Legal Framework For Diagnostics Companies: Navigating Compliance

Diagnostics companies are subject to a range of laws and regulations that govern their operations and ensure patient safety. In the United States, diagnostic tests are classified as medical devices by the Food and Drug Administration (FDA) and are subject to premarket and post-market controls. The FDA classifies these devices into three categories based on the level of regulatory control needed to ensure safety and effectiveness. Additionally, diagnostic companies must comply with laws such as the Health Insurance Portability and Accountability Act (HIPAA) which regulates the handling of electronic health records. Furthermore, there are state laws and the Clinical Laboratory Improvement Amendments (CLIA) that set quality standards for laboratory testing.

The regulatory landscape for diagnostics companies can be complex and dynamic, with a focus on ensuring patient safety and the accuracy of diagnostic tests. It is important for companies in this industry to stay abreast of the applicable laws and regulations to maintain compliance and provide quality services to their patients.

Compliance with the Health Insurance Portability and Accountability Act (HIPAA)

The Health Insurance Portability and Accountability Act (HIPAA) was enacted in 1996 to protect sensitive health information from disclosure without a patient's consent. It establishes federal standards that covered entities must follow to safeguard protected health information (PHI). Covered entities include healthcare providers, health plans, healthcare clearinghouses, and business associates.

The HIPAA Privacy Rule outlines the guidelines for the use and disclosure of PHI. It gives individuals the right to understand and control how their health information is used and sets standards for individuals' rights to access and correct their PHI. Covered entities must obtain written authorization from individuals before disclosing their PHI, except in specific situations such as treatment, payment, and healthcare operations.

The HIPAA Security Rule complements the Privacy Rule by focusing on protecting electronic protected health information (ePHI). It lays out administrative, physical, and technical safeguards that covered entities must implement to secure ePHI. This includes ensuring the confidentiality, integrity, and availability of ePHI, protecting against unauthorized access, and establishing security protocols for workforce members.

HIPAA also includes the Transactions and Code Sets Rule, which standardizes healthcare transactions and electronic data interchange (EDI) to improve efficiency in the healthcare system. The Unique Identifiers Rule mandates the use of the National Provider Identifier (NPI) to identify covered healthcare providers.

Non-compliance with HIPAA can result in civil and criminal penalties, including fines, imprisonment, and loss of license. Covered entities should regularly review their policies and procedures to ensure compliance with HIPAA requirements and protect patient privacy.

Diagnostic testing centers, which play a crucial role in healthcare, must also adhere to HIPAA regulations when handling patient information. They regularly receive electronic requests from physicians and send back test results, so it is essential to obtain patient consent and ensure secure transmission of data to comply with HIPAA.

Understanding the Stark Law

The Stark Law is a set of United States federal laws that prohibit physician self-referral. In other words, it is unlawful for a physician to refer a Medicare or Medicaid patient to a designated health service (DHS) entity if the physician or their immediate family member has a financial relationship with that entity. The term "referral" here means the request by a physician for an item or service for Medicare Part B services. A "financial relationship" includes ownership, investment interest, and compensation arrangements.

The Stark Law was initially introduced in 1988 by United States Congressman Pete Stark as the "Ethics in Patient Referrals Act" bill concerning physician self-referrals. This bill later became law in 1990 as part of the Omnibus Budget Reconciliation Act, which prohibited physicians from referring Medicare patients to clinical laboratories if they or their family members had a financial interest in said laboratory. The law was then expanded in 1993 to include Medicaid patients and other DHS entities, such as radiology and imaging services.

The Stark Law is an essential law that prevents fraudulent and unnecessary testing, referrals, and medical services. It ensures that physicians refer patients to a DHS based on the patient's best health interests rather than the financial benefit to the physician or diagnostic center. Violations of the Stark Law can result in fines, exclusion from federal healthcare programs, and even imprisonment.

There are several exceptions to the Stark Law, including referrals to another physician in the same practice, in-office ancillary services, and referrals to family members for DHS in rural areas. It is important to note that the Stark Law is a strict liability statute, meaning that a defendant is liable for their actions without proof of specific intent to violate the law.

To summarise, the Stark Law is a critical piece of legislation in the United States that helps maintain the integrity of the healthcare system by preventing conflicts of interest and promoting patient-centric care.

Complying with the Anti-Kickback Statute (AKS)

The Anti-Kickback Statute (AKS) is a federal law that prohibits offering or accepting kickbacks intended to generate healthcare business. The AKS is a criminal law that applies to a broad range of participants in the healthcare system, including doctors, patients, procurement staff, and marketing/advertising/sales staff. The AKS prohibits the solicitation, receipt, offer, or payment of kickbacks in the form of remuneration, which is defined as anything of value, including discounts, rebates, and waivers of copayments. Violation of the AKS is a felony, punishable by up to 10 years in jail and fines of up to $100,000 per violation.

To comply with the AKS, healthcare businesses and professionals should avoid any form of kickbacks, including monetary payments, free medical equipment, appliances, gadgets, office space, workshops, seminars, high compensation for medical directorships, investor shares, and waivers of copayments. It is important to note that the AKS prohibits kickbacks for referrals to services or items reimbursed by federal healthcare programs, such as Medicare and Medicaid.

In addition to the prohibitions, the AKS also provides safe harbors, which are exceptions to the law. These safe harbors include bona fide employment, personal services and management contracts, discounts and rebates, space rental, and copay and deductible waivers. To utilize these safe harbors, certain conditions and requirements must be met. For example, compensation for personal services and management contracts must be set in advance and consistent with fair market value, and must not be based on the volume or value of referrals.

Healthcare businesses and professionals can also structure their arrangements and joint ventures to fit within the safe harbors established by the AKS. These include safe harbors for certain small investments, group purchasing organizations, investments in publicly traded entities, personal services and management contracts, and space and equipment rentals. Compliance with these safe harbors demonstrates a good-faith effort to abide by the AKS.

Furthermore, it is important to be aware of state anti-kickback laws, as most states have their own version of the AKS. For example, California bars licensed persons, such as physicians, from offering, delivering, receiving, or accepting remuneration as compensation or inducement to refer patients, and this prohibition applies to all payors, including commercial insurance payors. Understanding and complying with both federal and state anti-kickback laws are crucial for healthcare businesses and professionals to avoid legal consequences and maintain ethical standards in the industry.

Complying with the Clinical Laboratory Improvement Amendments of 1988 (CLIA)

The Clinical Laboratory Improvement Amendments of 1988 (CLIA) establish quality standards for laboratory testing and an accreditation program for clinical laboratories to ensure quality and accuracy in medical testing and patient care. CLIA is a federal program that regulates laboratory testing and requires laboratories to be certified by the Centers for Medicare and Medicaid Services (CMS) before they can accept human specimens for diagnostic testing.

Requirements and Compliance

CLIA requirements vary depending on the complexity of the testing process and the potential risk of harm from erroneous test results. There are three categories of testing defined by CLIA:

• Waived tests: These are simple tests with a low risk of erroneous results and minimal regulatory control. Examples include basic tests like urinalysis or pregnancy tests.
• Tests of moderate complexity: These tests are more complex and have a higher potential for harm if errors occur. Examples include most routine chemistry tests and microscopic examinations.
• Tests of high complexity: These are the most complex tests with a significant risk of harm if errors occur. Examples include advanced molecular and genetic tests.

Laboratories performing waived tests have minimal regulatory requirements, while those conducting tests of moderate or high complexity must comply with specific standards and may be subject to inspections.

Certification and Standards

Laboratories must obtain CLIA certification by registering with CMS and meeting specific standards. The standards address various aspects of laboratory operations, including:

• Personnel qualifications and competency: Laboratories must ensure that staff performing tests are qualified and competent, following established procedures and participating in ongoing training.
• Quality assurance and quality control: Laboratories must implement quality assurance programs and maintain proper quality control measures to ensure the accuracy and reliability of test results.
• Proficiency testing: Laboratories performing moderate or high complexity tests are required to participate in proficiency testing programs to assess their performance and accuracy.
• Patient test management: Laboratories must have systems in place to manage patient specimens, ensure proper test selection, and handle test results appropriately.
• Inspection: CMS or its agents may conduct inspections to verify compliance with CLIA standards and identify areas for improvement.

Enforcement and Penalties

CLIA has enforcement mechanisms in place to ensure compliance with its standards. Laboratories found to be non-compliant may face penalties, including fines, suspension of payments, or even revocation of their CLIA certificate. CMS also has the authority to inspect laboratories and take corrective actions if deficiencies are identified.

Updates and Changes

CLIA regulations are subject to updates and changes over time. In July 2022, CMS published final rules related to proficiency testing regulations, addressing analytes and acceptable performance. These updates aimed to improve the accuracy and reliability of laboratory testing by revising the list of required proficiency testing analytes and making technical changes to proficiency testing referral regulations.

Complying with the Federal Food, Drug and Cosmetic Act (FD&C Act)

The FD&C Act covers a wide range of areas, including:

• Definitions of food, drugs, devices, cosmetics, and tobacco products
• Prohibited acts and penalties
• Food standards and requirements
• Drug and device standards and requirements
• Cosmetics standards and requirements
• Imports and exports
• Miscellaneous provisions

The FD&C Act also outlines the role of the FDA, including:

• Mandating drug manufacturers to submit evidence of new drugs' safety and effectiveness before marketing and distribution to the general public
• Issuing and enforcing quality standards for food, drugs, medical devices, and cosmetics
• Inspecting facilities where food, drugs, medical devices, cosmetics, and tobacco products are manufactured, processed, packaged, and stored
• Recalling and/or seizing products deemed unsafe or not FD&C Act-compliant
• Regulating advertising of prescription drugs and medical devices
• Issuing regulations for product labelling and claims, including nutrition information on food packaging and health claims for foods and dietary supplements
• Approving new drugs, medical devices, and food and colour additives

Frequently asked questions