Jane Pine Wood and Richard Cooper, both partners at McDonald Hopkins, generously sat down with us to share their expertise on healthcare compliance laws. Nearly half of the states in the nation have laws that limit the practitioner-laboratory relationship by regulating re-billing, and both federal and state governments have some form of anti-kickback, Stark, or Stark-like law on the books. Misconceptions abound regarding exactly who is and who is not under their jurisdiction. As Wood and Cooper explain, regulators are strict and penalties are severe, so it’s essential for all practitioners who work with labs to familiarize themselves with the laws that dictate these relationships.

Practitioners with Medicare Relationship

Any practitioner with Medicare, Medicaid, or CHAMPUS involvement has to deal directly with the Federal Stark Law and Anti-Kickback Laws. As Cooper explains, even if the financial arrangement doesn't relate to Medicare/Medicaid/CHAMPUS patients, “If there's a referral of those type of patients between the lab and the group, practitioners can still be tagged for federal law violations.”

In practical terms, the anti-kickback laws work like this: if a practitioner is referring any or all of his or her testing to a laboratory and it includes Medicare work, then the practitioner has to be careful about any discount provided by the lab. If the discount is too sizable, it could be considered a kickback in exchange for the practitioner’s referral of government work to the lab. According to Wood, “an excessive discount definitely could put both parties at risk under the anti-kickback law.” And it’s not just government work that practitioners need to consider. Any discount, even if it's for private work, could be considered a kickback in exchange for the referral of previous government work.

As Cooper explains, it's disadvantageous to be under the purview of the federal government--as opposed to the state government--because the current federal system is “much more organized and aggressive than most states.” They have significantly more resources, and their investigators and prosecutors are more experienced and more aggressive. However, this does not mean that being solely under state jurisdiction means you can push the envelope. It's essential to be compliant on both levels.

Fully Independent, Non-Government Practices

Even if you’re a doctor who has opted out of Medicare and isn’t handling any Medicare patients, there are still some legal realities to keep in mind. On the state level, there are a number of kickback and Stark-like laws that can extend even to self-pay patients and private practices. “If there is any remuneration between the laboratory and the referring practitioner, the practitioner still needs to look at those state laws that are involved,” says Wood. This laboratory-practitioner relationship might be a simple client billing one, wherein the private practitioner may be looking to buy the testing to then re-bill his or her patients. It may even be included as part of the annual or monthly retainer fee that the patient is paying.

Rebill Testing Limitations

Even in rebilling situations, private practitioners should be aware of their state’s law. As Wood notes, about half of the states put at least some restrictions on physicians’ ability to purchase and re-bill testing even for a self-pay patient.

These restrictions fall into three different categories. One is simply a direct-bill law. In these cases, the performing laboratory has to bill the patient or the payer directly, Wood explains. The practitioner is simply not permitted to purchase and re-bill the work. New York is one example of a state with this type of restriction.

The next category is an anti-markup restriction. Wood describes it like this: “In these states, a practitioner can buy the work and bill the patient, but practitioners cannot mark up the cost and must disclose to their patients both who they bought it from and how much they paid for the test.” California is one of a number of states where this legislation on the books. Cooper points out that, under this scenario, the practitioner typically loses money due to billing costs and bad debt.

The third type is the disclosure law. In this case, the practitioner must disclose to the patient and the payer “whether the practitioner is billing a third-party payer, who the practitioner bought the test from, how much the practitioner paid for it, and how much of a markup there might be.” Texas is the largest state to use a disclosure law.

There are some fine points to be noted about the distinctions between the implementation of these laws. In California, the charge is limited to the dollar amount the practitioner paid in the anti-markup state, meaning they can't charge any more than they actually paid for the service or test. “But in a state like Texas, the physician could mark it up and then, in addition, have to claim how much he or she marked up the test,” Wood explains.

Unfortunately, things can get even more complicated if a practioners seek out anatomic pathology or molecular testing. The laws governing those laboratory-practitioner relationships are entirely different. Woods admits that “it's hard to provide global advice in this area that would be applicable in all states because they vary on a state by state basis.”

Managing Benefits Given by Labs to Practitioners

In addition to possible kickback violations, practitioners should be cautious of other financial incentives offered by laboratories. For example, if a lab is providing supplies or equipment, it has to be used solely for either the collection, transport, or reporting of lab results. “It can't be used on a broader basis to benefit the physician’s practice in general,” Cooper explains. In other words, if a lab were to provide a fax machine to communicate lab results, it could only be used for that purpose. It couldn't be used more broadly in the office practice.

In Cooper’s opinion, if a laboratory is paying for services (such as a draw fee), it should be for a demonstrable cost only. “There shouldn't be a profit element to it.” Finally, Cooper says that practitioners need to ensure that when labs are placing personnel or equipment on site, its usage has to be limited to the lab's sector.

In the past, there was an exception that permitted laboratories to fund some of the electronic medical records (EMR) costs for practitioners, but that exception has since been removed with the implementation of the Stark Law and the Anti-Kickback Laws. Consequently, it is no longer permissible under federal law for a laboratory to fund an EMR for any referring practice. “A laboratory could put in an interface simply to send reports, results, and orders back and forth, but only the interface--not the EMR,” Wood explains.

It’s also important to be aware of the entertainment budget that laboratories have for practitioners. This budget, currently capped at $392 per practitioner per lab, ensures that laboratories aren’t providing incentives to refer business. “Practitioners have to be wary of entertainment-related expenses where it would appear that they're enjoying benefits beyond that threshold.” Basically, be sure to count how many sandwiches they drop off at your door.

Repercussions of Violations

Wood and Cooper both admit that they have encountered concierge practitioners who are unaware that these laws even exist. Labs themselves might not even be cognizant of the restrictions they face.

Strikingly, Wood and Cooper believe that there was very limited enforcement of these laws until this past year. Now, both practitioners and laboratories face daunting civil monetary penalties. Other repercussions for violations might include exclusion from the Medicare program and--in some instances--even criminal penalties. “We are seeing the government look to enforce and apply criminal penalties, including against practitioners, in a way we have never seen before,” Wood warns.

She shared the story of BioDiagnostics, a lab in New Jersey that was recently investigated for sham relationships. “Today, the lab owners and the sales reps are in jail. Twenty-six physicians were either convicted or pled guilty to criminal charges. Several of them are in jail as well. Those who did not go to prison have paid significant restitution, some of which totaled in the millions. They've lost their medical license; they've lost their medical practices. Pretty severe penalties for such a large group of physicians. We just didn't see that before. Previously, the enforcement would have solely involved civil monetary penalties.”

Why the Change and What It Means

About two years ago, the federal government publicly declared that they’re fed up with practitioners’ assumptions that most regulation can be ignored because of relaxed enforcement, Wood explains.

“I think that the government tends to focus on the larger targets, just because it's a better return on their investigation-and-prosecution budgets,” Cooper adds. “You will eventually be a target.” But just because they are more likely to focus on the bigger operations doesn’t mean that smaller practices should cease being vigilant. If practioners that have engaged in problematic arrangements wants to sell or merge their practice, it can also create problems. “If they're non-compliant, it's likely going to come out in the transaction due diligence process. It's not something that will necessarily quietly fade into history,” Cooper explains.

Some practitioners are starting to use their awareness of these newly enforced laws to their own competitive advantage. Wood and Cooper report that they’ve heard of practitioners alerting the authorities of other practitioners’ suspected non-compliance. “It's really becoming a competition tactic in many areas of healthcare today,” Cooper admits. Clearly, the enforcement of these laws has changed not only relationships between laboratories and doctors, but the relationship between practices, too.

General Advice for Practitioners

Cooper recommends having legal counsel to review any lab relationship that involves remuneration between parties. “Practioners should not fall into the trap of feeling comfortable about the legality of an arrangement because of its prevalence in the market,” he explains. Instead, they should keep informed of changing laws and enforcement trends. “Avoid high pressure, big profit pitches. Go with your gut: if it doesn't sound legit, it probably isn't.”


Anti-kickback and client bill laws vary from state to state but practitioners that have any involvement with Medicare have to deal with both federal laws and federal investigators.

Even private practitioners have to be mindful of their state’s rebilling laws which vary in whether or not they can re-bill, markup, or be forcred to disclose markups.

Over the past two years, the federal government has proven to be more aggressive regarding its enforcement of these laws. Violators face massive fines and/or criminal penalties.

Practitioners should also be wary of other financial relationships with labs. Labs can no longer provide EMRs, they are limited in their entertainment budgets, and any supplies or equipment provided by labs must be used solely for lab services.