Management & Compliance for Large/Academic Pathology Practices
Part 10 -
Major Compliance Risk Areas for Pathology Practices
Black-Schaffer & Johnson
Major Compliance Risk Areas for Pathology Practices
Office of Inspector General, HHS, Publication of the OIG's Final Compliance Program Guidance for
Individual and Small Group Physician Practices (65 FR 59434; October 5, 2000).
Medicare Carriers Manual, Department of Health & Human Services (DHHS), Claims Process, Centers
for Medicare & Medicaid Services (CMS), Transmittal 1785, Date: JANUARY 17, 2003, CHANGE REQUEST
1820, SUBJECT: Section 4508.1, Coding for Non-Covered Services and Services Not Reasonable and
Risk Areas: Reasonable and Necessary Services
Risk Area: Local Coverage Determination
Local coverage determination is an administrative and educational tool to assist providers, physicians
and suppliers in submitting correct claims for payment. Local determinations outline how contractors
will review claims to ensure that they meet Medicare coverage requirements. CMS requires that local
determinations be consistent with national guidance (although they can be more detailed or specific),
developed with scientific evidence and clinical practice. Contractor medical directors develop these
The use of local coverage determination helps avoid situations in which claims are paid or denied
without a full understanding of why.
CMS has a local coverage determination web site at: http://www.cms.hhs.gov/mcd/search.asp?
An area of concern for physicians relating to determinations of reasonable and necessary services is
the variation in local coverage determinations (LCDs) among carriers. Physicians are supposed to bill
the Federal health care programs only for items and services that are reasonable and necessary. However,
in order to determine whether an item or service is reasonable and necessary under Medicare guidelines,
the physician must apply the appropriate LCD.
[Except for] claims ... properly coded and submitted to Medicare solely for the purpose of obtaining a
written denial, physician practices are to bill the Federal health programs only for items and services
that are covered. When the LCD indicates that an item or service may not be covered by Medicare, the
physician practice is responsible to convey this information to the patient so that the patient can make
an informed decision concerning the health care services he/she may want to receive.
Risk Area: Advance Beneficiary Notices
Physician practices convey this [possible noncoverage] information through Advance Beneficiary Notices
Physicians are required to provide ABNs before they provide services that they know or believe
Medicare does not consider reasonable and necessary.
Accordingly, each ABN should:
I. Be in writing;
II. Identify the specific service that may be denied (procedure name and CPT/HCPC code is
III. State the specific reason why the physician believes that service may be denied; and
IV. Be signed by the patient acknowledging that the required information was provided and that the
patient assumes responsibility to pay for the service.
A common risk area associated with ABNs is in regard to diagnostic tests or services. There are three
steps that a physician practice can take to help ensure it is in compliance with the regulations
concerning ABNs for diagnostic tests or services:
Risk Area: Billing for Non-covered Services as if Covered
- Determine which tests are not covered under national coverage rules;
- Determine which tests are not covered under local coverage rules such as LCDs (contact the
practice's carrier to see if a listing has been assembled); and
- Determine which tests are only covered for certain diagnoses.
In some instances, we are aware that physician practices submit claims for services in order to
receive a denial from the carrier, thereby enabling the patient to submit the denied claim for payment to
a secondary payer.
[W]here a claim is being submitted to Medicare for this purpose, the physician should indicate on the
claim submission that the claim is being submitted for the purpose of receiving a denial, in order to
bill a secondary insurance carrier.
In some instances, however, the carrier pays the claim even though the service is non-covered, and
even though the physician did not intend for payment to be made.
When this occurs, the physician has a responsibility to refund the amount paid and indicate that the
service is not covered.
Coding for Non-Covered Services and Services Not Reasonable and Necessary
A. Definitions of the GA, GY and GZ Modifiers. - The modifiers are defined below:
B. Use of the GA, GY, and GZ Modifiers for Services Billed to Local Carriers.
- GA - Waiver of liability statement on file.
- GY - Item or service statutorily excluded or does not meet the definition of any Medicare benefit.
- GZ - Item or service expected to be denied as not reasonable and necessary.
The GY modifier must be used when physicians, practitioners, or suppliers want to indicate that the
item or service is statutorily non-covered or is not a Medicare benefit.
The GZ modifier must be used when physicians, practitioners, or suppliers want to indicate that they
expect that Medicare will deny an item or service as not reasonable and necessary and they have not had
an Advance Beneficiary Notification (ABN) signed by the beneficiary.
The GA modifier must be used when physicians, practitioners, or suppliers want to indicate that they
expect that Medicare will deny a service as not reasonable and necessary and they do have on file an ABN
signed by the beneficiary.
(Go to www.cms.hhs.gov/medlearn/refabn.asp for additional information on use of the GA modifier and
The GY and GZ modifiers should be used with the specific, appropriate HCPCS code when one is
In cases where there is no specific procedure code to describe services, a "not otherwise classified
code" (NOC) must be used with either the GY or GZ modifier.
Risk Areas: Physician Relationships with Hospitals
Risk Area: Teaching Physicians
Special regulations apply to teaching physicians' billings. Regulations provide that services
provided by teaching physicians in teaching settings are generally payable under the physician fee
schedule only if the services are personally furnished by a physician who is not a resident or the
services are furnished by a resident in the presence of a teaching physician.
Unless a service falls under a specified exception, such as the Primary Care Exception, the teaching
physician must be present during the key portion of any service or procedure for which payment is sought.
Physicians should ensure the following with respect to services provided in the teaching physician
Risk Area: Gainsharing
- Only services actually provided are billed;
- Every physician who provides or supervises the provision of services to a patient is
responsible for the correct documentation of the services that were rendered;
- Every physician is responsible for assuring that in cases where the physician provides
evaluation and management (E&M) services, a patient's medical record includes appropriate
documentation of the applicable key components of the E&M services provided or supervised by the
physician (e.g.,patient history, physician examination, and medical
decision making), as well as documentation to adequately reflect the procedure or portion of the services
provided by the physician; and
- Unless specifically excepted by regulation, every physician must document his or her
presence during the key portion of any service or procedure for which payment is sought.
The term "gainsharing" typically refers to an arrangement in which a hospital gives a physician a
percentage share of any reduction in the hospital's costs for patient care attributable in part to the
It is the OIG's position that the Civil Monetary Penalties Law clearly prohibits any gainsharing
arrangements that involve payments by, or on behalf of, a hospital to physicians with clinical care
responsibilities to induce a reduction or limitation of services to Medicare or Medicaid beneficiaries.
However, hospitals and physicians are not prohibited from working together to reduce unnecessary
hospital costs through other arrangements.
For example, hospitals and physicians may enter into personal services contracts where hospitals pay
physicians based on a fixed fee at fair market value for services rendered to reduce costs rather than a
fee based on a share of cost savings.
Risk Area: Physician Incentive Arrangements
Some examples of questionable incentive arrangements are:
Risk Areas: Physician Billing Practices
- Provision of free or significantly discounted billing, nursing, or other staff services.
- Payment of the cost of a physician's travel and expenses for conferences.
- Payment for a physician's services that require few, if any, substantive duties by the
- Guarantees that if the physician's income fails to reach a predetermined level, the
entity will supplement the remainder up to a certain amount.
Risk Area: Third-Party Billing Services
Physicians should remember that they remain responsible to the Medicare program for bills sent in the
physician's name or containing the physician's signature, even if the physician had no actual knowledge
of a billing impropriety.
In other words, it is no defense for the physician if the physician's billing service improperly bills
One of the most common risk areas involving billing services deals with physician practices
contracting with billing services on a percentage basis.
Although percentage based billing arrangements are not illegal per se,
the Office of Inspector General has a longstanding concern that such arrangements may increase the
risk of intentional upcoding and similar abusive billing practices.
The billing service should bill claims under the physician's name and tax identification number.
[A] billing service cannot directly receive the payment of Medicare funds into a bank account that it
solely controls. The Medicare payments should instead be deposited into a bank account over which the
provider has signature control.
Physician practices should review the third-party medical billing guidance for additional information
on third-party billing companies and the compliance risk areas associated with billing companies.
Risk Area: Non-Participating Physicians
42 U. S. C. 1395w–4(g) prohibits a nonparticipating physician from knowingly and willfully billing or
collecting on a repeated basis an actual charge for a service that is in excess of the Medicare limiting
42 U. S. C. 1395w–4(g) mandates that if a nonparticipating physician collects an actual charge for a
service that is in excess of the limiting charge, the physician must refund the amount collected above
the limiting charge to the individual within 30 days notice of the violation.
Risk Area: Professional Courtesy
The term "professional courtesy" is used to describe a number of analytically different practices.
The ... practice by a physician of waiving all or a part of the fee for services provided to the
physician's office staff, other physicians, and/or their families.
[T]he waiver of coinsurance obligations or other out-of-pocket expenses for physicians or their
families (i.e., "insurance only" billing), and
similar payment arrangements by hospitals or other institutions for services provided to their medical
staffs or employees.
In general, whether a professional courtesy arrangement runs afoul of the fraud and abuse laws is
determined by two factors: (i) How the recipients of the professional courtesy are selected; and (ii)
how the professional courtesy is extended.
If recipients are selected in a manner that directly or indirectly takes into account their ability to
affect past or future referrals, the anti-kickback statute (which prohibits giving anything of value to
generate Federal health care program business) may be implicated.
If the professional courtesy is extended through a waiver of copayment obligations (i.e., "insurance only" billing), other statutes may be implicated, including the
prohibition of inducements to beneficiaries….
The following are general observations about professional courtesy arrangements for physician
practices to consider:
The legality of particular professional courtesy arrangements will turn on the specific facts
presented, and, with respect to the anti-kickback statute, on the specific intent of the parties. A
physician practice may wish to consult with an attorney if it is uncertain about its professional
Risk Areas: Criminal Statutes
- A physician's regular and consistent practice of extending professional courtesy by
waiving the entire fee for services rendered to a group of persons (including employees, physicians,
and/or their family members) may not implicate any of the OIG's fraud and abuse authorities so long as
membership in the group receiving the courtesy is determined in a manner that does not take into account
directly or indirectly any group member's ability to refer to, or otherwise generate Federal health care
program business for, the physician.
- A physician's regular and consistent practice of extending professional courtesy by
waiving otherwise applicable copayments for services rendered to a group of persons (including employees,
physicians, and/or their family members), would not implicate the anti-kickback statute so long as
membership in the group is determined in a manner that does not take into account directly or indirectly
any group member's ability to refer to, or otherwise generate Federal health care program business for,
- Any waiver of copayment practice, including that described in the preceding bullet, does
implicate section 1128A(a)(5) of the Act if the patient for whom the copayment is waived is a Federal
health care program beneficiary who is not financially needy.
I. Health Care Fraud (18 U. S. C. 1347)
It is a crime to knowingly and willfully execute (or attempt to execute) a scheme to defraud any
health care benefit program, or to obtain money or property from a health care benefit program through
false representations. Note that this law applies not only to Federal health care programs, but to most
other types of health care benefit programs as well.
II. Theft or Embezzlement in Connection with Health Care (18 U. S. C. 669)
It is a crime to knowingly and willfully embezzle, steal or intentionally misapply any of the assets
of a health care benefit program. Note that this law applies not only to Federal health care programs,
but to most other types of health care benefit programs as well.
III. False Statements Relating to Health Care Matters (18 U. S. C. 1035)
It is a crime to knowingly and willfully falsify or conceal a material fact, or make any materially
false statement or use any materially false writing or document in connection with the delivery of or
payment for health care benefits, items or services. Note that this law applies not only to Federal
health care programs, but to most other types of health care benefit programs as well.
IV. Obstruction of Criminal Investigations of Health Care Offenses (18 U. S. C.
It is a crime to willfully prevent, obstruct, mislead, delay or attempt to prevent, obstruct, mislead,
or delay the communication of records relating to a Federal health care offense to a criminal
investigator. Note that this law applies not only to Federal health care programs, but to most other
types of health care benefit programs as well.
V. Mail and Wire Fraud (18 U. S. C. 1341 and 1343)
It is a crime to use the mail, private courier, or wire service to conduct a scheme to defraud another
of money or property. The term "wire services" includes the use of a telephone, fax machine or computer.
Each use of a mail or wire service to further fraudulent activities is considered a separate crime. For
instance, each fraudulent claim that is submitted electronically to a carrier would be considered a
separate violation of the law.
VI. Criminal Penalties for Acts Involving Federal Health Care Programs (42 U. S.
False Statement and Representations
It is a crime to knowingly and willfully:
(1) make, or cause to be made, false statements or representations in applying for benefits or
payments under all Federal health care programs;
(2) make, or cause to be made, any false statement or representation for use in determining rights to
such benefit or payment;
(3) conceal any event affecting an individual's initial or continued right to receive a benefit or
payment with the intent to fraudulently receive the benefit or payment either in an amount or quantity
greater than that which is due or authorized;
(4) convert a benefit or payment to a use other than for the use and benefit of the person for whom it
(5) present, or cause to be presented, a claim for a physician's service when the service was not
furnished by a licensed physician;
(6) for a fee, counsel an individual to dispose of assets in order to become eligible for medical
assistance under a State health program, if disposing of the assets results in the imposition of an
ineligibility period for the individual.
It is a crime to knowingly and willfully solicit, receive, offer, or pay remuneration of any kind
(e.g., money, goods, services):
Risk Areas: Civil and Administrative Statutes
- for the referral of an individual to another for the purpose of supplying items or
services that are covered by a Federal health care program; or
- for purchasing, leasing, ordering, or arranging for any good, facility, service, or item
that is covered by a Federal health care program.
I. The False Claims Act (31 U. S. C. 3729-3733)
This is the law most often used to bring a case against a health care provider for the submission of
false claims to a Federal health care program. The False Claims Act prohibits knowingly presenting (or
causing to be presented) to the Federal Government a false or fraudulent claim for payment or approval.
Additionally, it prohibits knowingly making or using (or causing to be made or used) a false record or
statement to get a false or fraudulent claim paid or approved by the Federal Government or its agents,
like a carrier, other claims processor, or State Medicaid program.
False Claim – A "false claim" is a claim for payment for services or
supplies that were not provided specifically as presented or for which the provider is otherwise not
entitled to payment.
Knowingly –To "knowingly" present a false
or fraudulent claim means that the provider:
(1) Has actual knowledge that the information on the claim is false;
(2) acts in deliberate ignorance of the truth or falsity of the information on the claim; or
(3) acts in reckless disregard of the truth or falsity of the information on the claim.
It is important to note the provider does not have to deliberately intend to defraud the
Federal Government in order to be found liable under this Act. The provider need only "knowingly"
present a false or fraudulent claim in the manner described above.
Deliberate Ignorance –To act in "deliberate
ignorance" means that the provider has deliberately chosen to ignore the truth or falsity of the
information on a claim submitted for payment, even though the provider knows, or has notice, that
information may be false.
Reckless Disregard –To act in "reckless
disregard" means that the provider pays no regard to whether the information on a claim submitted for
payment is true or false.
II. Civil Monetary Penalties Law (42 U. S. C. 1320a-7a)
The Civil Monetary Penalties Law (CMPL) is a comprehensive statute that covers an array of fraudulent
and abusive activities and is very similar to the False Claims Act. For instance, the CMPL prohibits a
health care provider from presenting, or causing to be presented, claims for services that the provider
"knows or should know" were:
Additionally, the CMPL contains various other prohibitions, including:
- not provided as indicated by the coding on the claim;
- not medically necessary;
- furnished by a person who is not licensed as a physician (or who was not properly
supervised by a licensed physician);
- furnished by a licensed physician who obtained his or her license through
misrepresentation of a material fact (such as cheating on a licensing exam);
- furnished by a physician who was not certified in the medical specialty that he or she
claimed to be certified in;
- furnished by a physician who was excluded from participation in the Federal health care
program to which the claim was submitted.
The term "should know" means that a provider: (1) Acted in deliberate ignorance of the truth or
falsity of the information; or (2) acted in reckless disregard of the truth or falsity of the
information. The Federal Government does not have to show that a provider specifically intended to
defraud a Federal health care program in order to prove a provider violated the statute.
- offering remuneration to a Medicare or Medicaid beneficiary that the person knows or
should know is likely to influence the beneficiary to obtain items or services billed to Medicare or
Medicaid from a particular provider;
- employing or contracting with an individual or entity that the person knows or should
know is excluded from participation in a Federal health care program.
III. Limitations on Certain Physician Referrals ("Stark Laws") (42 U. S. C.
Physicians (and immediate family members) who have an ownership, investment or compensation
relationship with an entity providing "designated health services" are prohibited from referring patients
for these services where payment may be made by a Federal health care program unless a statutory or
regulatory exception applies. An entity providing a designated health service is prohibited from billing
for the provision of a service that was provided based on a prohibited referral.
IV. Exclusion of Certain Individuals and Entities From Participation in Medicare
and other Federal Health Care Programs (42 U. S. C. 1320a-7)
Individuals or entities convicted of the following conduct must be excluded from participation in
Medicare and Medicaid for a minimum of 5 years:
(1) a criminal offense related to the delivery of an item or service under Medicare or Medicaid;
(2) a conviction under Federal or State law of a criminal offense relating to the neglect or abuse of
(3) a conviction under Federal or State law of a felony relating to fraud, theft, embezzlement, breach
of fiduciary responsibility or other financial misconduct against a health care program financed by any
Federal, State, or local government agency;
(4) a conviction under Federal or State law of a felony relating to the unlawful manufacture,
distribution, prescription, or dispensing of a controlled substance.
Individuals or entities convicted of the following offenses, may be excluded from participation in
Federal health care programs for a minimum of 3 years:
(1) a criminal offense related to the delivery of an item or service under Medicare or Medicaid;
(2) a misdemeanor related to fraud, theft, embezzlement, breach of fiduciary responsibility or other
financial misconduct against a health care program financed by any Federal, State, or local government
(3) interference with, or obstruction of, any investigation into certain criminal offenses;
(4) a misdemeanor related to the unlawful manufacture, distribution, prescription or dispensing of a
(5) exclusion or suspension under a Federal or State health care program;
(6) submission of claims for excessive charges, unnecessary services or services that were of a
quality that fails to meet professionally recognized standards of health care;
(7) violating the Civil Monetary Penalties Law or the statute entitled "Criminal Penalties for Acts
Involving Federal Health Care Programs";
(8) ownership or control of an entity by a sanctioned individual or immediate family member (spouse,
natural or adoptive parent, child, sibling, stepparent, stepchild, stepbrother or stepsister, in-laws,
grandparent and grandchild);
(9) failure to disclose information required by law;
(10) failure to supply claims payment information; and
(11) defaulting on health education loan or scholarship obligations.
The above list of offenses is not all inclusive. Additional grounds for permissive exclusion are
detailed in the statute.