A Laboratory’s Liability for Medically Unnecessary Lab Tests under the False Claims Act, Part I
By Russell Paul
This article addresses the liability of a diagnostic testing laboratory under the False Claims Act (“FCA”) for conducting lab tests that are ordered by a doctor and submitting claims for payment to government health insurers, such as Medicare and Medicaid, for those lab tests when those tests are not medically necessary to diagnose an illness in the patient or treat the patient’s current medical condition.
“Reasonable and Necessary” Medical Services
The keystone requirement for reimbursement under federal healthcare programs is that only claims for “reasonable and necessary” medical services are covered. 42 U.S.C. § 1395y(a)(1)(A) (“[N]o payment may be made under part A or part B of this subchapter for any expenses incurred for items or services. . . which. . . are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”). This general rule applies to tests performed by laboratories. See generally United States. ex rel. Hobbs v. MedQuest Assocs., Inc., 711 F.3d 707, 715 (6th Cir. 2013) (applying the “reasonable and necessary” standard to diagnostic tests); United States v. Palin, 2016 WL 5941931, at *6 (W.D. Va. Aug. 2, 2016) (same).
A physician includes a diagnostic code, previously known as an ICD-9 code and currently known as an ICD-10 code, on a test requisition form to indicate the current health status of the patient in an attempt to justify the medical necessity of the ordered test(s). An ICD-10 code correlates with a specific condition from which the patient is currently suffering that purportedly warrants performance of the ordered test(s).
Medicare rules and regulations make it clear that tests that are not justified by an appropriate diagnosis are not considered medically necessary and are not reimbursable. For example, the Medicare Claims Process Manual clearly provides, “[t]ests that are performed in the absence of signs, symptoms, complaints, personal history of disease, or injury are not covered except when there is a statutory provision that explicitly covers tests for screening as described.” Additionally, Medicare regulations provide that diagnostic lab tests “must be ordered by the physician who is treating the beneficiary, that is, the physician who furnishes a consultation or treats a beneficiary for a specific medical problem and who uses the results in the management of the beneficiary’s specific medical problem.” 42 C.F.R. § 410.32(a) (emphasis added). Likewise, the Medicare Benefit Policy Manual provides that “[c]linical laboratory services must be ordered and used promptly by the physician who is treating the beneficiary.” These requirements make clear that only tests performed in connection with an appropriate diagnosis (correlated with a specific ICD code) and whose results will be used to treat the patient are reimbursable as “reasonable and necessary” by Medicare.
Lab Tests Must Be Justified By the Diagnosis
In order to ensure that labs do not submit claims for reimbursement for tests when the patient has diagnoses that are random or unrelated to the test and, thus, do not support the medical necessity of the test, the Centers for Medicare and Medicaid Services (“CMS”) publishes a comprehensive guide that provides the specific ICD code “for which Medicare provides the presumption of medical necessity,” i.e. codes for which Medicare provides the presumption of coverage. For example, a presumption of medical necessity exists for certain HIV testing (CPT codes 87536 and 87539) when performed on patients for whom various ICD codes that correlate with HIV, hepatitis, or other similar illnesses are submitted. Id. at 33-34. While CMS has not published required diagnosis codes for the many thousands of tests that labs may administer, the fact that is has done so for certain tests exemplifies its requirement that the diagnosis (conveyed in the form of an ICD code) must specifically justify the test performed for the lab to be reimbursed.
The Lab Is Responsible for Ensuring that the Diagnosis Justifies the Test
The lab – and not the physician or other medical provider who ordered the test – is the entity that actual submits claims to the Government and receives reimbursements. Providers may only bill Government healthcare programs for “reasonable and necessary” medical services, and in submitting claims, providers must certify the medical necessity of the services for which they are seeking reimbursement. In submitting reimbursement claim form CMS-1500 to obtain reimbursement from Medicare or other Federal health care programs, laboratories expressly certify on the back of the form “that the services shown on [the] form were medically indicated and necessary for the health of the patient.” Thus, each time a claim for payment is submitted to a Federal healthcare program, the provider expressly certifies that the services performed were medically justified. See United States ex rel. Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004) (“[C]aims for medically unnecessary treatment are actionable under the FCA.”).
A lab cannot submit to the Government and be paid for a test no matter what diagnosis the doctor gave the patient. See generally United States ex rel. Merena v. SmithKline Beecham Corp., 205 F.3d 97, 99 (3d Cir. 2000) (explaining that the Government reached a settlement agreement with a lab to resolve FCA claims based on allegations that the lab “submitted bills—and received payment—for tests that were medically unnecessary”); Garcia v. Sebelius, 2011 WL 5434426, at *7 (C.D. Cal. Nov. 8, 2011) (“The Secretary’s regulatory scheme places the burden of establishing the medical necessity of diagnostic tests on the entity submitting the claim.”). A lab – like all providers – may only submit claims that satisfy Medicare’s “reasonable and necessary” standard. See Meridian Lab. Corp. v. Sebelius, 2012 WL 3112066, at *1 (W.D.N.C. July 31, 2012) (explaining that “tests are subject to the ‘reasonable and necessary’ requirements found in the Medicare Act”).
Labs are not just pass through entities for a doctor’s orders. If the doctor gives a diagnosis to justify the test that is unrelated to and disconnected from the test, and if the results of the test are not specifically used by the doctor in treating the patient, then the lab cannot perform and bill for the test. In fact, CMS has adopted a comprehensive regulatory scheme that governs laboratory testing (except research) performed on humans through the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”). CLIA, in 42 C.F.R. § 493.1249, which describes quality assurance requirements for labs, imposes an affirmative pre-analytic obligation on laboratories to monitor the medical necessity and completeness of test request information solicited and obtained by the laboratory. CMS describes this laboratory obligation as “monitoring the medical necessity and completeness of test request information solicited and obtained by the laboratory.” Medicare, Medicaid, and CLIA Programs; Laboratory Requirements Relating to Quality Systems and Certain Personnel Qualifications, 68 FR 3640-01, 2003 WL 158514, at 3641 (Jan. 24, 2013) (emphasis added). Thus, CLIA ensures that the lab is not simply a pass through entity for a doctor’s order without any obligations of its own to ensure the medical necessity of its tests. Labs have an affirmative obligation to examine the doctor’s test ordering information and only perform and bill for the test if it is properly justified by the diagnosis.
 See also 42 C.F.R. § 410.32(d)(3)(i) (providing that upon request, a lab must provide CMS with the ICD code provided by the ordering physician); CMS, Clinical Diagnostic Laboratory Services, at 3-4 (Jan. 2016) available at www.cms.gov/Medicare/Coverage/CoverageGenInfo/Downloads/manual201601_ICD10.pdf (providing “codes for those lab test services for which Medicare provides the presumption of medical necessity”).
 Medicare Claims Processing Manual, CMS Pub. 100-4, Laboratory Services, Ch. 16, § 10 (Apr. 29, 2016), available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c16.pdf.
 Medicare Benefit Policy Manual, Covered Medical and Other Health Services Ch. 15 § 80.1 (Oct. 13, 2016), available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/bp102c15.pdf.
 See CMS, Clinical Diagnostic Laboratory Services (Jan. 2016), available at https://www.cms.gov/Medicare/Coverage/CoverageGenInfo/Downloads/manual201601_ICD10.pdf.
 The CLIA regulations include federal standards applicable to all U.S. facilities or sites that test human specimens for health assessment or to diagnose, prevent, or treat disease. The Division of Laboratory Services, within the Survey and Certification Group, under the Center for Clinical Standards and Quality (CCSQ), has the responsibility for implementing the CLIA Program. CLIA considers all entities that perform even one test on “materials derived from the human body for the purpose of providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of the health of, human beings” to be governed by CLIA and must register with the CLIA program. See https://wwwn.cdc.gov/clia/.
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