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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

May 8, 2024

Lab Providers Under Increased Scrutiny From Civil and Criminal Agencies for OTC COVID-19 Test Claims

Recent audit, investigation, and prosecution efforts by federal interagency Strike Force teams from the US Department of Health and Human Services Office of the Inspector General (HHS-OIG), Department of Justice (DOJ), and the Federal Bureau of Investigation (FBI) have given laboratory providers ample reason to be concerned, if not fearful. Over the past year, investigators and prosecutors from HHS-OIG, DOJ, and the FBI have ramped up efforts to crack down on laboratory operators for alleged fraudulent billing related to COVID-19 over-the-counter (OTC) testing and other laboratory billing schemes.1The DOJ’s most recent unsealed indictment reveals that three independent laboratory owners were charged with what prosecutors have alleged to be a $36 million scam involving health care fraud, wire fraud, and money laundering related to fraudulent COVID-19 testing claims submitted to government-funded health care programs, including Medicare.2 Other recent prosecutions have included cases against laboratory owners accused of using illegally obtained Medicare beneficiary identification numbers and using those numbers to bill Medicare for OTC COVID-19 test kits.3

In addition to laboratory operators, recent DOJ prosecutions have targeted “marketing companies” contracted to generate leads for laboratory providers and, in many cases, to fulfill beneficiary requests for OTC COVID-19 test kits. Other DOJ investigations have focused on the activities of third-party marketers hired by laboratory providers who subsequently billed for unrelated, unnecessary, and more-costly testing than ordered; failed to gather the required informed consent to receive test kits as well as evidence of delivery; or simply failed to provide test kits altogether.4 In many instances, these laboratory operators may have relied on contracted marketers in good faith, unaware of the potential civil and criminal liability associated with their misuse and abuse of the OTC COVID-19 test kit program. Critically, while laboratory providers may themselves be unaware of these schemes, they may nonetheless be responsible for the marketeers’ conduct and, thus, could be subject to civil or criminal prosecution, recoupments, or both. 

This rise in DOJ investigations has been accompanied by (or, more likely, is the result of) a simultaneous rise in audits by the Center for Medicare & Medicaid Services (CMS) to recoup on claims submitted by laboratory providers. Between 2020 and 2021, Medicare Part B spending on lab testing increased by $1.3 billion—the largest increase in spending since HHS-OIG began monitoring payments in 2014.5 While the increased spending on COVID-19 testing was foreseeable throughout the pandemic, a massive surge in “add-on testing” has heightened government scrutiny of laboratory billing. Labs that have been identified by HHS-OIG as having a high volumes of claims or receiving a high volume of payments for COVID-19 testing with add-on tests (e.g., individual respiratory tests, respiratory pathogen panels, genetic tests, and allergy tests) are being referred by government auditors to CMS under the suspicion of fraud, waste, and abuse.6 This tide of audits (and investigations) suggests that CMS is likely coordinating its efforts with criminal prosecutors to recoup funds paid and to hold providers of laboratory services criminally responsible not just for their own errors but also those of contractors where there is evidence of fraud. 

In short, laboratory providers are under the microscope, and given the significant uptick in criminal and civil cases related to COVID-19 testing, laboratory providers need to be especially aware of the importance of addressing audits quickly and effectively. If your business is the subject of an audit or investigation, attorneys on Barclay Damon’s Health Care Controversies and Health & Human Services Providers Teams can assist you.

If you have any questions regarding the content of this alert, please contact Linda Clark, Health Care Controversies Team co-leader at lclark@barclaydamon.com; Chris Shaw, partner, at cshaw@barclaydamon.com; AbiDemi Donovan, associate, at adonovan@barclaydamon.com; or another member of the firm’s Health Care Controversies or Health & Human Services Providers Teams.
                                                                             

1Strike Force Operations, US Department of Justice, https://www.justice.gov/criminal/criminal-fraud/strike-force-operations (last updated October 6, 2023).
2Press Release, US Department of Justice, Laboratory Owners Charged in $36M COVID-19 Testing Fraud Scheme (April 24, 2024), https://www.justice.gov/opa/pr/laboratory-owners-charged-36m-covid-19-testing-fraud-scheme. 
3Press Release, US Department of Justice, Laboratory Owner Pleads Guilty to $30M Medicare Fraud Scheme, (March 26, 2024), https://www.justice.gov/opa/pr/laboratory-owner-pleads-guilty-30m-medicare-fraud-scheme. 
4Strike Force Operations, US Department of Justice, https://www.justice.gov/criminal/criminal-fraud/strike-force-operations (last updated October 6, 2023).
5Data Brief: Medicare Part B Spending on Lab Tests Increased in 2021, Driven by Higher Volume of COVID-19 Tests, Genetic Tests, and Chemistry Tests, US Department of Health and Human Services, Office of Inspector General (December 2022, OEI 09 22 00400).
6Ann Maxwell, Deputy Inspector General for Evaluation and Inspections, Data Brief: Labs With Questionably High Billing for Additional Tests Alongside COVID-19 Tests Warrant Further Scrutiny, US Department of Health and Human Services, Office of Inspector General (December 2022, OEI 09-20-00510).

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