A recent decision in a False Claims Act (FCA) case could have important implications for clinical laboratories’ liability in such situations, particularly when it comes to determining the medical necessity of testing.

In a January 6 summary judgment from the U.S. District Court for the District of Massachusetts, the judge ruled in favor of the defendants—clinical lab MD Spine Solutions LLC (doing business as MD Labs) and its owners.¹ The decision is significant for three key reasons:

1. Increases split among courts in determining FCA liability

The latest decision deepens an existing split among circuit courts, as well as within the District of Massachusetts, related to how liability for false claims is determined. According to emailed comments from Ed Heath, Seth Orkand, and Danielle Tangorre, all partners at Robinson+Cole who led the defense team in the case, the Anti-Kickback Statute (AKS) defines a false claim as one involving items or services ‘resulting from’ a violation of the AKS. When it comes to laboratories, such false claims under the AKS could involve testing that resulted from paying commissions to independent contractors, with such independent contractors improperly influencing referrals and such testing billed to federal or state healthcare programs.

However, the courts have interpreted this definition differently, with the Sixth and Eighth Circuits adopting a stricter interpretation of what constitutes FCA liability—a “but-for causation”—while the Third Circuit has adopted a less strict standard for determining liability—a ‘proximate’ cause standard—the Robinson+Cole team explained. The “but-for” causation standard under the AKS requires that the government prove that the claims at issue would not have included particular tests absent the illegal kickbacks or improper influence. However, applying the “proximate” cause standard would require the government and/or relator to show a link between the alleged kickbacks and the submission of claims. They added that, in the District of Massachusetts, two judges have supported the less strict “causal connection” standard when determining FCA liability, while one judge had applied the stricter “but-for” standard in another case.

“We argued that the ‘resulting from’ language [in the AKS] requires a showing of but-for causation, while the relator urged the court to adopt the more attenuated causal connection test from the Third Circuit,” the Robinson+Cole team said of the MD Labs case, which was brought by a qui tam relator.

The team was successful in their argument, as Judge Patti Saris joined Judge F. Dennis Saylor IV “in holding that ‘but for’ causation is required” to prove FCA liability, thus deepening the split among justices in the district court, the attorneys explained. In applying the “but-for” standard, Judge Saris found that “no reasonable jury could find on this record” that the claims for PCR urinary tract infection (UTI) testing were submitted but for the commission-based payments to independent contractor sales representatives.²

2. Answers questions on who is responsible for determining medical necessity

Ruling in favor of the defendants, Saris’s summary judgment stressed that the onus is on the ordering provider to determine medical necessity, and labs can rely on that determination when performing tests, as long as the lab doesn’t know the test is medically unnecessary, the Robinson+Cole team explained. Saris noted that labs could be held responsible for submitting false claims based on medical necessity if they (1) had actual knowledge of medically unnecessary tests, (2) were aware of a substantial risk but intentionally avoided confirming that fact, or (3) they had reckless disregard in their submission of medically unnecessary tests. Here, Saris found that “no reasonable jury could conclude on this record that [the] defendants knew that they were submitting claims for PCR UTI testing that was medically unnecessary.”²

3. Adds to the discussion on who is liable for FCA violations

Judge Saris determined that it was, in fact, OMNI Healthcare, Inc., the qui tam relator accusing MD Labs of FCA violations, that had knowingly caused the submission of false claims. Here’s a backgrounder on the case, based on Judge Saris’s summary judgment:²

The MD Labs case

In this case, MD Labs and its owners were accused of violating both the federal FCA and state law by submitting or causing the submission of false claims for medically unnecessary UTI tests. The defendants were also accused of submitting claims for such testing that resulted from AKS violations related to the lab’s use of independent-contractor sales representatives and its failure to “balance bill” patients for testing. The qui tam action was brought by OMNI, a medical practice based in Florida that sent roughly 600 samples to MD Labs for PCR-based UTI testing between 2017 and 2019. Some of those tests were then billed to government healthcare programs.

Court documents note that OMNI also accused MD Labs of FCA violations related to medically unnecessary pharmacogenetic and urine drug tests, which were resolved through a 2021 settlement agreement. MD Labs requested summary judgment to dismiss the remaining UTI-testing-related claims.²

The January 2025 summary judgment explained that UTIs are typically diagnosed through bacterial urine culture (BUC) tests. MD Labs, however, used a more costly PCR-based test for either 17 or 19 pathogens that can cause UTIs.

“Some requisition forms that MD Labs used for UTI testing orders only allowed the physician to select the entire seventeen- or nineteen-pathogen panel, while others enabled physicians to customize the panel to test for specific pathogens,” the summary judgment noted.²

Ruling in favor of MD Labs and its owners, Judge Saris explained that the physician owner of OMNI had “instructed his staff to order PCR UTI testing from MD Labs even when the provider had selected a BUC test for the patient. He [the owner] did so in order to substantiate OMNI’s FCA claims against MD Labs. All the PCR UTI testing that MD Labs performed for OMNI patients resulted from this switch.”²

The summary judgment also noted that OMNI failed to show that the lab’s use of independent-contractor sales reps and failure to balance bill patients caused either the ordering of tests from MD Labs or the subsequent submission of false claims.

OMNI’s conduct in the case contributed to Judge Saris’s decision that MD Labs did not violate the False Claims Act.¹

Takeaways for labs

Though the decision in this case may cause some lab leaders to feel as if they are off the hook when it comes to determining the medical necessity of tests they perform, they would do well to remain cautious. OMNI is pursuing an appeal of the ruling, and this recent summary judgment reflects the evolving landscape of FCA liability. Lab leaders should therefore continue ensuring that they confirm the medical necessity of any test orders they receive and review their billing practices and all marketing materials.

References:

1. 1. Robinson+Cole. “Health Care Enforcement Team Wins Summary Judgment in Groundbreaking False Claims Act Litigation.” January 27, 2025. https://www.rc.com/news/health-care-enforcement-team-wins-summary-judgment-in-groundbreaking-false-claims-act-litigation
   2. Memorandum and Order. OMNI Healthcare Inc v. MD Spine Solutions LLC, United States District Court, District of Massachusetts. January 6, 2025.