A Crash Course on Laboratory Testing in Virtual Care

So you’ve created your multi-jurisdictional telemedicine company, built the platform, capitalized the operation, affiliated with one or more professional corporations that have hired clinicians, and developed care protocols to achieve the highest value virtual care.

And now you’re hitting roadblocks. 

Your affiliated clinicians want information from their patients that they can’t access via video consult—blood glucose tests, allergy tests, urine screening, throat cultures. They want access to this information to improve diagnosis and treatment, and oh, by the way, your competitors are already offering DTC tests through their platform. 

Are they gaining the advantage?

Maybe. 

But fear not; their model isn’t proprietary or even secret. 

The lab industry is expanding relationships with telehealth across the board, and while you must construct it carefully, a DTC offering is not beyond your reach. 

There are two primary structures in use in the DTC space: (1) Outsourcing and (2) Insourcing. 

In this article, you’ll gain an overview of each structure, discover the limitations regarding billing and revenue model, and walk away with key operational considerations. 

Spoiler alert: Don’t expect lab testing to be a revenue driver by itself. Many states have laws preventing providers from using lab services to boost revenue. More on that below. 

NOTE: At-home tests like those you can buy online or at a local pharmacy or supermarket are less regulated than laboratory tests and are not the focus of this article. At-home tests are CLIA-waived tests that have a low risk for erroneous results and are generally available over the (digital) counter. They include things like pregnancy tests, COVID tests, and glucose tests. They may be ordered through a telemedicine company website without the need for a physician consult, and results are often delivered directly to the consumer without a test review by a clinician.

DTC Lab Testing Two Ways

Insourcing Lab Testing

In this model, the telemedicine company (or an affiliate of the company) creates its own CLIA-certified laboratory. It ships its own kits and provides lab services without the need to use a third-party vendor. 

Some companies start as laboratories and expand to provide clinical care, but most commonly the reverse is true. 

Insourcing lab testing can create a larger risk of violating self-referral and fee-splitting laws. This is enough to discourage many companies from taking advantage of the model.  

Outsourcing Lab Testing

This is the more popular model, in which a telemedicine company engages with a third-party CLIA-certified laboratory that ships at-home sample collection kits and provides laboratory (test processing) services to the company’s customers upon request. 

In some cases, the tests function as informational, educational, and wellness services. In other cases, tests are intended to be diagnostic and require a physician evaluation and order. 

For some tests that cannot be self-administered, the telemedicine company might engage a mobile phlebotomy provider to collect a specimen (e.g., draw blood) directly from the patient in her home or may direct the patient to an in-person testing center. In-home specimen collection service providers can provide their own laboratory services, or may simply collect and store, then send specimens to a third-party laboratory for processing. 

White Labeling

In both of the above models, DTC testing kits can be white labeled (or “private labeled”)—meaning, their packaging matches the telemedicine company’s branding, and not the branding of the test’s manufacturer.  This requires that both the manufacturer and telemedicine company comply with applicable FDA labeling requirements, which can be complex. This is where you want to lean on experts.  

Building a Direct-To-Consumer Lab Testing Revenue Model

In most businesses, adding synergistic products and services your customers already need is great business—it’s intended to increase or maintain margins, and to increase revenue. 

You have a hair services salon? Add hair care products! 

You own a self-storage business? Sell locks and boxes! 

You run a garage floor coating business? Add garage storage solutions!

In healthcare, however, the ability to generate additional revenue through self-referral can result in the overutilization of services, or referral of patients for unnecessary services. This can create waste, fraud, and adverse patient outcomes. 

So, governments and legislatures have created a menagerie of laws to remove or counteract purely financial incentives to refer patients for laboratory services. These take the form of self-referral and fee-splitting laws, direct billing laws, anti-markup laws, clinical laboratory licensing laws, patient privacy laws, and patient disclosure laws.

If you’re a telemedicine company that wants to create a pathway for physicians to order laboratory testing services, you need to construct your model to comply with the laws of the jurisdiction in which you’re operating. If you’re operating across the country, you may just want to build your model based on the most restrictive state’s laws. 

**A quick note on federal healthcare programs 

For telemedicine companies who bill federal healthcare programs (“FCHP”, e.g., Medicare), it’s important to remember that the Stark Law prohibits self-referral of clinical laboratory services. For this reason, companies using the insourcing model should avoid billing FHCPs for clinical laboratory testing. Telemedicine companies using the outsourcing model should be careful about accepting any discounts for laboratory testing services for patients insured by FHCPs, as these discounts could be seen as kickbacks in violation of AKS. 

FAQ: Building Lab Testing into Your Telemedicine Model

How much can I charge?

In some states, healthcare providers may not “mark up” laboratory services. So, for instance, if a provider purchased laboratory testing services from a third-party lab for $10 per test, the provider could not charge a patient or the patient’s insurance company more than $10 per test. 

Medicare also has an anti-markup provision that is more complex than most state laws. 

Long story short, in states with anti-markup provisions, you CANNOT profit from the laboratory test or service if purchased from a third party. 

Who can I charge?

More than a dozen states have “direct billing” laws that bar a healthcare provider (e.g., a telemedicine provider) from purchasing clinical and/or anatomical pathology lab testing services from a third party and then “re-billing” or charging the patient for that test (“client billing”). Some of these laws are limited to anatomic pathology services and so do not extend to all laboratory service, and some laws are broader. 

In a state with a direct billing law, a telemedicine company could not charge its customers for laboratory testing. Instead, they must connect customers (e.g., via API) to a third-party lab testing company, and customers would pay the lab testing company directly for the services. This prevents practices from realizing a profit on testing by, for instance, charging a patient full price for a laboratory service the physician received at a discount from a third-party lab. 

So, in direct billing states, unless permitted to collect payment on behalf of the third-party laboratory, the telemedicine company cannot simply add the laboratory services fee to the telemedicine services invoice. 

How do I communicate charges to customers?

In some circumstances, states require providers to make certain disclosures related to third-party laboratory testing. These laws may require a healthcare provider to disclose information related to the actual charge by the third-party laboratory, what the provider is billing the patient’s third-party payor, the amount of markup to the lab testing service, and what any additional charges are for, etc. 

Telemedicine companies need to build these disclosures into the telemedicine workflow to ensure they’re made, read, and documented. 

If direct billing is permitted, the telemedicine company can comply with disclosure requirements by including the charge for the lab test and (unless there is an applicable anti-markup restriction), the markup for such test in the user invoice at “checkout”.  

Who can order laboratory tests?

In some states, patients can order certain clinical laboratory tests without an ordering physician. This is called “Direct Access Testing (DAT)”, “Patient-initiated Testing or “Consumer-directed Testing.” More than half of states allow DAT in some form. For telemedicine companies operating in DAT states, no physician initiating visit or order is required. 

In all other states, the laboratory could not initiate testing without a physician’s order. 

There are a few ways to accomplish this in the telemedicine context, depending on state law requirements. The telemedicine company could partner with a laboratory that employs a physician staff member to order the test on the patient’s behalf. In the alternative, the clinician employed by the affiliated professional entity would initiate a telemedicine visit and enter a laboratory order, if determined to be medically appropriate, into the EMR. The order would be transmitted to the laboratory (e.g., via API).

What happens to the results?

Most mature laboratory testing companies have software to automate the ordering and fulfillment of testing. 

In a small number of states, labs are required to send results directly to the ordering clinician. However, in most cases, it is permissible (in some cases required) to send laboratory results directly to the patient. 

Pro tip: When incorporating DTC testing into your platform, you’ll want to ensure you’re complying with applicable interoperability rules regarding timely disclosure of lab results to patients.

Telemedicine companies should work to integrate their platform with the laboratory’s platform to enable real-time transfer of test results into a format readily accessible to patient users. 

Getting Started

If you’d like to supplement your clinical care with clinical or anatomical laboratory services, starting with a clear idea of your payors and the states in which you want to operate is a vital first step. 

Once you understand which laws apply to you, bring in your clinical team, a CLIA-certified third-party clinical laboratory partner, and your platform engineering team, and start to operationalize the process. 

It will include integration with lab software, constructing back-end payment collection and front-end pricing tools. If you plan to scale nationally, you may want to choose the most stringent model (no direct billing, no markup, full disclosure) to apply in all jurisdictions. 

Considering adding direct-to-consumer (DTC) lab testing into your telemedicine model?

Proceed with confidence by choosing the healthcare innovation team at Nixon Gwilt Law to guide the way. 

We’ll help you determine the right lab testing model for your business needs, create a compliant process, and guide you throughout the execution. 

Click here to schedule a brief call to learn more.