The COVID-19 pandemic increased the business opportunities available to clinical labs, including molecular and respiratory labs. As the nation—and the world—struggled to develop adequate testing infrastructure, the federal government loosened restrictions on lab processes. Unfortunately, while this helped in many cases, it also created an environment that facilitated widespread fraud and abuse. Now that the pandemic is in the rearview mirror, federal authorities, including the Federal Bureau of Investigation (FBI) and the Health and Human Services Office of Inspector General (HHS-OIG), are focused on enforcing compliance and standard operating procedures and, in many areas, they are doing so with greater vigor than before the pandemic.
But, these authorities are also targeting pandemic-specific issues, including issues related to COVID-19 testing both during and after the pandemic. Accusations of testing fraud and other forms of fraud and abuse can expose labs (and their owners and executives) to a host of serious civil—and, in some cases—criminal penalties. Given the federal government’s ongoing crackdown on clinical laboratories, it is critical that lab owners and executives not only take proactive steps to ensure comprehensive lab compliance, but take steps to prepare for the possibility of an FBI or HHS-OIG investigation.
“For clinical laboratories, a proactive approach to achieve compliance is going to be critical in 2025. While it may be tempting to take a wait-and-see approach to addressing any compliance-related concerns, this can prove to be an extremely costly approach. Lab owners and executives should think of their compliance programs like insurance policies: They are risk mitigation tools that provide protection when you need it most.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
Avoiding an FBI or HHS-OIG Investigation Through a Commitment to Laboratory Compliance
The FBI and HHS-OIG are actively targeting clinical labs for non-compliance. In today’s world, compliance issues broadly fall into one of three categories: (i) issues that existed before the COVID-19 pandemic and continue to exist afterward (i.e., Medicare billing compliance); (ii) issues that arose during the pandemic and continue to present risks for labs that engaged in fraudulent and abusive practices in the past; or (iii) issues that present current compliance risks now that many pandemic-era rules and policies are expiring.
With this in mind, the following are some of the top compliance-related concerns for clinical laboratories heading into 2025:
1. Lack of Medical Necessity for Purposes of Medicare Billing Compliance
Clinical labs that bill the federal government through Medicare can only do so for medically necessary testing—as determined by the Medicare billing rules. Of course, doctors order the tests in the context of many lab tests, and labs simply carry out doctors’ orders. However, HHS-OIG has clarified that this does not absolve labs of liability for billing Medicare for medically unnecessary tests. Rather, lab managers must independently determine that testing is medically necessary before billing Medicare.
COVID-19 testing is a notable exception, as many patients seek this testing of their own volition. Here, too, laboratories must ensure that tests qualify as medically necessary before billing Medicare, as failing to do so can expose them to liability for recoupments and other penalties in the event of an audit or investigation.
2. Improper Referral Relationships with Healthcare Providers
Operating a clinical laboratory involves maintaining relationships with doctors, pharmacists, hospitals, and other healthcare providers. While these types of relationships are generally permitted, relationships that involve any form of compensation (or “remuneration”) present potential compliance concerns under the federal Anti-Kickback Statute and Stark Law.
Since Anti-Kickback Statute and Stark Law violations can expose all parties to civil (and sometimes criminal) penalties, lab owners and executives must closely scrutinize their relationships with healthcare providers, marketers, consultants, and others to ensure compliance. If a relationship raises potential compliance concerns, it may be necessary to restructure it to ensure that it meets the requirements of a specific Anti-Kickback Statute “safe harbor” or Stark Law exception.
3. Billing and Coding Errors
Improper billing in laboratory data—including upcoding, double billing, unbundling, and other Medicare billing fraud—has increased significantly in all healthcare industry segments in recent years. Clinical laboratories, including respiratory and molecular laboratories, should review their billing and coding procedures yearly to ensure ongoing compliance. The Medicare billing and coding requirements are complex and ever-changing, making this a top priority for labs nationwide.
Crucially, inadvertence is not an excuse for billing non-compliance. As a result, even honest billing mistakes can expose laboratories to substantial liability. However, the consequences of intentionally overbilling Medicare can be far greater—including criminal fines and prison time for lab owners, executives, and other individuals involved.
Likewise, HHS-OIG has clarified that labs cannot avoid liability for billing compliance by engaging third-party billing administrators. In other words, even if your lab’s third-party administrator (TPA) makes a mistake, your lab can still be held fully accountable. This makes it critical to carefully select your lab’s TPA and ensure that your lab’s TPA contract includes all necessary representations, warranties, and remedies.
4. Reliance on Pandemic-Era Policies that No Longer Apply
In the wake of the COVID-19 pandemic, labs scrambled to meet the demand. Understandably, this resulted in many labs quickly developing COVID-19 testing policies that, while laudable in intent, may not have fully met the demands of federal compliance. However, now that the federal government has shifted its focus to compliance in the post-pandemic era, labs must revisit their COVID-19-related laboratory safety policies to ensure they comply with current laws and regulations.
In this same vein, laboratories must also ensure that they are not complying with federal policies or regulations that are no longer applicable. Many rules established during the pandemic to facilitate easier access to testing (and to healthcare in general) have now expired. If a lab adheres to Clinical Laboratory Improvement Amendments rules that no longer apply, this can expose the lab to substantial penalties for non-compliance in 2025.
5. Generic Compliance Policies and Inadequate Lab Compliance Documentation
In today’s world, simply maintaining compliance isn’t enough. Given the FBI and HHS-OIG’s focus on compliance program enforcement, labs must also be prepared to demonstrate affirmative compliance.
This makes it essential for all clinical laboratories to create and store proper documentation. Labs need policies and procedures custom-tailored to their specific operations to manage compliance effectively and improve lab operations. Relying on generic compliance policies is a common—and often extremely costly—mistake. The FBI and HHS-OIG expect labs to address all pertinent areas of compliance thoroughly, and generic compliance policies simply are insufficient for this purpose.
Along with implementing custom-tailored compliance policies and procedures, a lab manager also needs to take a systematic approach to generating and storing compliance documentation on an ongoing basis. Whether the FBI is investigating suspected Anti-Kickback Statute violations or the HHS-OIG is looking into possible Medicare billing fraud, having documentation to substantiate compliance can be critical for avoiding unnecessary consequences.
Avoiding Unnecessary Consequences During an FBI or HHS-OIG Investigation
Ideally, laboratories’ implementation of custom-tailored compliance policies and procedures will save them from the inherent risks of facing an FBI or HHS-OIG investigation. But even fully compliant laboratories can—and do—face scrutiny from these (and other federal authorities). When facing federal scrutiny, lab owners and executives must be as proactive about protecting their businesses and themselves.
This begins with promptly engaging an experienced healthcare defense attorney.
When facing any type of federal healthcare fraud investigation, experienced legal representation is essential. You do not want to wait until the federal government files formal charges against your laboratory (or against you) to consult with an attorney. This will severely limit the options you have available, and it will also increase the risk of the government’s investigation resulting in negative publicity—regardless of the outcome in court.
Here are just some of the ways an experienced healthcare defense attorney can help during an FBI or HHS-OIG investigation:
- Intervening in the Investigation – Once you engage an attorney to assist with the investigation, your attorney can intervene in the investigative process. This will give you and your attorney time to build a defense, and it will also help ensure that you are not forced to comply with any subpoenas or search warrants that exceed the federal government’s investigative authority.
- Identifying the Investigation’s Focus and Scope – When your attorney intervenes in the investigative process, your attorney can also identify the investigation’s focus and scope. This, too, is critical for forming an informed and strategic defense.
- Identifying All Viable Defenses - Depending on the specific allegations against your laboratory (or against you), you may have a variety of defenses available. The key is to choose the right defenses based on your investigation's specific facts and circumstances.
- Considering All Viable Options – In some cases, labs and their owners can target resolutions that avoid potential penalties. In others, settlement will be a more viable option. An experienced attorney will be able to help you consider all of your options and choose the most advantageous path forward.
- Efficiently Targeting a Favorable (and Quiet) Resolution – Regardless of your chosen option, an efficient and quiet resolution will be in your best interests. An experienced healthcare defense attorney can rely on the insights gained from prior investigations to protect you and your laboratory as fully and quickly as possible.
