Clinical labs are increasingly in the crosshairs of federal investigations and prosecutions following the Covid-19 pandemic. Recently, the Department of Health and Human Services Office of Inspector General detailed the government’s enforcement road map in a report and data brief, signaling more scrutiny to come.
Both publications confirm that clinical laboratories will likely be subject to enhanced investigations and enforcement actions—civil and criminal—based on allegations of unnecessary services, fraudulent billings, and kickbacks to induce patient referrals.
The number of Covid-19 tests performed by US labs was astronomical in the past three years, due to critical and novel public health challenges presented by the Covid-19 virus and government policies to identify and manage the pandemic.
Public demand for tests during this period was so high that, at times, it outstripped testing supply for labs nationally. All told, the high demand for testing corresponded with a significant increase in government reimbursement.
As cited in the OIG data brief, Medicare Part B spending on laboratory tests increased from $8 billion in 2020 to $9.3 billion in 2021.
Naturally, an increase in paid funds from the government also means more government scrutiny. The OIG recently conducted a national study of labs that billed Medicare Part B for performing Covid-19 tests in addition to diagnostic (add-on) tests on patients.
The study analyzed reimbursement for Covid-19 and add-on tests, such as individual respiratory tests, respiratory pathogen panels, genetic tests, and allergy tests to identify “outlier labs.”
The OIG found that with 2020 Covid-19 testing, 56% of the labs did not bill for any additional tests, and the remaining 44% billed for at least one additional test.
The OIG identified 378 labs—less than 2%—out of almost 20,000 that billed Medicare Part B for add-on tests at “questionably high levels” in either volume, payment amount, or both related to Covid-19 testing claims.
Some increased testing resulted from changes made by the Centers for Medicare & Medicaid Services in response to the threat posed by the spread of Covid-19, such as eliminating the practitioner order requirement for certain tests and expanding coverage to other respiratory tests.
But the relatively large number of add-on tests and/or high reimbursements raise questions of potential fraud or abuse.
And while the 378 outlier labs comprise less than 2% of the total number of labs that billed Medicare Part B, the total reimbursement effect in 2020 was over $67 million for the add-on tests.
As a result of the analysis in the OIG report, the office has referred those 378 outlier labs to CMS for further review. It is anticipated that additional labs beyond those outliers may also be the subject of government scrutiny, including an increase in prosecutions against labs under the False Claims Act. Penalties under the FCA include convictions, administrative sanctions, and/or civil penalties, which means the recent focus on prosecutions relating to labs will only continue.
As a result of the Covid-19 pandemic, CMS granted labs more flexibility in ordering Covid-19-related tests. For example, CMS removed some of the requirements for a physician’s order for diagnostic respiratory add-on tests in response to the pandemic, as those tests may be legitimately required to rule out or confirm Covid-19 from other illnesses that may present symptoms similar to Covid-19.
Now, the government is grappling with the results of policies it set in motion in response to the pandemic—which includes an apparent increase in fraudulent claims—and is attempting to reverse course.
In doing so, OIG appears to be shifting responsibility, at least in part, not just on tests that are within a lab’s control, but also on tests that have been ordered by physicians, thereby requiring labs to independently question the medical necessity of certain tests ordered by a physician.
However, clinical labs are not typically able to review patient charts before running tests. Even if this were possible, individuals processing the lab tests are not qualified to determine which tests may or may not be medically necessary.
Lab staff are similarly unable to independently determine which tests should not be run because they may be deemed fraudulent, or identify tests that, while seemingly unnecessary, remain within the physician’s sole discretion to order.
To minimize risks associated with this closer scrutiny, labs must be diligent in monitoring patterns to ensure physicians are not routinely ordering the same set of add-on tests for each patient, without assessing individual necessity for the test.
Additionally, labs should request appropriate documentation to support the add-on tests as part of a robust compliance program. Labs should reassess their compliance programs and operations anew given this new enforcement environment.
Overall, OIG conclusions offer yet another indicator that the government is ultimately focused on the entities submitting claims—the labs—in aggressively seeking to identify fraud, waste, and abuse of federal funds.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Mark W. Bina is an office managing partner at Quarles & Brady and co-chair of the health care litigation team. He represents clients in dispute resolution, health regulatory, licensing, and compliance matters.
Kirti V. Reddy is a partner at Quarles & Brady and co-chair of firm’s clinical laboratories subgroup. She was previously an Assistant US Attorney for the Southern District of New York, Civil Division, and has extensive experience in government investigations and federal civil litigation.
Jaya F. White is chair of the Quarles & Brady health law practice group and co-chair of the firm’s clinical laboratory practice group. She advises health-care clients on fraud and abuse, privacy issues, and other regulatory, compliance, and transactional matters.