For Immediate Release - July 14, 2014

AG Coakley Applauds Signing of Budget Measure to Combat Medicaid Fraud into Law

BOSTON – After Governor Deval Patrick signed the Fiscal Year 2015 budget into law, including language of the bill An Act Prohibiting Clinical Laboratory Self-Referrals aimed at eliminating inappropriate self-referral arrangements between clinical labs and sober houses under common ownership, Attorney General Martha Coakley issued the following statement:

“Closing this loophole means MassHealth will save millions of dollars each year,” AG Coakley said. “We’re thankful to the sponsors Senator Finegold and Representatives Bradley and Fernandes for their advocacy and leadership in recognizing this blatant fraud and abuse of our Medicaid system. This new law will help further ensure that our health care dollars will be spent on caring for those most in need.”

BACKGROUND:

In January 2013, the AG’s Office filed An Act Prohibiting Clinical Laboratory Self-Referrals, 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.

Similar to the legislation, language included in the Fiscal Year 2015 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 new clinical lab self-referral law 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, allows 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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