Is the DTPA an Unaddressed Danger for Physicians Who Refer to Out-of-Network Laboratories?

Let me present a hypothetical: A physician has a relationship with an out-of-network laboratory. The physician doesn’t see patients covered by federal payers so statutes like the Anti-Kickback Statute or Stark shouldn’t apply. The lab does not rent space in the physician’s office or pay for referrals on commercial insurance patients so EKRA shouldn’t be a concern. The physician has worked with experienced counsel to make sure that sending referrals to this laboratory does not violate any of the statutes that are typically problematic for relationships like these. As may be common, the physician does not advise the patient that his/her sample will be sent to an out-of-network lab. The physician should be able to send referrals to this lab with no problem, right? In the immortal words of Lee Corso on ESPN’s College Football Game Day – “Not so fast my friend!”

The facts above could lead to a situation that implicates a state’s Deceptive Trade Practices Act (DTPA). In Texas, like other states, the primary purpose of the DTPA is to protect consumers against false, misleading, deceptive business and insurance practices, unconscionable actions, and certain breaches. To accomplish this goal, the DTPA prohibits certain acts that would tend to mislead or deceive consumers. Along with enforcement by the state Attorney General, the DTPA offers consumers a private right of action against an offending business.

When it comes to commercial insurance, physicians who fail to notify their patients of the out-of-network lab referral need to be cognizant of the DTPA. Several commercial insurers have administrative policies that require physicians disclose to patients that a referral – including for laboratory services – is being made to an out-of-network provider. For example, Cigna has a Texas-specific out-of-network disclosure form that reads, “The Cigna Out-of-Network Disclosure Form is designed to help ensure that patients with Cigna coverage have the necessary information to make an informed decision about their medical benefits and care. The form must be completed by the referring physician (and not delegated) each time a referral is made to a non-participating health care professional, facility, or other health entity.” The form requires physicians to divulge any financial relationship with the entity where the referral is being sent and suggest a copy of the form be provided to the patient, as well as a copy maintained in the patient’s medical record. Blue Cross / Blue Shield of Texas has a similar form that mandates referring physicians notify patients of the name of the out-of-network lab, disclose of any financial interest, and notify the patient of the name of an in-network option. United Health Care’s disclosure form requires less information, but their policy related to the referral process mandates that the referring physician advise the patient of the financial impact of using the out-of-network lab, including that the patient may be responsible for the entirety of the balance based on their policy. 

Patients whose specimens are sent to out-of-network labs can end up having to pay thousands of dollars out of pocket or risk having the debt sent to collections. Both the higher out of pocket cost and damage to a patient’s credit score constitute actionable damages in a cause of action. The failure of a physician to advise the patient of the lab’s out-of-network status and the patient’s increased potential financial responsibility could subject the physician (and possibly the lab) to liability under the DTPA. As stated above, the DTPA protects consumers from deceptive or misleading business practices. While the DTPA does have provision that excludes professional services; such as those offered by a physician, the DTPA also has exceptions to the exceptions. The Texas Supreme Court, in Sorokolit v. Rhodes, addressed the issue of DTPA actions against physicians. In that case the Court held that the DTPA only precluded suits that were based on a physician’s negligence and a suit based on one of the professional services exceptions could be maintained. The potentially applicable exception – contained in 2 T.A.C. Sec. 17.46(b)(24) – states that it is a violation to fail to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed. 

The aforementioned insurer policies impose a duty upon the referring physician to disclose to a patient that out-of-network status of the lab the physician wishes to refer to and any financial interest the physician may have in the lab. This duty is heightened when it involves a patient that has a policy with no out-of-network benefit. The lack of this type of benefit could result in the insurer refusing to pay any portion of the claim and making the patient responsible for the entirety of the outstanding balance. These disclosure requirements closely track with violations of the DTPA – one that allows for a cause of action to proceed against those that provide “professional services.” Furthermore, the fact that out-of-network charges can eclipse a patient’s typical cost for the services by thousands, logic would dictate that the consumer would not have entered into that transaction had that information had been disclosed.

There are, of course, other factors to be considered. The statute requires that the failure to disclose was intended to induce the patient into the transaction. This is important because in the hypothetical there is no identifiable benefit to the physician for the referral; thus, no real evidence that the failure to disclose was intended to induce the patient to use the out-of-network lab. However, in reality, a physician is likely referring to a specific lab due to some relationship with that lab that results in a benefit to one of the parties. This benefit could likely evidence the reason why the physician or the lab would want to induce the patient into the lab service.

Whether or not it is likely a patient may have the financial resources to move forward with a suit under the DTPA should not affect a physician’s decision to comply with the administrative requirements by commercial insurers to disclose to patients the referral to an out-of-network provider. Failure to do so can subject the physician and/or lab to liability under a state’s DTPA. States are constantly attempting to address issues related to out-of-network providers and balance billing. Texas has recently passed legislation that requires providers and insurers to negotiate payment and leave the patient out of the process. These laws may ameliorate the potential for use of the DTPA; however, not all states have these laws or not all of the laws are currently in effect. The potential for physicians to be liable under the DTPA for their referral practices exists and should be considered when creating a compliance program.

If you have thoughts or a different perspective, feel free to reach out. I always enjoy hearing others thoughts on matters within the industry.

Matt Lawhon

Owner – M B Lawhon Law Firm PLLC

www.mblawhonlaw.com