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The Year in Labs Regulation: The 6 Biggest Stories of 2019

“May you live in interesting times.”

This ancient Chinese curse extolling the virtues of stability may resonate with those of you who work in the lab industry and have a stake in federal regulation. In fact, 2019 was an interesting year. A lot happened. Unfortunately, much of it was negative and some of it downright scary. And one of the areas where many lab people would have liked something to happen, namely, the development of new LDTs regulations, was frustratingly uninteresting. Here’s a rundown of what G2 Intelligence voted as the biggest lab stories of 2019.

  1. Proposed Value Based Care Kickback Relief Leaves Labs in the Cold

CMS finally got serious about meaningful value-based care kickback relief. But while the rules proposed on Oct. 9, 2019 offered goodies for most everyone in healthcare, the lab industry got a lump of coal in its stocking. The CMS explanation was downright insulting: “On the basis of our historical enforcement and oversight experience, we are concerned that [some labs] . . . might misuse the proposed safe harbors to offer remuneration to practitioners and patients to market their products.” In other words, nearly three decades after Operation Labscam, we still don’t trust you. The good news is that the proposed rules do offer labs some relief. More importantly, they’re a long way from final and labs still have a chance to get CMS to back off and allow it to participate in new exceptions for not just VB care but also EHR and cybersecurity.

  1. The Tide Appears to Turn against CMS on PAMA Pricing

After years of frustration, the lab industry finally made significant progress on the PAMA front in 2019. Before the year began, CMS announced that it was adopting an American Clinical Laboratory Association (ACLA) recommendation to treat hospital outreach labs that use the Form CMS1450 14x TOB to bill for non-patient lab services as “applicable laboratories” that had to report commercial payor pricing information.

But while the hope and expectation is that inclusion of these previously excluded hospital labs will positively impact future Medicare reimbursement rates for all labs, much remains to be done to ensure fair prices and rescue what small and freestanding labs remain from the PAMA wrecking ball. To keep up the pressure, the ACLA dusted itself off from a 2018 federal court ruling dismissing its challenge to the legal validity of the CMS pricing scheme and filed an appeal. And in July, the D.C. Circuit Court of Appeal reversed the lower court and said the ACLA could go forward with its case after all. While it may not result in ultimate court victory—at least in the near term—keeping the lawsuit in play gives the ACLA one more powerful card to play in its ongoing negotiations with CMS for PAMA relief.

The same is true of the LAB ACT, a proposed bipartisan measure in the House of Representatives to delay the next round of PAMA data reporting for one year to give labs required to report enough time to do so.

  1. The Genetic Testing Crackdown

 The year’s biggest story in lab-related Medicare fraud enforcement was Operation Double Helix, a massive takedown carried out in five federal districts targeting genetic testing labs and telemedicine companies involved in a $2.1 billion genetic billing fraud scam, one of the largest in Medicare history. The 35 defendants allegedly capitalized on the fears of elderly Americans to by using recruiters to induce them to sign up for unnecessary or non-existent cancer screening tests ordered by doctors who received kickbacks for the referrals. In June, three months before the announcement of the operation, the OIG issued an alert warning Medicare beneficiaries about such genetic testing schemes.

  1. The Scary New CMS Medicare Affiliates Exclusions Rule

In a very quiet way that few noticed, CMS dramatically expanded its Medicare and Medicaid exclusion powers to include authority to revoke the enrollment of providers or suppliers that are currently or have in the last five years been affiliated with targeted “bad actors.” One of the key parts of the Final Rule, which was issued in September and took effect in November, is an “affiliations” provision that allows CMS to bar individuals and organizations that affiliate with those who pose an “undue risk” of committing fraud, waste or abuse based on their relationships with other previously sanctioned entities.

Practical Impact: Labs and other providers can now be held liable not simply for what their principals, employees and business affiliates do while working at the lab but also for what they did during the lookback period, i.e., the five years before they came to your organization. Labs also have to provide disclosure about their business dealings with affiliates. Adding to the scary effect is the broad definition of “affiliates” to include individuals and entities that:

  • Have a direct or indirect ownership of 5% or more in another organization;
  • A general or limited partnership interest, regardless of the percentage;
  • An interest in which an individual or entity “exercises operational or managerial control over, or directly conducts” the daily operations of another organization “either under direct contract or through some other arrangement”
  • Act as an officer or director of a corporation; or
  • Have any reassignment relationship with the organization.
  1. EKRA Casts New Kickback Doubts on Existing Lab Marketing Arrangements

An opioid drug-related law passed in 2018 cast a long shadow on lab marketing arrangements in 2019. The Eliminating Kickbacks in Recovery Act of 2018 (EKRA) provides for penalties of up to $200K and 10 years in prison for knowingly and willfully:

  • Soliciting or receiving any remuneration in return for referring a patient to a lab; or
  • Paying or offering any remuneration to induce a referral of an individual, or in exchange for an individual using the services of a lab.

Of course, these things are also illegal under existing kickback laws. But EKRA has different exceptions. Result: Lab marketing and business arrangements that meet Anti-Kickback Law and Stark exceptions and safe harbors may still violate EKRA. Adding to the problem is that unlike the AKS and Stark, EKRA applies to not only government but private payor arrangements. When EKRA was adopted, the expectation was that the government would issue guidelines to clarify these and other issues surrounding the law in early 2019. But it still hasn’t happened.

  1. Continued Uncertainty Over FDA LDT Regulation

2019 witnessed no dramatic new developments in the effort to create workable regulations for development of Laboratory Developed Tests (LDTs). What began as an FDA initiative has moved to Congress starting with a bi-partisan bill called the Diagnostic Accuracy and Innovation Act (DAIA) proposing to remove diagnostic tests from the definition of a medical device (and thus outside the purview of the FDA’s 510(k) process for medical devices) and establishing a new system for regulating in vitro clinical tests (IVCTs). The FDA countered with a proposal that would keep LDTs within the 510(k) framework but modernize predicate device performance criteria and create an alternative 510(k) pre-certification pathway for certain “well-understood” product types.

The original sponsors of DAIA then incorporated the FDA’s ideas, including the pre-certification program concept, into a new bill called the Verifying Accurate, Leading-edge IVCT Development (VALID) Act. Unlike DAIA, the VALID Act makes FDA’s authority to regulate IVCTs, and therefore LDTs, explicit. The aim is to establish a framework for overseeing IVCT’s at the FDA. The next step, which may happen in 2020, appears to be the proposal of an updated VALID 2 outlining a pre-certification process. But progress remains frustratingly glacial.

 

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