Blood Money – FWA in Pathology

Dr Simon Peck

In his classic book “License to Steal – how Fraud Bleeds America’s Health Care System” Malcolm Sparrow observed that in the hands of those who would steal there are few commodities as valuable as a vial of blood. He is certainly right about that – pathology and blood tests are a huge source of Fraud, Waste and Abuse (FWA).

One of the inbuilt problems in fee-for-service medicine is over-servicing. The reason is self-evident – the more services billed, the greater the profit. Most medical providers would of course not chop off limbs or perform dangerous surgery for the sole purpose of generating revenue. It is much more common to overperform services that are less invasive, such as administering a particular test more frequently that is medically warranted.

Over a career of nearly 25 years, I have observed that areas of medicine most prone to over-servicing are the ones where:

1. Profit margins are high
2. Where there is a great deal of discretion left to the provider
3. The potential for patient harm is low (thankfully!)

Very few areas tick these boxes more thoroughly than pathology, in particular different types of blood tests.

Profit Margins

Margins in blood testing can be high as routine blood tests are extremely cheap to perform. Full blood counts (FBC), urea and electrolytes (U&E), liver function tests, haemoglobin (HbA1C) can be done for £5 or less. The mark-ups are often significant and the tests may be charged at ten times this amount. I have seen FBC charges in London of £200 – nearly forty times the cost. Consequently, profit margins in private pathology are huge and, in many jurisdictions including the UK, prices are rarely challenged.

Discretion

There is enormous discretion in the use of blood tests – it’s very easy to justify the use of blood tests in any individual patient. I could construct a plausible argument for testing any patient with most of the common blood tests. I might struggle to explain a bill for complement levels in a patient having an appendicectomy, but would anyone seriously argue if I did an FBC, U&E and HbA1C? Tens of thousands of these assays are performed each day; very rarely does anybody have the time or the inclination to verify whether they are medically appropriate or necessary.

Patient Harm

There is virtually no harm to patients in taking blood. Venepuncture for most of us is a momentary discomfort. And once the vein has been punctured, it makes no real difference to the patient whether that blood is used for a single test or a huge battery of tests. Some tests require special bottles but there are significant numbers of tests that can be run on a 10ml clotted blood sample. Furthermore, many SMA machines store the serum and further tests can be requested over the next 24 hrs or so without the patient even knowing. A rogue provider can generate money with the push of a button. The worst rogues do not even bother to perform the tests instead pouring the blood down the sink. In the US, this practice is in fact referred to as sink testing.

Little wonder then that abuse in the area of blood testing is one of the most common findings when we analyse claims data from clients.

Types of Abuse in Blood Testing

Now that we have discussed why blood tests are a prime candidate for FWA, let us break down the different kinds of FWA in detail. Here are a few that crop up quite often:

1. Abusive pricing
2. Unnecessary testing (sink testing)
3. Manipulation of order forms or profiles
4. Setting analysers out of synch with order forms
5. Unbundling of test profiles
6. Incentives and kick backs
7. Tests of no clinical value
8. Bogus laboratories

Abusive pricing

This is a very common form of abuse, especially in and around London. As indicated above, I have seen blood tests billed at forty times the real cost. The practice of gross overpricing tends to be strongly linked with over-ordering and financial interests given to doctors who are ordering the tests – a tactic commonly used in the past by hospitals to secure this stream of revenue.

Once agreed these inflated prices can be almost impossible to deal with as a whole industry of vested interests then develops around sharing the profits. The huge profits then drive many of the other abuses such as those I have listed below.

The single best piece of advice I would give to healthcare managers is never to enter into contracts that allow providers to make super-profits in certain areas of that contract, even if discounts are offered elsewhere. Even though on average the prices might look reasonable, the existence of super-profits anywhere in the contract provides an incentive to overuse the most profitable services, thus skewing the entire usage under the contract.

Unnecessary Tests

Because of the high profitability of blood tests, over-ordering is rife. Over the years I’ve tackled some egregious examples. Usually, speaking to labs directly is pointless – even when they encourage over-servicing they simply blame the doctor. So, I hit on a solution of targeting the doctor concerned. If a clinician ordered a huge numbers of tests, I would call them directly and ask them to justify individual tests in a sample of patients on a test-by-test basis. I would also ask them to explain what kind of results they were looking for and how an abnormal test would alter patient management. Most could not articulate their reasons, especially the ones who repeated tests that had yielded a normal result in the first place. Some doctors were shamed into changing their behaviour, others had other sanctions applied.

In addition to keeping an eye on individual clinicians, some hospitals set up protocols for testing. These protocols should be critically reviewed before signing a contract with the hospitals and challenged as appropriate. I have seen hospitals whose daily protocols include batteries of unnecessary tests which are automatically ordered with no medical input.

There are many publicly available resources which can be used to sanity-check ordering of blood tests. For example, the Royal College of Pathologists publish guidelines for repeat testing intervals and NICE publish best practice for preoperative testing. These can be useful in challenging unreasonable behaviours.

Order Form Manipulation

One of the things that I see a lot in the fee-for-service sector is manipulation of order forms. A standard order form typically allows for certain common test profiles – namely things like:

1. Urea and Electrolytes
2. Full Blood Count
3. Liver Function
4. Bone Profile

Apart from the above, most other tests should be listed individually. However, I often see order forms where there are boxes such as “haematology and biochemistry profile”, “Wellman profile”, “prostate profile” or any such variations. These profiles are often set up to make it convenient for a busy doctor to order all the tests he wants. Unfortunately, quite often ordering a profile adds in expensive tests that are not usually needed – lipids, iron and TIBC, thyroid function tests (not just TSH but often T3 and T4 as well). Ordering of unnecessary tests leads to overconsumption of resources. It will not surprise anyone to learn that the additional tests ordered along with common tests are often overpriced as well. One case I looked at had magnesium assays added in at 2,000% markup.

This type of scam was rife in the US until the FBI launched operation Labscam – an operation that recovered over USD 800 million worth of overbillings from clinics that had abused the Medicare system. A list of the companies sanctioned is available online and disappointingly includes some well-known household names.

In the UK, there has never been an equivalent of operation Labscam – over here, this type of scam is still alive and kicking.

Creative Test Configurations

This is an elaborate and less common variation of Order Form Manipulation. I once visited a lab which had programmed tests machines with two different sets of configurations – one for the insurer for the purposes of contract pricing and another one that the doctors used to configure tests.

Based on the test configurations, the insurer would think the test panels are reasonably priced. However, there was a catch: the insurer would never just be billed for the contracted test configurations. Instead, the lab would run a different (and more expensive) pattern of tests when carrying out a service, often spanning multiple contracted test panels, thus triggering payment under each.

Unbundling of Test Profiles

Some tests cannot be ordered separately. For example, there is no Coulter Counter machine on the market that I am aware of that analyses the component parts of a FBC separately.

The parts of FBC are:

1. Hb (Haemoglobin)
2. RBC (Red Cell count)
3. WBC (White Cell Count)
4. Platelets (Platelet Count)
5. MCV (Mean Cell Volume)
6. MCH (Mean Cell Haemoglobin)
7. MCHC (Mean Cell Haemoglobin Concentration)
8. 5-part differential (analyses the types of white cell)

Despite it being impossible to run the tests separately (as there is no equipment to do so), dishonest labs bill these components separately at higher costs than the FBC. Or worse still, first bill for the FBC and then for each the components independently. Most labs are aware that the average claims assessor does not know what a differential or MCV is, and hence are not likely to question the validity of the claim.

Test panels that are particularly open to this type of abuse are:

1. U&E
2. Liver Function tests
3. Bone Profile
4. Coagulation profile/Clotting screen
5. And any bespoke profiles agreed with the payor

Incentives and Kickbacks

In 2003, my team carried out an investigation into kickbacks and incentive payments. Some of the findings from the investigation included:

1. Cash commissions – some doctors received a monthly commission payment from the clinics, in some cases adding up to tens of thousands per annum. In the case of one lab, 50% of the total amount billed was paid out as a kickback.
2. Billing tests to the doctor’s office at a discount to the insurance rate – these were then marked up to the agreed rate and billed on to the insurer giving an effective back-door commission to the doctor.
3. Billing the insurer for services like phlebotomy or administration at inflated rates – these charges then being passed to the doctor. This is a back door kickback scheme.

The damages were not limited to the insurance company; in some cases, patients were affected too. There were instances where patients had to travel hundreds of miles to go to a lab where the doctor had a financial arrangement when perfectly good facilities were also available locally.

Most of these arrangements are now illegal but the law is still widely flouted and sadly rarely enforced.

Tests of no Clinical Value

Unfortunately, the weak regulation of labs means that certain labs continue to offer tests of no clinical value whatsoever – hair analysis for allergy, environmental toxins and many others. These tests are often combined with a treatment package for the non-existent pathology. There are a small number of notorious rogue operators in the UK. Surprisingly, these operators are fully accredited – they perform genuine tests as well as offering bogus tests on the side. About ten years ago, I tried to challenge the accreditation process to ensure that accredited clinics would be required to perform only genuine tests of clinical value. However, the stance of the accreditation board to this day remains that if a lab performs some genuine tests, they will receive full accreditation for these services. Furthermore, there is no requirement to highlight that only a part of their services is covered by the accreditation. I suspect I am not the only person who finds the stance puzzling and misleading; nonetheless that remains the official position of the accreditation board to this day.

Bogus Laboratories

About 15 years ago my team discovered an odd-looking invoice. The invoice had several features that suggested the originating clinic was not entirely bona fide. A google earth search of the premises suggested that the clinic in question was set up on farmland. There were no buildings that looked like a laboratory. The billing address, separate from the clinic’s address, pointed to a nearby housing estate.

Surveillance of the lab revealed that livestock were housed in the buildings and a visit to the billing office showed it was indeed a private house.

There were several layers of fraud involved, but roughly the scheme was set up as follows:

1. There originally had been a genuine lab
2. After the lab closed, the courier continued to collect samples
3. The courier paid the owner of the building to use the address as a maildrop
4. Some tests were processed in a genuine lab and marked up
5. Other tests may not have been performed at all
6. The people involved were all known to each other

It was very difficult to piece together the full story as the parties involved refused to cooperate. With little interest from the police, we referred the matter to the tax authorities criminal investigation division. All subcontracted lab services must be VAT-registered by law. The farm operation was not, and they stopped operating immediately. As an investigator you don’t always get to choose the tools – you just have to make the most of the tools you’ve got. We were in good company; Eliot Ness nailed Al Capone on tax grounds too!

A search of our database revealed a number of other bogus clinics. Some, like the example above, were simple mark-up scams with a physical façade, while other clinics did not exist at all. A decision was taken to exclude all providers who could not show us evidence of accreditation.

Dealing with FWA in Pathology

FWA in Pathology is pervasive. It takes many forms and fee-for-service setup makes it virtually impossible to complete eradicate. Nonetheless, an insurer can disincentivise clinics by adopting appropriate strategies from the get-go. Some of my favourite strategies for preventing pathology-related FWA include:

1. Not making contracts which allow excessive profits even if this is “offset” by favourable rates elsewhere – the potential for abuse in this area is huge and almost unlimited. The savings in other areas are spurious.
2. Not contracting for test panels or with laboratories which bundle tests into panels. Aside from the common test groups tests should be ordered and billed singly. The “savings” from panels are also spurious if they are based on savings on tests which would not otherwise have been ordered.
3. Ensuring that any panels in contracts are carefully defined to stop unbundling. For example, a U&E contract could read as follows: “U&E includes all or any of serum Na, K, urea, Cl, creatinine, bicarbonate and anion gap.”
4. Ensuring the contract precludes any kickbacks or commissions to doctors including reimbursement for phlebotomy and administrative services. No service provider should ever be allowed to bill a payor for services and then return that payment to the doctor prescribing the service. This is the essence of a kickback.
5. If possible, including a reasonable level of pathology charges in daily or package rates reducing the scope for these to be charged as extra.
6. Looking specifically at preoperative testing and repeat pathology testing against publicly available benchmarks. Most preoperative testing is unnecessary.
7. Regularly checking the total cost of pathology against the total amount billed. In the UK public sector I have seen various figures from 3-5%. I have seen costs in excess of 20% of the total billing in some settings. The higher the figure, the more likely you are to have a problem.
8. Making sure your providers physically exist and has a genuine laboratory! Look for signs of accreditation, check addresses and whenever possible visit them to verify they are genuine.

Do you have experiences in detecting FWA in pathology or other areas of healthcare? We would love to hear your comments.

We are always happy to arrange a live demo to demonstrate the platform – we are here to assist you with any queries you may have.

Kirontech Health Insurance Platform

Kirontech Health Insurance Platform (HIP) offers in-depth analysis and FWA detection across multiple areas of healthcare. Pathology is one area where anomalies are frequently found.

HIP is a dynamically adjusting, state-of-the-art system built from ground up to tackle FWA in healthcare claims. The dynamic nature makes gaming the system exceedingly hard, which sets us apart from traditional rule-based systems.

The FWA detection suite itself comprises a vast range of algorithms and processes, such as treatment paths, statistical outliers, custom rules, integrity checks against a medical corpus, in-depth case validation using advanced pattern recognition techniques, and many more. We also offer real-time tests for a range of issues such as unbundling.

Dr Simon Peck, Chief medical Advisor, Kirontech UK Ltd