Navigating Compliance Risks in Laboratory Operations—Key Lessons from a Recent FCA Case

A recent False Claims Act (FCA) litigation—Jensen ex rel. United States of America v. Genesis Laboratory—highlights critical compliance risks for laboratories. This case reinforces the need for laboratories to ensure adherence to federal regulations governing medical necessity, lab requisition practices, and the Anti-Kickback Statute (AKS).

This case illustrates the heightened scrutiny laboratories face regarding their operational practices—such as reliance on physicians’ certifications of medical necessity, the use of pre-printed lab requisition forms, referral arrangements, and copayment waivers—and the need to maintain clear documentation of compliance efforts in order to mitigate risks of FCA allegations and respond effectively if such claims arise. Laboratories must take proactive steps to strengthen their compliance programs, mitigate risks of FCA and AKS violations, and navigate the complexities of federal and state regulatory frameworks. Below, we outline key takeaways and practical guidance to help laboratories maintain compliance and avoid costly reviews, audits or litigation.

Case Overview

This case involved a qui tam action under the False Claims Act (FCA) brought against Genesis Laboratory Management, LLC, and Metropolitan Healthcare Billing, LLC. The relators alleged that defendants:

• Submitted false claims to Medicare and Medicaid for medically unnecessary laboratory tests
• Violated the AKS by waiving copayments to induce providers to use their laboratory services

The relators claimed that Genesis:

• Used pre-printed requisition forms and bundled test panels to encourage unnecessary testing
• Improperly relied on ordering physicians’ certifications of medical necessity without exercising independent judgment about the reasonableness of the tests

The court dismissed the relators’ second amended complaint without prejudice, citing insufficient pleading of key elements under the FCA.

Key Compliance Takeaways for Laboratories

1. Medical Necessity and Lab Requisitions
   • Laboratories can rely on physicians’ certifications of medical necessity, but they are still expected to exercise independent judgment to ensure tests are reasonably necessary.
   • The use of pre-printed requisition forms and bundled test panels alone does not establish fraud unless there is evidence that they were used to encourage unnecessary testing.
   • Laboratories should ensure that their requisition forms and testing panels comply with applicable Medicare regulations and guidance.
2. Anti-Kickback Statute Compliance
   • Waiving copayments to encourage referrals may violate the AKS if it constitutes “remuneration” intended to induce referrals.
   • Allegations of improper “write-off” policies or sales calls must be supported by specific facts to meet the heightened pleading standard required for fraud claims.
   • Laboratories should review their copayment waiver policies to ensure compliance with the AKS and Office of Inspector General guidance.
3. Heightened Pleading Standards for FCA Claims
   • Because allegations of fraud under the FCA must be pled with particularity under Rule 9(b), laboratories should maintain clear documentation of compliance efforts to mitigate risks of FCA allegations and to respond effectively if claims arise.
4. Supplemental State Law Claims
   • Federal courts may decline to exercise jurisdiction over state law claims if federal claims are dismissed early in litigation. Laboratories should consider the potential for state law liability even if federal claims are dismissed and stay current with state-specific healthcare laws and regulations in order to develop a robust compliance program to address relevant state laws.

Practical Steps for Laboratories

• Review Compliance Programs: Ensure policies and procedures for determining medical necessity, requisition design, and copayment waivers not only align with Medicare and AKS requirements but demonstrate the lab’s proactive approach to compliance, emphasizing its dedication to trustworthiness, ethical practices, and patient care.
• Train Staff: Provide targeted training to educate employees and providers about compliance risks, particularly those related to bundled test panels, requisition forms, and copayment waivers. Design training sessions to be engaging, role-specific, and focused on real-life scenarios to make compliance relatable and practical. Emphasize your laboratory’s commitment to a strong culture of ethics and compliance, fostering an environment of trust and collaboration. Encourage open communication by reassuring staff that they are part of the solution, not the problem. Promote a safe space for reporting potential compliance issues without fear of retaliation, and implement an anonymous reporting system to address concerns about fraudulent or non-compliant practices.
• Document Processes: Maintain thorough records to demonstrate compliance with federal and state regulations, while fostering a culture of compliance through comprehensive training and consistent daily practices. Staff should be empowered to act as ambassadors of compliance, promoting transparency and accountability at every level of the organization. This commitment should be reflected in compliance documents. Laboratories should establish and enforce document retention policies and utilize electronic systems with version control to track changes to policies, procedures, billing, testing, and operational records. Additionally, a compliance statement affirming adherence to federal and state regulations should be included in all relevant documents, such as contracts, invoices, and reports. Compliance discussions during staff or board meetings should be documented to demonstrate an ongoing commitment to regulatory standards. Detailed records of all compliance training sessions, including attendance, topics covered, and materials used, should also be maintained. Furthermore, any compliance-related decisions and actions should be documented with clear audit trails to ensure accountability and readiness for any future scrutiny.
• Seek Legal Counsel: As we know, the law shifts its focus and blows in different directions in the world of compliance. To avoid costly inquiries after the fact, it may be best to consult with legal professionals to assess risks and address potential vulnerabilities in your compliance program before they surface in a review, audit, or investigation.

Conclusion

The Genesis Laboratory case highlights the importance of robust compliance practices to mitigate risks of FCA and AKS violations. Laboratories should take proactive steps to ensure their operations align with regulatory requirements and to avoid costly litigation including reviewing and enhancing compliance programs, providing comprehensive and engaging staff training, and maintaining meticulous documentation processes.

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