For Immediate Release - July 01, 2014

AG Coakley Filed Legislation to End Fraud Between Drug Testing Labs and Sober Homes; Change in Law will Save MassHealth $6.6 Million

BOSTON – Closing a multi-million dollar Medicaid kickback loophole, language included in the Fiscal Year 2015 Budget Conference Committee Report is aimed at eliminating inappropriate self-referral arrangements between clinical labs and sober houses under common ownership, Attorney General Martha Coakley announced today. The report, filed on Sunday, will advance to Governor Patrick’s desk for his signature. 

Prior to supporting the budgetary language, the AG’s Office filed An Act Prohibiting Clinical Laboratory Self-Referrals in January 2013, sponsored by Senator Barry Finegold, and Representatives John Fernandes and Garrett Bradley. The legislation would end referrals that occur with overlapping ownership of labs and their referral source. Soon after, the AG’s Office worked with the bill sponsors and several healthcare providers to ensure that legislative language struck the right balance between preventing fraud in our healthcare system while ensuring cost-effective healthcare options. 

“By closing this loophole, we will save millions each year for taxpayers and our health care dollars can be spent where it should be – caring for those most in need,” AG Coakley said. “I want to thank lead sponsors Senator Finegold and Representatives Bradley and Fernandes for their advocacy, and also commend the House and Senate for including this important provision to protect taxpayers.”

“This legislative language is a huge step forward in combating health care fraud and abuse by addressing the practice of self-referrals and unnecessary or excessive lab tests resulting in the billing of Medicaid to the tune of tens of millions of dollars,” said Representative Bradley.

"I want to commend my colleagues in the Legislature, the Attorney General and other organizations who worked together on this legislation in a collaborative and thoughtful manner."

“I am pleased that the conference committee membership determined that this legislation is urgent, necessary and protective of the public interest,” said Representative Fernandes. “The immediate effect of this report is to address the costly practice of clinical self-referral and impose criminal and civil penalties for non-compliance. It is another step in the right direction to assure that taxpayer money is spent efficiently and appropriately. I wish to thank the Attorney General, as well as my House and Senate colleagues, for their dedication and leadership on this important matter.”

“I am proud to have worked with the Attorney General on legislation that will close a costly loophole and prohibit clinical laboratory self-referrals here in the Commonwealth,” said Senator Finegold. “The inclusion of this language in the fiscal year 2015 budget will help Massachusetts fight fraud and abuse in the health care system and save millions of taxpayer dollars.”

Similar to the legislation, the language included in the budget closes the gap in the law that allows individuals and companies to improperly profit from referrals when they own both the lab and the sober home. Despite the federal government passing a comprehensive anti self-referral law in 1992, Massachusetts law has not previously prohibited these types of conflicted referral relationships. 

It is estimated that the clinical lab self-referral language will save the state’s Medicaid Program (MassHealth) approximately $6.6 million and private insurers more than $18 million annually.

Earlier this year, both the House and Senate included the clinical laboratory self-referral language in each of their budget proposals. The new law, effective July 1, would allow for either civil or criminal penalties for violations of testing samples referred by one’s own referral source, including civil penalties of up to $100,000 for engaging in a scheme to violate the law. Other changes include:

  • Prohibiting referrals, solicitation and testing of specimens when there is an ownership interest between the clinical laboratory and the referral source;
  • Allowing hospitals and physician owned clinical laboratories to continue to refer testing for their own patients, if it is in connection with treatment;
  • Affording provider organizations with the ability to appropriately accommodate ancillary testing services;
  • Requiring disclosure of ownership interests to the Department of Public Health and AGO every 2 years;
  • Establishing a fine of between $5,000 and $10,000 per referral, treble and consequential damages;
  • Mirroring federal civil penalty of $100,000 for entering into a referral scheme and allows for treble and consequential damages; and
  • Like the false claims and anti-kickback penalties, adding sentencing options of state prison for not more than 5 years, house of correction for not more than 2 ½ years, a fine of up to $10,000, or both.

Settlements with seven laboratories through the Attorney General’s Medicaid Fraud Division recouped more than $30 million dollars to MassHealth. Although the majority of cases involved false claims and kickbacks, several of the major clinical laboratories began their businesses by performing frequent testing on residents of sober houses owned, directly or indirectly, by clinical laboratories.

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