboratories should require that 
individuals with technical expertise in laboratory testing review the 
appropriateness of the codes before the claims are submitted. 
Intentional or knowing upcoding (i.e., the selection of a code to 
maximize reimbursement when such code is not the most appropriate 
descriptor of the service) could violate the False Claims Act and/or 
other civil laws, and criminal law.
    b. Selection of ICD-9-CM codes: Medicare carriers and fiscal 
intermediaries have the authority to develop and implement Local 
Medical Review Policy (LMRP) which specify when, and under what 
circumstances, a service will be considered covered, reasonable and 
necessary and what documentation will support the need for the service. 
In some cases, LMRPs may limit coverage for specified laboratory tests 
to specific medical diagnoses. Laboratory compliance policies should 
ensure that the lab can support tests billed to Medicare with 
documentation obtained from the physician ordering the test, an 
authorized person on the physician's staff or other individual 
authorized by law to order tests. Laboratories should not: (1) Use 
information provided by the physician or other authorized individual 
from earlier dates of service (other than standing orders, as discussed 
below at paragraph 4); (2) create diagnosis information that has 
triggered reimbursement in the past; (3) use computer programs that 
automatically insert diagnosis codes without receipt of diagnostic 
information from the ordering physician or other authorized individual; 
or (4) make up information for claim submission purposes. Laboratories 
should: (1) Contact the ordering physician, authorized person on the 
physician's staff or other individual authorized to order tests to 
obtain information in the event that such information was not provided; 
and (2) accurately translate narrative diagnoses obtained from the 
physician or other authorized individual to ICD-9-CM codes. Where 
medical documentation is obtained from a physician or other authorized 
individual after receipt of the specimen and the requisition form, it 
should be maintained.
    c. Tests covered by claims for reimbursement: Only those tests that 
are ordered by an authorized individual or physician, are performed and 
meet Medicare's conditions of coverage are

[[Page 45081]]

reimbursable by Medicare. If a laboratory receives a specimen without a 
valid test order or with a test order which is ambiguous, the 
laboratory must verify the tests which the physician wants and perform 
them before submitting a claim for reimbursement to Medicare. In this 
way, if the physician or other authorized individual did not order the 
test, the laboratory will not erroneously bill for it.
    Similarly, if a laboratory did not perform an ordered test due to, 
for example, a laboratory accident or insufficient quantities of 
specimen, the laboratory should not submit a claim to Medicare. 
Medicare payment is made for tests that are ordered, performed, and 
covered. The submission of a claim for tests that were either not 
ordered or were not performed could subject a provider to sanctions 
under administrative, civil or criminal law.
    d. Billing of calculations: Consistent with Medicare coverage 
rules, laboratory compliance policies should ensure that the laboratory 
does not bill both for calculations (e.g., calculated LDLs, T7s, and 
indices) and the tests that are performed to derive such calculations. 
In many situations, physicians are not offered a choice about whether 
to receive such calculations, nor are they aware of the practice of 
some laboratories to bill Medicare for such calculations in addition to 
the underlying tests. The fact that a separate CPT code exists does not 
mean that Medicare separately reimburses for the service assigned to 
the code. Billing both for the calculations and the underlying tests 
constitutes double billing, which may subject a laboratory to sanctions 
and other remedies available under civil, criminal, and administrative 
law.
    e. Reflex testing: Reflex testing occurs when initial test results 
are positive or outside normal parameters and indicate that a second 
related test is medically appropriate. In order to avoid performing 
unnecessary reflex tests, labs may want to design their requisition 
form in such a way which would only allow for the reflex test when 
necessary. Therefore, the condition under which the reflex test will be 
performed should be clearly indicated on the requisition form. 
Laboratories may wish to adopt a similar policy for confirmation 
testing which may be mandatory.
4. Reliance on Standing Orders
    Although standing orders are not prohibited in connection with an 
extended course of treatment, too often they have led to abusive 
practices. Standing orders in and of themselves are not usually 
acceptable documentation that tests are reasonable and necessary. 
Accordingly, the insurer may reject standing orders as evidence that a 
test is reasonable and necessary. Medicare contractors can and may 
require additional documentation to support the medical necessity of 
the test. As a result of the potential problems standing orders may 
cause, the use of standing orders is discouraged.
    Thus, while laboratory compliance programs may permit the use of 
standing orders executed in connection with an extended course of 
treatment, the compliance program should require the laboratory to 
periodically monitor standing orders. Standing orders should have a 
fixed term of validity and must be renewed at their expiration. We 
suggest that, consistent with State law requirements, a laboratory 
should contact all nursing homes from which the laboratory has received 
such standing orders and request that they confirm in writing the 
validity of all current standing orders. In addition, in accordance 
with State law, laboratories should verify standing orders relied upon 
at draw stations with the physician, authorized person on the 
physician's staff, or other authorized individual who has provided the 
standing orders to the laboratory. With respect to patients with End 
Stage Renal Disease (ESRD), at least once annually laboratories should 
contact each ESRD facility or unit to request confirmation in writing 
of the continued validity of all existing standing orders.
5. Compliance With Applicable HHS Fraud Alerts
    The OIG and HCFA periodically issue fraud alerts 10 
setting forth activities believed to raise legal and enforcement 
issues. Laboratory compliance programs should require that any and all 
fraud alerts issued by OIG and HCFA are carefully considered by the 
legal staff, chief compliance officer, or other appropriate personnel. 
Moreover, the compliance programs should require that a laboratory 
cease and correct any conduct criticized in such a fraud alert, if 
applicable to laboratories, and take reasonable action to prevent such 
conduct from reoccurring in the future. If appropriate, a laboratory 
should take the steps described in Section G regarding investigations, 
reporting and correction of identified problems.
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    \10\ Both OIG and HCFA fraud alerts can be located on the 
internet. The OIG web site address is: http://www.dhhs.gov/progorg/
oig. The HCFA web site address is: http://www.hcfa.gov.
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6. Marketing
    Laboratory compliance programs should require honest, 
straightforward, fully informative and non-deceptive marketing. It is 
in the best interests of patients, physicians, laboratories, the 
Government and private health plans that physicians and other 
individuals authorized to order tests fully understand the services 
offered by the laboratory, the services that will be provided when 
tests are ordered, and the financial consequences for Medicare, as well 
as other payors, when tests are billed. Accordingly, laboratories that 
market their services should ensure that their marketing information is 
clear, correct, non-deceptive and fully informative.
7. Prices Charged to Physicians
    Laboratories are paid for their services by a variety of payors in 
addition to Medicare and other Federal health care programs. Such 
payors often include private health insurers, other health care 
providers, and physicians. We believe it is essential that the 
physician take into account the patient's best interest when deciding 
where to refer the patient's specimen.
    The prices that laboratories charge physicians for certain 
laboratory services raise issues that should be addressed in a 
laboratory's written compliance policies. These policies should ensure 
that laboratories are not providing any inducements to gain a 
physician's business,11 including charging physicians a 
price below fair market value for their non-Federal health care program 
tests. Laboratories that charge physicians a price below fair market 
value to induce them to refer their Federal health care program 
business may be risking anti-kickback enforcement and false claims 
actions.
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    \11\ The OIG has published ``Special Fraud Alert: Arrangements 
for the Provision of Clinical Lab Services'' that addresses how the 
anti-kickback statute relates to arrangements for the provision of 
clinical lab services. See 59 FR 65377 (December 19, 1994); OIG's 
web site at http://www.dhhs.gov/progorg/oig.
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8. Retention of Records
    Compliance programs should ensure that all records required either 
by Federal or State law or by the compliance program are created and 
maintained. Adequate documentation of compliance efforts are essential 
in the event that a laboratory comes under Government scrutiny.
9. Compliance as an Element of a Performance Plan
    Clinical laboratories should make the promotion of and adherence to

[[Page 45082]]

compliance an element in evaluating the performance of managers, 
supervisors and all other employees. They, along with other employees, 
should be periodically trained in new compliance policies and 
procedures. In addition, all managers and supervisors involved in the 
sale, marketing, or billing of laboratory services, and those who 
oversee phlebotomists should (1) discuss with all supervised employees 
the compliance policies and legal requirements applicable to their 
function; (2) inform all supervised personnel that strict compliance 
with these policies and requirements is a condition of employment; and 
(3) disclose to all supervised personnel that the laboratory will take 
disciplinary action up to and including termination for violation of 
these policies or requirements. In addition to making performance of 
these duties an element in evaluations, the compliance officer or 
laboratory management may also choose to include in the laboratory's 
compliance program a policy that managers and supervisors may be 
sanctioned for failure to adequately instruct their subordinates or for 
failing to detect non-compliance with applicable policies and legal 
requirements, where reasonable diligence on the part of the manager or 
supervisor would have led to the discovery of any problems or 
violations and given the laboratory the opportunity to correct them 
earlier.

B. Designation of a Compliance Officer and a Compliance Committee

1. Compliance Officer
    Every clinical laboratory should designate a compliance officer to 
serve as the focal point for compliance activities. This responsibility 
may be the individual's sole duty or added to other management 
responsibilities, depending upon the size and resources of the clinical 
laboratory and the complexity of the task. Designating a compliance 
officer with the appropriate authority is critical to the success of 
the program, necessitating the appointment of a high-level official in 
the organization with direct access to the governing body and the 
CEO.12 The officer should have sufficient funding and staff 
to perform his or her responsibilities fully. Coordination and 
communication are the key functions of the compliance officer with 
regard to planning, implementing, and monitoring the compliance 
program.
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    \12\ The OIG believes that it is not advisable for the 
compliance function to be subordinate to the clinical laboratory's 
general counsel, or comptroller or similar officer. Free standing 
compliance functions help to ensure independent and objective legal 
reviews and financial analyses of the institution's compliance 
efforts and activities. By separating the compliance function from 
the key management positions of general counsel or chief financial 
officer (where the size and structure of the clinical laboratory 
make this a feasible option), a system of checks and balances is 
established to more effectively achieve the goals of the compliance 
program.
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    The compliance officer's primary responsibilities should include:
     Overseeing and monitoring the implementation of the 
compliance program; 13
---------------------------------------------------------------------------

    \13\ For clinical laboratory chains, the OIG encourages 
coordination with each affiliate owned by the company through the 
use of a headquarter's compliance officer, communicating with the 
designated compliance officers in each facility, or regional office, 
as appropriate.
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     Reporting on a regular basis to the clinical laboratory's 
governing body, CEO and compliance committee on the progress of 
implementation, and assisting these components in establishing methods 
to improve the clinical laboratory's efficiency and quality of 
services, and to reduce the clinical laboratory's vulnerability to 
fraud, abuse and waste;
     Developing and distributing to all affected employees all 
written compliance policies and procedures. These policies and 
procedures should be readily understandable by all employees (e.g., 
translated into other languages, interpreted in sign language, and/or 
put into Braille as necessary);
     Periodically revising the program in light of changes in 
the needs of the organization, and in the law, policies and procedures 
of Government and private payor health plans;
     Developing, coordinating, and participating in a 
multifaceted educational and training program that focuses on the 
elements of the compliance program, and seeks to ensure that all 
appropriate employees and management are knowledgeable of, and comply 
with, pertinent Federal, State and private payor standards;
     Ensuring that physicians who order services from the 
clinical laboratory are informed of the clinical laboratory's 
compliance program standards with respect to coding, billing, and 
marketing, among other things;
     Assisting the clinical laboratory's financial management 
in coordinating internal compliance review and monitoring activities, 
including annual or periodic reviews of policies;
     Independently investigating and acting on matters related 
to compliance, including the flexibility to design and coordinate 
internal investigations (e.g., responding to reports of problems or 
suspected violations) and any resulting corrective action; and
     Developing policies and programs that encourage managers 
and employees to report suspected fraud and other improprieties without 
fear of retaliation.
    The compliance officer must have the authority to review all 
documents and other information that are relevant to compliance 
activities, including, but not limited to, requisition forms, billing 
information, claim information, and records concerning the marketing 
efforts of the clinical laboratory and its arrangements with its 
clients. This policy enables the compliance officer to review contracts 
and obligations (seeking the advice of legal counsel, where 
appropriate) that may contain referral and payment issues that could 
violate the anti-kickback statute, as well as the physician self-
referral prohibition and other legal or regulatory requirements.
2. Compliance Committee
    The OIG recommends that a compliance committee be established to 
advise the compliance officer and assist in the implementation of the 
compliance program.14 The committee's functions should 
include:
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    \14\ The OIG recommends the compliance committee consist of 
individuals with varying perspectives and responsibilities in the 
organization.
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     Analyzing the organization's regulatory environment, the 
legal requirements with which it must comply, and specific risk areas;
     Assessing existing policies and procedures that address 
these areas for possible incorporation into the compliance program;
     Working within the clinical laboratory to develop 
standards of conduct and policies and procedures to promote compliance;
     Recommending and monitoring the development of internal 
systems and controls to implement the clinical laboratory's standards, 
policies and procedures as part of its daily operations;
     Determining the appropriate strategy/approach to promote 
compliance with the program and detection of any potential violations, 
such as through hotlines and other fraud reporting mechanisms; and
     Developing a system to solicit, evaluate and respond to 
complaints and problems.
    The committee may also assume other functions as the compliance 
concept becomes part of the overall clinical laboratory operating 
structure and daily routine.

[[Page 45083]]

C. Conducting Effective Training and Education

    The proper education, training and retraining of corporate 
officers, managers, and all other employees are significant elements of 
an effective compliance program. As part of its compliance program, a 
clinical laboratory should require all affected employees to attend 
specific training when they are first hired and on a periodic basis 
thereafter, including appropriate training in Federal and State 
statutes, regulations, program requirements, the policies of private 
payors, and corporate ethics. The training should emphasize the 
organization's commitment to compliance with these legal requirements 
and policies.
    These training programs should include sessions highlighting the 
organization's compliance program, summarizing fraud and abuse laws, 
and discussing coding requirements, claim development and claim 
submission process and marketing practices that reflect current legal 
and program standards. The clinical laboratory must take steps to 
communicate effectively its standards and procedures to all affected 
employees ( e.g., by requiring participation in training programs and 
disseminating publications that explain in a practical manner specific 
requirements).15 Managers of specific departments can assist 
in identifying areas that require training and in carrying out such 
training. Training instructors may come from outside or inside the 
organization. New employees should be targeted for training early in 
their employment.16 The compliance officer should document 
the attendees, the subjects covered, and the material distributed at 
the training sessions sponsored by the clinical laboratory as part of 
the compliance program.
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    \15\ Some publications, such as the OIG's Special Fraud Alerts, 
audit and inspection reports, and advisory opinions are readily 
available from the OIG and could be the basis for standards and 
educational courses for appropriate clinical laboratory employees. 
These documents can be found on the OIG's web site at http://
www.dhhs.gov/progorg/oig.
    \16\ Certain positions, such as those involving the coding of 
medical services, create a greater organizational legal exposure, 
and therefore require specialized training. One recommendation would 
be for a clinical laboratory to attempt to fill such positions with 
individuals who have the appropriate educational background and 
training.
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    A variety of teaching methods, such as interactive training, and 
training in several different languages, particularly where a clinical 
laboratory has a culturally diverse staff, should be implemented so 
that all affected employees are knowledgeable of the clinical 
laboratory's standards of conduct and procedures for alerting senior 
management to problems and concerns. Targeted training should be 
provided to corporate officers, managers and other employees whose 
actions affect the accuracy of the claims submitted to Government and 
private payors, such as employees involved in the coding, billing, and 
marketing processes. For example, for certain employees involved in the 
billing and coding functions, periodic training in proper CPT/HCPCs and 
ICD-9 coding and documentation should be required. In addition to 
specific training in the areas identified in section II.A, above, basic 
training for appropriate corporate officers, managers and other 
employees should include such topics as:
     Government and private payor reimbursement principles;
     General prohibitions on paying or receiving remuneration 
to induce referrals;
     Proper translation of narrative diagnoses;
     Only billing for services ordered, performed and reported;
     Physician approved amendments to requisition forms;
     Proper documentation or confirmation of services rendered; 
and
     Duty to report misconduct.
    Clarifying and emphasizing these areas of concern through training 
and educational programs are particularly relevant to a clinical 
laboratory's marketing representatives, in that the pressure to meet 
business goals may render these employees vulnerable to engaging in 
prohibited practices.
    The OIG suggests that all affected employees be made part of the 
clinical laboratory's various educational and training programs. 
Employees should be required to have a minimum number of educational 
hours per year, as appropriate, as part of their employment 
responsibilities.17 In departments with high employee 
turnover, periodic training updates are critical.
---------------------------------------------------------------------------

    \17\ In its corporate integrity agreements, the OIG usually 
requires a minimum number of hours annually for basic training in 
compliance areas. More hours are required for specialty fields such 
as billing and coding.
---------------------------------------------------------------------------

    The OIG recommends that attendance and participation in training 
programs be made a condition of continued employment and that failure 
to comply with training requirements should result in disciplinary 
action, including possible termination, when such failure is serious. 
Adherence to the provisions of the compliance program, such as training 
requirements, should be a factor in the annual evaluation of each 
employee. The clinical laboratory should retain adequate records of its 
training of employees, including attendance logs and material 
distributed at training sessions.

D. Developing Effective Lines of Communications

1. Access to the Compliance Officer
    An open line of communication between the compliance officer and 
clinical laboratory employees is equally important to the successful 
implementation of a compliance program and the reduction of any 
potential for fraud, abuse and waste. Written confidentiality and non-
retaliation policies should be developed and distributed to all 
employees to encourage communication and the reporting of incidents of 
potential misconduct.18 The compliance committee should also 
develop several independent reporting paths for an employee to report 
fraud, waste or abuse so that such reports cannot be diverted by 
supervisors or other personnel.
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    \18\ The OIG believes that whistleblowers should be protected 
against retaliation, a concept embodied in the provisions of the 
False Claims Act. In many cases, employees sue their employers under 
the False Claims Act's qui tam provisions out of frustration because 
of the company's failure to take action when a questionable, 
fraudulent or abusive situation was brought to the attention of 
senior corporate officials.
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    The OIG encourages the establishment of a procedure so that 
clinical laboratory employees may seek clarification from the 
compliance officer or members of the compliance committee in the event 
of any confusion or question with regard to a laboratory policy or 
procedure. Questions and responses should be documented and dated and, 
if appropriate, shared with other staff so that standards, policies and 
procedures can be updated and improved to reflect any necessary changes 
or clarifications. The compliance officer may want to solicit employee 
input in developing these communication and reporting systems.
2. Hotlines and Other Forms of Communication
    The OIG encourages the use of hotlines (including anonymous 
hotlines), e-mails, written memoranda, newsletters, and other forms of 
information exchange to maintain these open lines of communication. If 
the clinical laboratory establishes a hotline, the telephone number 
should be made readily available to all employees possibly by 
conspicuously posting the telephone number in common work 
areas.19 Employees should be permitted

[[Page 45084]]

to report matters on an anonymous basis. Matters reported through the 
hotline or other communication sources that suggest substantial 
violations of compliance policies, regulations, statutes or program 
requirements of Federal, State and private insurers should be 
documented and investigated promptly to determine their veracity. A log 
should be maintained by the compliance officer that records such calls, 
including the nature of any investigation and its results. Such 
information should be included in reports to the governing body, the 
CEO and compliance committee. Further, while the clinical laboratory 
should always strive to maintain the confidentiality of an employee's 
identity, it should also explicitly communicate that there may be a 
point where the individual's identity may become known or may have to 
be revealed in certain instances when governmental authorities become 
involved.
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    \19\ Clinical laboratories should also post in a prominent, 
available area the HHS-OIG Hotline telephone number, 1-800-HHS-TIPS 
(447-8477), in addition to any company hotline number that may be 
posted.
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    The OIG recognizes that assertions of fraud and abuse by employees 
who may have participated in illegal conduct or committed other 
malfeasance raise numerous complex legal and management issues that 
should be examined on a case-by-case basis. The compliance officer 
should work closely with legal counsel, who can provide guidance 
regarding such issues.

E. Enforcing Standards Through Well-Publicized Disciplinary Guidelines

1. Discipline Policy and Actions
    An effective compliance program should include guidance regarding 
disciplinary action for corporate officers, managers, and other 
employees who have failed to comply with the clinical laboratory's 
standards of conduct, policies and procedures, or Federal and State 
laws, or those who have otherwise engaged in wrongdoing, which have the 
potential to impair the clinical laboratory's status as a reliable, 
honest and trustworthy health care provider.
    The OIG believes that the compliance program should include a 
written policy statement setting forth the degrees of disciplinary 
actions that may be imposed upon corporate officers, managers, and 
other employees for failing to comply with the clinical laboratory's 
standards and policies and applicable statutes and regulations. 
Intentional or reckless noncompliance should subject transgressors to 
significant sanctions. Such sanctions could range from oral warnings to 
suspension or termination. The written standards of conduct should 
elaborate on the procedures for handling disciplinary problems and 
those who will be responsible for taking appropriate action. Some 
disciplinary actions can be handled by department managers, while 
others may have to be resolved by a senior manager. Disciplinary action 
may be appropriate where a responsible employee's failure to detect a 
violation is attributable to his or her negligence or reckless conduct. 
Employees should be advised by the clinical laboratory that 
disciplinary action will be taken on a fair and equitable basis. 
Managers and supervisors should be made aware that they have a 
responsibility to discipline employees in an appropriate and consistent 
manner.
    It is vital to publish and disseminate the range of disciplinary 
standards for improper conduct and to educate corporate officers, 
managers and other employees regarding these standards. The 
consequences of noncompliance should be consistently applied and 
enforced, in order for the disciplinary policy to have the required 
deterrent effect. All levels of employees should be subject to the same 
disciplinary action for the commission of similar offenses. The 
commitment to compliance applies to all personnel levels within a 
clinical laboratory. The OIG believes that corporate officers, 
managers, and other employees should be held accountable for failing to 
comply with, or for the foreseeable failure of their subordinates to 
adhere to, the applicable standards, laws, and procedures.
2. New Employee Policy
    For all new employees who have discretionary authority to make 
decisions that may involve compliance with the law or compliance 
oversight, clinical laboratories should conduct a reasonable and 
prudent background investigation, including a reference check, as part 
of every such employment application.20 The application 
should specifically require the applicant to disclose any criminal 
conviction, as defined by 42 U.S.C. 1320a-7(i), or exclusion action. 
Pursuant to the compliance program, clinical laboratory policies should 
prohibit the employment of individuals who have been recently convicted 
of a criminal offense related to health care or who are listed as 
debarred, excluded or otherwise ineligible for participation in Federal 
health care programs (as defined in 42 U.S.C. 1320a-
7b(f)).21 In addition, pending the resolution of any 
criminal charges or proposed debarment or exclusion, the OIG recommends 
that such individuals should be removed from direct responsibility for 
or involvement in any Federal health care program.22 With 
regard to current employees, physicians or other individuals authorized 
to order tests, if resolution of the matter results in conviction, 
debarment or exclusion, the clinical laboratory should terminate its 
employment or other contract arrangement with the individual or 
physician.
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    \20\ The Cumulative Sanction Report is an OIG-produced report 
available on the Internet at http://www.dhhs.gov/progorg/oig. It is 
updated on a regular basis to reflect the status of health care 
providers who have been excluded from participation in the Medicare 
and Medicaid programs. In addition, the General Services 
Administration maintains a monthly listing of debarred contractors 
on the Internet at http://www.arnet.gov/epls. Also, once the data 
base established by the Health Care Fraud and Abuse Data Collection 
Act of 1996 is fully operational, the hospital should regularly 
request information from this data bank as part of its employee 
screening process.
    \21\ Likewise, clinical laboratory compliance programs should 
establish standards prohibiting the execution of contracts with 
physicians or other individual authorized to order tests that have 
been recently convicted of a criminal offense related to health care 
or that are listed by a Federal agency as debarred, excluded, or 
otherwise ineligible for participation in Federal health care 
programs.
    \22\ Prospective employees who have been officially reinstated 
into the Medicare and Medicaid programs by the OIG may be considered 
for employment upon proof of such reinstatement.
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F. Auditing and Monitoring

    An ongoing evaluation process involving thorough monitoring and 
regular reporting to the clinical laboratory's corporate officers is 
critical to a successful compliance program. Compliance reports created 
by this ongoing monitoring, including reports of suspected 
noncompliance, should be maintained by the compliance officer and 
shared with the clinical laboratory's corporate officers and the 
compliance committee.
    Although many monitoring techniques are available, one effective 
tool to promote and ensure compliance is the performance of regular 
compliance audits by internal or external auditors who have expertise 
in Federal and State health care statutes, regulations and the program 
requirements of Federal, State and private insurers. At a minimum, 
these audits should be designed to address the clinical laboratory's 
compliance with laws governing kickback arrangements, the physician 
self-referral prohibition, CPT/HCPCS coding and billing, ICD-9 coding, 
claim development and submission, reimbursement, marketing, reporting 
and record keeping. In

[[Page 45085]]

addition, the audits and reviews should inquire into the clinical 
laboratory's compliance with specific rules and policies that have been 
the focus of particular attention on the part of the Medicare fiscal 
intermediaries or carriers, and law enforcement, as evidenced by OIG 
Special Fraud Alerts, OIG audits and evaluations, and publically 
announced law enforcement initiatives and also should focus on any 
areas of concern that have been identified by any entity, (i.e., 
Federal, State, or internally) specific to the individual clinical 
laboratory.
    Monitoring techniques may include sampling protocols that permit 
the compliance officer to identify and review variations from an 
established baseline.23 Significant variations from the 
baseline should trigger a reasonable inquiry to determine the cause of 
the deviation. If the inquiry determines that the deviation occurred 
for legitimate, explainable reasons, the compliance officer, corporate 
officer or manager may want to limit any corrective action or take no 
action. If it is determined that the deviation was caused by improper 
procedures, misunderstanding of rules, including fraud and systemic 
problems, the clinical laboratory should take prompt steps to correct 
the problem. If potential fraud or violations of the False Claims Act 
are involved, the laboratory should report the potential violation to 
the OIG or the Department of Justice (see discussion in Section G.2, 
below). Any repayment of an overpayment which results from such a 
violation should be made as part of the discussion with law 
enforcement.
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    \23\ The OIG recommends that when a compliance program is 
established in a clinical laboratory, the compliance officer, with 
the assistance of corporate officers, should take a ``snapshot'' of 
their operations from a compliance perspective. This assessment can 
be undertaken by outside consultants, law or accounting firms, or 
internal staff, with authoritative knowledge of health care 
compliance requirements. This ``snapshot,'' often used as part of 
benchmarking analyses, becomes a baseline for the compliance officer 
and other corporate officers to judge the clinical laboratory's 
progress in reducing or eliminating potential areas of 
vulnerability. For example, it has been suggested that a baseline 
level include the frequency and percentile levels of each CPT code 
in relation to the clinical laboratory's overall billing.
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    When making any overpayment, the clinical laboratory should inform 
the payor of the following information (1) the refund is being made 
pursuant to a voluntary compliance program; (2) a description of the 
complete circumstances surrounding the overpayment; (3) the methodology 
by which the overpayment was determined; (4) any claim-specific 
information used to determine the overpayment and; (5) the amount of 
the overpayment.
    The OIG believes that the compliance officer needs to be made aware 
of these overpayment patterns, violations or deviations and look for 
trends that may demonstrate a systemic problem.
    An effective compliance program should also incorporate periodic 
(at least annual) reviews of whether the program's compliance elements 
have been satisfied, e.g., whether there has been appropriate; (1) 
dissemination of the program's standards; (2) training; (3) ongoing 
educational programs; and (4) disciplinary actions, among others. This 
process will verify actual conformance with the compliance program. The 
review also should look into whether appropriate records have been 
created and maintained to document the implementation of an effective 
program. However, when monitoring discloses that deviations were not 
detected in a timely manner due to program deficiencies, appropriate 
modifications must be implemented. Such evaluations, when developed 
with the support of management, can help ensure compliance with the 
clinical laboratory's policies and procedures.
    As part of the review process, the compliance officer or reviewers 
should consider techniques such as:
     On-site visits;
     Interviews with personnel involved in management, 
marketing/sales, operations, coding/billing, claim development and 
submission, and other related activities;
     Questionnaires developed to solicit impressions of a broad 
cross-section of the clinical laboratory's employees and referring 
clients;
     Review of requisition forms and other documents that 
support claims for reimbursement;
     Review of written materials and documentation produced by 
the laboratory and used by physicians and other individuals authorized 
to order tests; and
     Trend analyses, or longitudinal studies, that seek 
deviations in billing or ordering patterns over a given period.
    The reviewers should:
     Be independent of line management;
     Have access to existing audit resources, relevant 
personnel and all relevant areas of operation;
     Present written evaluative reports on compliance 
activities to the CEO, governing body and members of the compliance 
committee on a regular basis, but no less than annually; and
     Specifically identify areas where corrective actions are 
needed.
    With these reports, the clinical laboratory management can take 
whatever steps are necessary to correct past problems and prevent them 
from recurring. In certain cases, subsequent reviews or studies would 
be advisable to ensure that the recommended corrective actions have 
been implemented successfully.
    The clinical laboratory should document its efforts to comply with 
applicable statutes, regulations and the program requirements of 
Federal, State and private payors. For example, where a clinical 
laboratory, in its efforts to comply with a particular statute, 
regulation or program requirement, requests advice from a Government 
agency (including a Medicare fiscal intermediary or carrier) charged 
with administering a Federal health care program, the clinical 
laboratory should document and retain a record of the request and any 
written or oral response. This step is particularly important if the 
clinical laboratory intends to rely on that response. The laboratory 
should memorialize its determination as to whether reliance on any such 
advice is reasonable, and its efforts to develop procedures based upon 
such advice.

G. Responding to Detected Offenses and Developing Corrective Action 
Initiatives

1. Violations and Investigations
    Violations of a clinical laboratory's compliance program, failures 
to comply with applicable Federal or State law, and other requirements 
of Government and private health plans, and other types of misconduct 
threaten a clinical laboratory's status as a reliable, honest and 
trustworthy provider capable of participating in Federal health care 
programs. Detected but uncorrected misconduct can seriously endanger 
the mission, reputation, and legal status of the clinical laboratory. 
Consequently, upon reports or reasonable indications of suspected 
noncompliance, it is important that the chief compliance officer or 
other management officials initiate prompt steps to investigate the 
conduct in question to determine whether a material violation of 
applicable law or the requirements of the compliance program has 
occurred, and if so, take steps to correct the problem.24 As 
appropriate, such steps

[[Page 45086]]

may include an immediate referral to criminal and/or civil law 
enforcement authorities, a corrective action plan,25 a 
report to the Government,26 and the submission of any 
overpayments, if applicable.
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    \24\ Instances of non-compliance must be determined on a case-
by-case basis. The existence, or amount, of a monetary loss to a 
health care program is not solely determinative of whether or not 
the conduct should be investigated and reported to governmental 
authorities. In fact, there may be instances where there is no 
monetary loss at all, but corrective action and reporting are still 
necessary to protect the integrity of the applicable program and its 
beneficiaries.
    \25\ Advice from the clinical laboratory's in-house counsel or 
an outside law firm may be sought to determine the extent of the 
clinical laboratory's liability and to plan the appropriate course 
of action.
    \26\ The OIG currently maintains a voluntary disclosure program 
that encourages providers to report suspected fraud. The concept of 
voluntary self-disclosure is premised on a recognition that the 
Government alone cannot protect the integrity of the Medicare and 
other Federal health care programs. Health care providers must be 
willing to police themselves, correct underlying problems and work 
with the Government to resolve these matters. The OIG's voluntary 
self-disclosure program has four prerequisites (1) the disclosure 
must be on behalf of an entity and not an individual; (2) the 
disclosure must be truly voluntary (i.e., no pending proceeding or 
investigation); (3) the entity must disclose the nature of the 
wrongdoing and the harm to the Federal programs; and (4) the entity 
must not be the subject of a bankruptcy proceeding before or after 
the self-disclosure.
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    Depending upon the nature of the alleged violations, an internal 
investigation will probably include interviews and a review of relevant 
documents. Some clinical laboratories should consider engaging outside 
counsel, auditors, or health care experts to assist in an 
investigation. Records of the investigation should contain 
documentation of the alleged violation, a description of the 
investigative process, copies of interview notes and key documents, a 
log of the witnesses interviewed and the documents reviewed, the 
results of the investigation, e.g., any disciplinary action taken, and 
the corrective action implemented. While any action taken as the result 
of an investigation will necessarily vary depending upon the clinical 
laboratory and the situation, clinical laboratories should strive for 
some consistency by utilizing sound practices and disciplinary 
protocols. Further, after a reasonable period, the compliance officer 
should review the circumstances that formed the basis for the 
investigation to determine whether similar problems have since been 
uncovered.
    If an investigation of an alleged violation is undertaken and the 
compliance officer believes the integrity of the investigation may be 
at stake because of the presence of employees under investigation, 
those subjects should be removed from their current work activity until 
the investigation is completed (unless otherwise requested by law 
enforcement). In addition, the compliance officer should take 
appropriate steps to secure or prevent the destruction of documents or 
other evidence relevant to the investigation. If the clinical 
laboratory determines that disciplinary action is warranted, it should 
be prompt and imposed in accordance with the clinical laboratory's 
written standards of disciplinary action.
2. Reporting
    If the compliance officer, compliance committee or management 
official discovers credible evidence of misconduct from any source and, 
after a reasonable inquiry, has reason to believe that the misconduct 
may violate criminal, civil or administrative law, then the clinical 
laboratory promptly should report the matter to the appropriate 
governmental authority 27 within a reasonable period, but 
not more than 60 days 28 after determining that there is 
credible evidence of a violation.29 Prompt reporting will 
demonstrate the clinical laboratory's good faith and willingness to 
work with governmental authorities to correct and remedy the problem. 
In addition, reporting such conduct will be considered a mitigating 
factor by the OIG in determining administrative sanctions (e.g., 
penalties, assessments, and exclusion), if the reporting provider 
becomes the target of an OIG investigation.30
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    \27\ I.e., Federal and/or State law enforcement having 
jurisdiction over such matter. Such governmental authority would 
include DOJ and OIG with respect to Medicare and Medicaid violations 
giving rise to causes of actions under various criminal, civil and 
administrative false claims statutes.
    \28\ To qualify for the ``not less than double damages'' 
provision of the False Claims Act, the report must be provided to 
the Government within thirty days after the date when the laboratory 
first obtained the information. 31 U.S.C. 3729(a).
    \29\ The OIG believes that some violations may be so serious 
that they warrant immediate notification to governmental 
authorities, prior to, or simultaneous with, commencing an internal 
investigation, e.g., if the conduct (1) is a clear violation of 
criminal law; (2) has a significant adverse effect on the quality of 
care provided to program beneficiaries (in addition to any other 
legal obligations regarding quality of care); or (3) indicates 
evidence of a systemic failure to comply with applicable laws, an 
existing corporate integrity agreement, or other standards of 
conduct, regardless of the financial impact on Federal health care 
programs.
    \30\ The OIG has published criteria setting forth those factors 
that the OIG takes into consideration in determining whether it is 
appropriate to exclude a health care provider from program 
participation pursuant to 42 U.S.C. 1320a-7(b)(7) for violations of 
various fraud and abuse laws. See 62 FR 67392 (12/24/97).
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    When reporting misconduct to the Government, a clinical laboratory 
should provide all evidence relevant to the potential violation of 
applicable Federal or State law(s) and potential cost impact. The 
compliance officer, under advice of counsel, and with guidance from the 
governmental authorities, could be requested to continue to investigate 
the reported violation. Once the investigation is completed, the 
compliance officer should be required to notify the appropriate 
governmental authority of the outcome of the investigation, including a 
description of the impact of the alleged violation on the operation of 
the applicable health care programs or their beneficiaries. If the 
investigation ultimately indicates that criminal or civil violations 
may have occurred, the appropriate Federal and State officials 
31 should be notified immediately.
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    \31\ Appropriate Federal and State authorities include the 
Criminal and Civil Divisions of the Department of Justice, the U.S. 
Attorney in the clinical laboratory's district, and the 
investigative arms for the agencies administering the affected 
Federal or State health care programs, such as the State Medicaid 
Fraud Control Unit, the Defense Criminal Investigative Service, and 
the Offices of Inspector General of the Department of Health and 
Human Services, the Department of Veterans Affairs and the Office of 
Personnel Management (which administers the Federal Employee Health 
Benefits Program).
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    As previously stated, the clinical laboratory should take 
appropriate corrective action, including the imposition of proper 
disciplinary action, and prompt identification and restitution of any 
overpayment to the affected payor. In cases where potential fraud or 
violations of the False Claims Act are involved payment should be made 
as part of discussions with law enforcement. Failure to repay 
overpayments within a reasonable period of time could be interpreted as 
an intentional attempt to conceal the overpayment from the Government, 
thereby establishing an independent basis for a criminal violation with 
respect to the clinical laboratory, as well as any individuals who may 
have been involved.32 For this reason, clinical laboratory 
compliance programs should emphasize that overpayments obtained from 
Medicare or other Federal health care programs should be promptly 
returned to the payor that made the erroneous payment. Section F 
details the information which should be provided to the contractor when 
making a repayment.
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    \32\ See 42 U.S.C. 1320a-7b(a)(3).
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Conclusion

    Through this document, the OIG has attempted to provide a 
foundation for development of an effective and cost-efficient clinical 
laboratory compliance program. As previously stated, however, each 
program must be tailored to fit the needs and resources of an 
individual clinical laboratory, depending upon its

[[Page 45087]]

particular corporate structure, mission, size and employee composition. 
The statutes, regulations and guidelines of the Federal and State 
health insurance programs, as well as the policies and procedures of 
the private health plans, should be integrated into every clinical 
laboratory's compliance program.
    The OIG recognizes that the health care industry in this country, 
which reaches millions of beneficiaries and expends about a trillion 
dollars annually, is constantly evolving. As stated throughout this 
guidance, compliance is a dynamic process that helps to ensure that 
clinical laboratories and other health care providers are better able 
to fulfill their commitment to ethical behavior, as well as meet the 
changes and challenges being imposed upon them by Congress and private 
insurers. Ultimately, it is OIG's hope that a voluntarily created 
compliance program will enable clinical laboratories to meet their 
goals, improve the quality of services and control of claims 
submission, and substantially reduce fraud, waste and abuse, as well as 
the cost of health care to Federal, State and private health insurers.

    Dated: August 14, 1998.
June Gibbs Brown,
Inspector General.
[FR Doc. 98-22559 Filed 8-21-98; 8:45 am]
BILLING CODE 4150-04-P