Health Diagnostic ends disputed reimbursements

The company also said it has stopped offering a type of reimbursement to health care providers for sending blood samples to its laboratory, a practice that prompted a recent industrywide warning from government regulators.

“Health Diagnostic Laboratory Inc. has been cooperating fully with the Department of Justice as it conducts what we understand to be an industrywide review of certain clinical laboratory practices, many of which have been long-standing within the industry,” the company said in a statement.

A spokeswoman for the U.S. Attorney’s Office for the Eastern District of Virginia said the office could neither confirm nor deny the existence of any investigation.

HDL provides blood tests for health care providers to identify biomarkers that show early signs of chronic illnesses such as cardiovascular disease or diabetes.

The company, which has seen explosive growth at its headquarters and laboratory in downtown Richmond since its founding in 2009, notified health care providers June 30 that it would no longer provide a type of reimbursement called “process and handling,” or P&H, payments to health care providers.

HDL has discontinued those types of payments “to physician practices, health systems, or others who refer patients to HDL for testing,” according to a letter the company sent to health care providers and that it provided to the Richmond Times-Dispatch.

The company’s decision to halt those reimbursements came in response to a special fraud alert issued June 25 by the Office of the Inspector General for the U.S. Department of Health and Human Services.

That office is tasked with preventing waste, fraud and abuse in Medicare, Medicaid and about 300 other federal health and human services programs. Clinical laboratory companies receive billions in Medicare reimbursements annually.

In the alert, the federal agency said it had identified two trends in the clinical laboratory industry that it warned could result in violations of an anti-kickback statute covering federal health care programs. The statute is intended to “protect patients from inappropriate medical referrals or recommendations by health care professionals who may be unduly influenced by financial incentives,” the office said.

One of the questionable trends involves commercial laboratories providing compensation to physicians and medical practices to collect, process and package patients’ blood specimens, the agency said.

Such arrangements are permissible, but may violate the anti-kickback statute if a laboratory company provides compensation to physicians to “induce or reward” them for referring blood specimens to its laboratory. The office also said laboratories should not pay physicians above fair market value for those services.

The agency did not identify any laboratory companies in its alert, and its spokesman said it could not comment on whether the practices of any particular laboratory companies have been scrutinized.

The fact that the office has issued a fraud alert “does not mean there is an ongoing investigation, but it does mean that the Office of the Inspector General has received numerous reports and questions about what sorts of arrangements might be legal,” agency spokesman Don White said.

The alert was issued “to clarify the opinion of the Office of Inspector General and to warn people about entering into arrangements that may not, in fact, be lawful,” White said.

HDL “always strives to act in full accordance with all applicable laws, rules and regulations, and consistently reviews and re-evaluates its practices in light of new guidance,” the company said in a statement released in response to questions about the government alert.

The company said it had repeatedly requested guidance from federal regulators on the practice of P&H payments, and the alert was “the first clear guidance that speaks specifically to labs’ payment of P&H fees.”

Its own employees sell its services in the state, but HDL uses an Alabama-based company to handle contract sales outside of Virginia.

HDL said there has been a longstanding practice in the laboratory industry to reimburse physicians for specimen processing and handling costs.

“The (inspector general’s office) alert provides that the lawfulness of a particular payment depends in significant part on the intent of the parties,” the company said.

In a June 26 letter to health care providers after the alert was released, Tonya Mallory, HDL’s co-founder, president and chief executive office, said the company’s P&H contracts are “carefully structured, and our payments are intended to compensate physician practices appropriately and at fair market value for the work and expense incurred in processing and shipping samples to our laboratory.”

“It has never been our intent to use P&H to induce any physician to utilize our laboratory,” the letter said.

In a June 30 follow-up letter to health care providers, Mallory said HDL had reviewed the alert and concluded that discontinuing P&H payments “is the right decision for us and for you, our physician partners.”

“We are confident that physicians have always selected HDL Inc. for the quality of our tests, and disagree with the alert’s suggestion that P&H payments might inappropriately affect some physicians’ decisions about care for their patients,” the letter said.

In the same letter, HDL offered to provide in-office phlebotomists for health care providers.

HDL said it is “working with our physician partners to implement alternative methods for collecting and processing specimens that they send to our lab, such as use of draw sites or placing phlebotomists inside practices.”

HDL has grown quickly, investing millions of dollars to expand its offices and laboratory in the Virginia BioTechnology Research Park in downtown Richmond and hiring hundreds of people.

The company declined to comment on the extent to which its prior practice of offering P&H reimbursements to physicians was a factor in its rapid growth.

In June, the company reported having about 860 employees, including about 750 in the Richmond area. HDL is privately owned and does not disclose its financial results.

But HDL received $139.1 million in Medicare reimbursements during 2012, according to a database compiled by The Wall Street Journal using information from the Centers for Medicare and Medicaid Services.

More recently, HDL has announced plans to expand its business into direct-to-consumer blood testing. It has opened four clinics in the Richmond area where physicians can send patients to have their blood taken, which eliminates the need for processing and handling fees.

The company also has started to offer consumers the option to get a blood test and lifestyle counseling for a $295 fee, even without a physician referral.

HDL has said it plans to open similar clinics around the country but is still in the early stages of that program. It has signed leases to open sites in Texas and Colorado, but those offices have not opened yet.