Case of the Month: FMC Settlement Is Poster Child for False Billing of Lab Tests

In the grand scheme of things, $2 million is fairly small potatoes for false billing of lab tests—especially considering that it allegedly went on for 10 years. Even so, if you’re running your lab’s compliance program, the recently settled case involving Family Medicine Centers of South Carolina LLC (FMC) is worth your attention. Here are three reasons why:

1. How It Came About
Like so many health care fraud cases, this one began as a qui tam lawsuit. The whistleblower in was an FMC physician who ended up pocketing $340,510 of the settlement amount. FMC will pay $1.56 million of the settlement and its CEO and medical director the remaining $443,000..

2. The Stark Claim
Claims under the Stark law, which bans paying or receiving remuneration to physicians in exchange for Medicare, Medicaid and other government health care program referrals, often involve pretty byzantine and complex schemes. But this one was pretty vanilla. The government contended that over a nearly 10-year period, FMC implemented a physician compensation arrangement that improperly:

• Encouraged physicians to refer Medicare and TRICARE patients to FMC’s labs for lab tests;

• Passed along a percentage of the reimbursement it received from the government to the referring physician; and

• Threatened to cut the compensation of physicians who didn’t order lab tests from FMC.

Since the tests were borne of improper physician relationships, billing the government for them represented a false claims violation.

3. The Medical Necessity Claims
The other significant aspect of the FMC case was the medical necessity allegations stemming from use of customized panels and standing orders.

Custom Panels: The government claimed that the disease panels FMC created and pressured physicians to order were bloated with medically unnecessary tests not typically used for screening or routine testing. As a result, FMC allegedly ran up bills of:

• $4 million for unnecessary lipid tests;

• Over $1.6 million for unnecessary chemistry panel tests;

• Over $500,00 for unnecessary hepatic function tests; and

• Over $1 million for unnecessary thyroid panel tests.

Standing Orders: The other medical necessity charge in the FMC case that is typically associated with lab testing involved standing orders. Specifically, the government claimed that FMC devised improper lab standing orders that required staff to automatically perform certain diagnostic tests in response to indications regardless of whether those tests were actually ordered by a physician.

Takeaway: Because the procedural dynamics and allegations are so typical of false claims prosecutions against labs, compliance managers would do well to go to school on the FMC case, which for those of you who want to look it up is captioned United States ex rel. Schaefer v. Family Medicine Centers of South Carolina, LLC, Stephen F. Serbin, M.D. and Victoria Serbin, No. 3:14-cv-342-MBS (D.S.C.).