A diagnostic laboratory headquartered in Indianapolis, Indiana, agreed to pay the United States $9,620,000 to resolve allegations that it violated the False Claims Act and the Anti-Kickback Statute (AKS) by billing Medicare for tests tied to referral arrangements in long-term care facilities. According to the United States, the lab knowingly submitted claims to Medicare for respiratory pathogen panels (RPPs) that were medically unnecessary or obtained through kickbacks.
The government alleges that the lab paid commissions to independent sales representatives and marketing firms (1099 contractors) based on the volume or value of referrals. It also claims that the lab used a vendor relationship with a purported infection-prevention company as a mechanism to generate test orders from long-term care facilities.
According to the United States, on November 20, 2020, the lab entered into a Marketing Services Agreement (MSA) with the company, agreeing to pay $5,000 per month for “marketing and management services” in long-term care facilities. The government contends that the MSA functioned as a pretext to pay the company for laboratory test referrals that the lab then billed to Medicare.
The government also alleges that the company performed services inside long-term care facilities, including specimen collection for infectious-disease testing. The company swabbed residents for COVID-19, and the lab used those same specimens to conduct—and bill Medicare for—RPPs that were not medically necessary. In some cases, the lab allegedly billed for RPPs without performing any COVID-19 testing at all.
Between December 1, 2020, and May 11, 2022, the lab paid the company approximately $1.86 million in exchange for RPP referrals. During that period, the lab billed Medicare for thousands of RPPs conducted at 43 long-term care facilities nationwide, receiving more than $6 million in reimbursement.
The United States further alleges that, from January 1 to March 31, 2021, the lab contracted with 1099 sales representatives to promote its laboratory testing services. These individuals were not bona fide employees, and the lab allegedly paid them a percentage of the revenue generated from tests they helped facilitate—conduct the government views as violating the AKS. The lab’s commission payments to these representatives totaled at least $372,000.
“Wasteful spending fueled by kickback arrangements undermines the public’s confidence in our healthcare system and depletes valuable resources that should be used to improve patient care,” said Mario M. Pinto, Special Agent in Charge of the HHS-OIG Chicago Regional Office. “Working together with our law enforcement partners, HHS-OIG will continue to identify and investigate alleged violations of federal law.”
Compliance Perspective
Issue
Healthcare providers must ensure that all laboratory tests and other medical services billed to Medicare, Medicaid, or private insurers are medically necessary and supported by appropriate clinical documentation. Submitting claims for services that lack medical necessity may violate the False Claims Act and result in civil penalties, criminal liability, or other sanctions. Federal and state Anti-Kickback Statutes also prohibit offering, paying, soliciting, or receiving anything of value to influence referrals for services covered by government healthcare programs. Kickbacks can take many forms, including cash, commissions, rebates, or in-kind benefits. Failing to report suspected violations in a timely manner may expose organizations to additional legal and regulatory risks.
Discussion Points
- Review and update policies and procedures related to medical necessity, billing practices, vendor arrangements, and the identification and reporting of potential compliance concerns. Policies should clearly define acceptable business practices and outline procedures for evaluating orders and relationships that may present risk. Some organizations choose to work with external compliance consultants to assist in reviewing policies or identifying areas where clearer guidance is needed.
- Provide ongoing education to staff regarding medical necessity requirements, documentation standards, and the proper handling of referrals and vendor relationships. Med-Net Academy offers Fraud Series Module 9 – Independent Contracts and Referrals, which teaches staff how to follow company contracting policies, understand referral requirements, and recognize key elements of the Anti-Kickback Statute.
- Conduct periodic audits of billing records, laboratory orders, documentation, and financial arrangements to ensure compliance with medical necessity standards and anti-kickback requirements. Include reviews of staff understanding, reporting practices, and the effectiveness of existing internal controls. Many providers utilize independent consultants to conduct mock reviews or assist with focused audit activities to help identify areas that may require improvement.
*This news alert has been prepared by Med-Net Concepts, Inc. for informational purposes only and is not intended to provide legal advice.*