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Doctors Get Cash for Liquid Gold

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Flikr-Dan Machold

A South Georgia lab that runs drug screens on urine samples from Florida and three other states has been paying doctors cash rebates for the tests they order, according to internal documents obtained by Health News Florida. 

Veritas Laboratories LLC in Tifton, which conducts complex tests that can bring hundreds of dollars in insurance reimbursement, keeps $100 and sends the rest to the doctor, the documents show.

It’s unclear how many physicians have signed up for the payments, but one who mentioned it in emails to colleagues said it brought “fantastic revenue.”

“You can make $400 or more per sample,” wrote Dr. Jonathan Daitch, a pain specialist in Fort Myers, in July. “Our practice has been using this arrangement VERY profitably for the past eight months.”

Neither Daitch nor his partner, Michael Frey, returned phone calls and e-mails from Health News Florida. 

Federal and state laws say doctors may not split fees or receive “kickbacks” for referring patients to another health-care provider or facility. Does this cross the line?

Former federal prosecutor Todd Foster, now in private practice in Tampa, said he sees no problem with the offer under federal criminal law, because of the careful way the contract is worded.

It says the cash-back arrangement applies only to payments from commercial insurers, such as Aetna or Blue Cross. The contract specifies that no payments can come from Medicare, Medicaid or Tricare, which covers military dependents and retirees.

While the contract doesn’t say why, it’s no mystery to lawyers who advise physicians. They say federal health regulations are strict and investigators are quick to scrutinize arrangements for possible violation of fraud and abuse laws.

"[Veritas officials] don’t want to take a chance on this even being perceived as a federal issue, because doing what they are proposing in Medicare would very likely subject it at least to an examination by the Department of Justice,” said Jay Wolfson, health policy professor at the University of South Florida.

Wolfson, a licensed attorney, recently won a landmark case in which South Florida dermatologist Steven Wasserman agreed to pay $26 million to settle charges of Medicare fraud involving kickbacks from a Tampa laboratory, as Health News Florida reported. Wolfson represented the whistleblower, pathologist Alan Freedman.

In this case, the pain doctors are relying on a legal opinion that says the Veritas cash-back arrangement is legal. The eight-page opinion was written by attorney Mark S. Thomas of Gainesville, Fla., who is board-certified in health law. Thomas is a former director of Florida Medicaid Fraud Control in the Agency for Health Care Administration and said he has master’s degrees in health care administration and health care finance.

“I’ve been doing this a long time,” he said in a phone interview.

While it’s illegal for doctors to refer their patients to another health-care provider or facility in exchange for cash, he said, in this case no one’s being referred. Instead, he said, the doctor is merely outsourcing the high-tech part of the lab work.

In his letter, Thomas wrote that the lab’s arrangement with physicians is not a kickback, self-referral or fee-splitting arrangement, which would be a violation of Florida law, but is instead a so-called “safe harbor” from liability.

Thus, Thomas wrote, “such arrangements are in full compliance with applicable law.”

While he said he couldn’t discuss the Veritas deal without violating his client’s confidentiality, he said he could talk in general about how doctors can legally make money off the lab billing. There are a number of variations, he said, but most involve the lab reducing its fee.

“You’re buying a product at a discount,” he said.

The arrangement qualifies as a “safe harbor,” he said, because “it’s arms-length, the lab doesn’t own the doctor and the doctor doesn’t own the lab. The payment is set at fair market value.”

In some cases, he said, the doctor’s billing number is used, so if he negotiates a discount with the lab he can keep the difference.

“It’s just a business arrangement,” Thomas said.

In the case of Veritas Labs, the billing is done by Medisphere Medical Management, which is an independent company. However, Georgia records show that Medisphere has the same address as Veritas Laboratories.

Veritas is doing business in four states, according to the Thomas letter: Florida, Georgia, Tennessee and Alabama.

With the exploding growth of pain management, Thomas said, clinicians have had to run more tests to make sure they know which drugs the patient is taking and in what amounts. That has led to the development of new, more sophisticated, more costly screening tests.

“Everyone disagrees about the professional component and how it should be billed,” Thomas said. “The clinical practice is way out ahead of the law.”

Thomas’ opinion was addressed to Gary C. Vowell, a lawyer in Tifton who goes by the nickname “Chip.” Georgia records list Vowell as the registered agent for both Veritas Laboratories LLC and Veritas Clinical Consulting LLC., the entity that contracts with the medical practices on the cash-back arrangement.

Vowell declined to answer questions about the lab, the consulting company or any other “proprietary” confidential business matters.

Stetson University Law School instructor Adam Levine, who holds licenses both as a physician and a lawyer, says the deal would have tempted him when he was practicing medicine. But it doesn’t look as tempting to him now that he’s a lawyer.

“I think a prosecutor might have a fairly easy time convincing a jury that’s a self-referral, you’re getting paid for it. I would not advise my clients to set up this sort of arrangement,” Levine said.

Wolfson said he disapproves, even if the deal is technically legal. The payment acts as an inducement to order more tests, even if they are not medically necessary, he said.

“I think it’s fiscally irresponsible in the health care system,” he said. “And it’s unprofessional.”

Health News Florida spent weeks trying to find an agency in Tallahassee that would look at the Veritas contract and Thomas legal  opinion to see whether there was any violation of state law.  The Attorney General's Office referred the inquiry to the Department of Health, and so did the Agency for Health Care Administration and the Office of Insurance Regulation.

DOH spokesman Nathan Dunn's reply to the first inquiry was: "The Department is not aware of any safe harbors for fee sharing with clinical laboratories under Florida law."

A request to consult the DOH general counsel was refused unless Health News Florida first filed a complaint with the agency. As a news organization, HNF declined to do so.

As The New York Times reported in August, the annual cost of running regular in-depth "quantititative" screens for pain patients can run into thousands of dollars. With so much money at stake, big lab companies have engaged in tough fights to capture market share.

In February 2011, Health News Florida reported that some companies were installing "specimen collection technicians" in doctors' offices and paying the practice a leasing fee for the space. AHCA, which regulates laboratories, ordered the practice halted. Spokeswoman Shelisha Coleman said the Legislature later closed that loophole in the anti-kickback law.

--Health News Florida is part of WUSF Public Media. Contact Editor Carol Gentry at 813-974-8629 (desk) or e-mail at cgentry@wusf.org. For more health news, visit HealthNewsFlorida.org.