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Staying on Top of Medical Necessity and Marketer Compliance

by , | Mar 25, 2024 | Compliance Perspectives-lca, Enforcement-lca, Essential, Lab Industry Advisor

Recent enforcement actions show that clinical laboratories must remain vigilant about compliance relating to these areas

Recent enforcement actions have made clear that fraud, waste, and abuse is a continual concern of regulating agencies for the healthcare space, including for clinical laboratories. Reports by the U.S. Department of Health and Human and Services (HHS) Office of Inspector General (OIG) and the U.S. Department of Justice (DOJ) in late 2023 highlighted their continued focus on clinical laboratories.

The OIG released its annual data snapshot and review of spending on clinical laboratory tests in December 2023, highlighting expenditures in 2022. While there has been an increase in diagnostic laboratory test spending since 2014, the first substantial decrease occurred in 2022. Total Medicare Part B spending sharply decreased from 2021 to 2022, from $9.3 billion to $8.4 billion, due largely to decreases in COVID-19 and genetic testing.1 Notably, spending on genetic tests payable by Medicare Part B decreased by 26 percent in 2022. The OIG report explained that the decrease in genetic test expenditures was due to a 69 percent decrease in molecular pathology tests that have “received scrutiny due to potential fraudulent billing activities by providers,” referencing its fraud alert from 2021.1

In addition, the HHS and DOJ released their Health Care Fraud and Abuse Control Program Annual Report for fiscal year 2022 in late 2023, focusing on healthcare fraud related to clinical laboratories and telemedicine, among other issues. The report discussed the continued enforcement focus on opioid fraud and abuse, COVID-19 fraud, and “unnecessary laboratory testing.” It also discussed the 2022 national enforcement action, “wherein criminal charges were brought against 36 defendants, in 13 federal districts across the United States, for more than $1.2 billion in alleged schemes that involved fraud committed using or exploiting telemedicine, cardiovascular and cancer genetic testing, and durable medical equipment.”2

These reports and data demonstrate the government’s continued focus on clinical laboratories, particularly with the significant expenditure as part of the overall healthcare spend in the United States. Enforcement actions over the last several years have focused on medical necessity, payment to marketers, kickbacks, and general relationships between laboratories and referring entities/providers.

Medical necessity

A common theme in these reports is the government’s concern about whether testing is appropriate and medically necessary. To be payable under Medicare, the services must be “reasonable and necessary for the diagnosis and treatment” of the condition, and the ordering provider must be treating the enrollee for a specific medical problem and use the results of the test in the management of that problem.3 Though the actual determination of medical necessity lies with the ordering provider, laboratories have a role in ensuring that they are performing and billing for only medically necessary tests. These duties may extend to the design of laboratory requisitions,4 testing panel design, testing frequency, marketing materials, and other policies and procedures.

Clinical laboratories should approach their relationships with ordering providers not only as prospective accounts but with the mindset of establishing partnerships. Laboratories have a unique role that requires them to depend on ordering providers in numerous ways to ensure that testing is medically necessary and billed appropriately. Additionally, it is critically important that laboratory departments (e.g., billing, accessioning, sales, and marketing) are not siloed and instead function cohesively.

Laboratories may consider it a best practice to obtain medical records from ordering providers and ensure that the ordering provider is documenting the need for clinical laboratory tests and using such tests in the treatment of patients. New accounts can be vetted to ensure the legitimacy of the ordering provider and their relationship with patients, particularly if it involves the ordering provider using telemedicine. Given the special fraud alerts regarding telemedicine, health fairs, and people improperly obtaining patient credentials over the past few years, this is an important part of the laboratory process. Finally, a review of a laboratory’s test menus and requisition form design can aid in ensuring that ordering providers have the option to order individual tests, and not be limited to panels, and therefore to ensure that testing ordered is medically appropriate for each patient.


Ensuring appropriate relationships with ordering providers requires the participation of sales and marketing individuals, who often serve as account managers. For decades, the OIG has expressed concern regarding the potential for abuse based on the role of marketers in the laboratory. Although the OIG has long been concerned about payments to marketers, until recently there was little enforcement focused on marketer commissions. However, there has been a noticeable trend of enforcement actions related to commission-based marketing arrangements.

For example, on February 28, 2024, the DOJ announced a guilty plea by the owner of a clinical laboratory for payment of commissions to independent contractor sales representatives who recommended medically unnecessary urine drug tests and respiratory pathogen panels.5 The owner of the laboratory also entered into a civil settlement to resolve allegations related to the payment of commissions and conduct by sales representatives who completed test requisitions using forged signatures and sham diagnosis codes.5 In addition, on January 10, 2024, the DOJ announced that a now-defunct laboratory and its owner/CEO agreed to pay the United States and the state of New Jersey more than $13 million and cooperate in the DOJ’s ongoing investigation.6

Laboratories may wish to take preventive steps to ensure that their marketing and sales forces are vetted and trained on compliance and potential risks for fraud and abuse. Marketers, who act as front-line representatives for laboratories, can ensure that only treating providers order tests and that those providers intend to use test results in the management of patients. In addition, marketers’ training in the laboratory’s compliance policies and procedures and the ability to communicate those policies effectively and accurately to prospective and current accounts could forestall future problems; a system to approve marketing messages and materials used by sales representatives can also be helpful. Finally, a laboratory may wish to consider reviewing its compensation plans with the marketing and sales force to ensure compliance with all applicable laws, particularly with respect to payments based on volume of specimens or value of sales.

Avoiding compliance issues           

Medical necessity and marketing are just a few areas of compliance concern. A laboratory may want to ask broader questions of whether relationships are commercially reasonable, make objective sense, and assess the purpose of any proposed relationship. An investment in a laboratory’s compliance and auditing functions, ensuring that they are well designed, applied in earnest and in good faith, and provide an active, functional set of policies and procedures may be the best recipe to avoid disaster.


    1. U.S. Department of Health and Human Services – Office of Inspector General, Data Snapshot: Medicare Spending on Clinical Diagnostic Laboratory Tests in 2022, OEI-09-23-00350 (Dec. 2023), available at https://oig.hhs.gov/oei/reports/OEI-09-23-00350.pdf . The OIG also noted that four genetic tests still account for the top 25 tests, including testing for colorectal cancer (#6), breast cancer (#18), cancer (#19), and solid organ cancer (#24).

    1. U.S. Department of Health and Human Services and the Department of Justice (2023), available at https://oig.hhs.gov/publications/docs/hcfac/FY2022-hcfac.pdf

    1. 42 C.F.R. § 410.32(a)

    1. Missouri Laboratory Owners Agree to Pay $1.9 Million and Relinquish $7 Million in Escrow in Settlement of Civil Fraud Claims, U.S. Dep’t of Justice (July 31, 2023), available at https://www.justice.gov/usao-edmo/pr/missouri-laboratory-owners-agree-pay-19-million-and-relinquish-7-million-escrow  (owners of a Missouri laboratory agreed to settle allegations that it billed for upper respiratory infection and urinary tract infection tests that were not medically necessary allegedly due to a requisition form that prohibited ordering practitioners from making an independent medical necessity decision about the laboratory tests).

    1. Georgia Laboratory Owner Pleads Guilty to Felony Charge and Pays $14.3 Million to Resolve Liability Relating to Kickbacks and Unnecessary Testing, U.S. Dep’t of Justice (Feb. 28, 2024), available at https://www.justice.gov/opa/pr/georgia-laboratory-owner-pleads-guilty-felony-charge-and-pays-143-million-resolve-liability

  1. New Jersey Laboratory and Its Owner and CEO Agree to Pay Over $13 Million to Settle Allegations of Kickbacks and Unnecessary Testing, U.S. Dep’t of Justice (Jan. 10, 2024), available at https://www.justice.gov/opa/pr/new-jersey-laboratory-and-its-owner-and-ceo-agree-pay-over-13-million-settle-allegations

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