Laboratory Fraud: Medical Necessity, Panels and Referral Payments

Medical necessity and standing orders

Federal programs pay for tests that are reasonable and necessary for a specific patient. Standing orders that trigger the same expensive panel for every patient regardless of presentation do not meet that standard.

The pattern shows in the ordering data. A physician whose every patient receives an identical extensive panel, or a laboratory whose test mix is uniform across very different clinical populations, is not exercising individualized judgment.

The recurring schemes

Laboratory economics reward volume and test count, and the fraud follows.

• Unbundling panels to bill components at a higher total
• Adding tests to an order the physician did not request
• Reflex testing performed automatically without a physician decision
• Medically unnecessary genetic and pharmacogenomic panels
• Excessive definitive drug testing where presumptive testing was sufficient
• Waiving copays and deductibles to secure referral volume
• Paying processing or handling fees to referring physicians above fair market value
• Placing phlebotomists in physician offices who perform practice work

Kickbacks are the other half

Laboratory cases very often pair a billing theory with an Anti-Kickback theory, because the volume had to come from somewhere.

Payments structured as processing fees, specimen collection fees, medical directorships, or free equipment and staffing to referring practices are the recurring mechanisms. Since 2010 a claim resulting from a kickback is itself a false claim, so the two theories reinforce each other.

Telehealth-driven ordering

A large share of recent laboratory enforcement involves orders generated by telehealth entities paid per order rather than for care, particularly for cancer genomic panels and pharmacogenomic testing.

Laboratory staff see the concentration: large volumes of identical high-value orders arriving from a small number of ordering entities whose patients have no other relationship with any provider.