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Special Report: The Current State of Genetic Testing Fraud Enforcement

by Glenn S. Demby | Jun 28, 2023 | Enforcement-nir, Essential, National Lab Reporter

Current genetic testing enforcement trends and what you can do to minimize the liability risks of your lab.

Despite coverage limitations and strict billing rules, genetic tests now consume more than 20 cents of every dollar that Medicare Part B spends on lab testing.¹ Coupled with the recent proliferation of genetic test fraud scams, it’s easy to understand why genetic testing has become a focus for government enforcers and whistleblowers. Here’s a look at current genetic testing enforcement trends and what you can do to minimize the liability risks of your clinical lab.

The Backdrop

The use of precision medicine in clinical practice is becoming common. And genetic testing is part of what makes it possible. By providing access to an individual’s DNA makeup, genetic testing enables clinicians and patients to make better-informed decisions about disease risk and treatment options.

The problem is that the medical and regulatory systems haven’t kept pace with the technological advancements in genetic testing. The challenges test developers face include getting providers to integrate new genetic tests into practice and persuading Medicare and other payers to pay for them. While progress toward adoption has been steady, it has also been, at least for many developers, frustratingly slow. In the context of lab compliance, the establishment of genetic testing has also brought a host of new liability risks into play.

Medicare Coverage of Genetic Tests

As of 2021, there were 365 genetic test codes that Medicare pays for.¹ But strict conditions apply. For genetic tests to be covered by Medicare Part B:²

They must be used for diagnostic purposes

They must be ordered by a physician or qualified nonphysician practitioner (NPP) treating a beneficiary for a specific medical problem

The ordering physician or NPP must use the test results to manage that medical problem

Medicare reimburses for genetic tests at the rate set by the Clinical Laboratory Fee Schedule (CLFS). There are four code categories of genetic tests on the CLFS:²

Molecular pathology tests that detect variants in genetic material that can help determine how patients will respond to treatment;

Multianalyte assays with algorithmic analyses (MAAAs) that combine multiple test results with patient information to yield a score, such as for the risk of cancer recurrence;

Genomic sequencing procedures (GSPs) that identify structural changes in genetic material for purposes of diagnosing or managing inherited diseases like hereditary breast cancer; and

Proprietary Laboratory Analyses (PLAs), or alphanumeric procedure codes and descriptors created by the American Medical Association to identify tests that are proprietary to a particular lab or manufacturer.

These Medicare coverage parameters leave out many of the genetic tests on the market, including tests that are used preventively to screen for genetic conditions or predict a person’s risk of developing an illness or medical condition. However, genetic screening may be covered to determine how likely a patient undergoing diagnosis or treatment of a medical condition is to develop a genetic condition or react to a drug or treatment for that medical condition.

Medicare Spending on Genetic Tests

In 2021, five of the top 25 Medicare spending tests were high-priced genetic tests, according to the U.S. Department of Health and Human Services Office of Inspector General (OIG).¹ In addition, many genetic tests haven’t been affected by Protecting Access to Medicare Act (PAMA) price cuts. The OIG has been keeping close track of Medicare Part B spending for genetic tests since 2014. In December 2021, the agency published a report finding that from 2016 to 2019:³

Medicare payments for genetic tests more than quadrupled from $351 million to $1.41 billion;

The number of genetic testing CPT codes covered by Medicare grew from 119 to 310, an increase of 161 percent;

The number of genetic tests paid for by Medicare increased 230 percent (from 627,000 to 2.1 million);

The average that Medicare paid per beneficiary who received at least one genetic test increased 75 percent from $889 to $1,559;

The number of labs receiving more than $1 million in Medicare payments in a year for genetic tests went from 26 to 72; and

The number of providers that ordered genetic tests for beneficiaries more than doubled, going from 73,000 to 153,000.

While acknowledging “legitimate reasons” for these numbers, the OIG also warned that the increases “indicate areas of possible concern, such as excessive and fraudulent genetic testing.”³

In a report published exactly one year later, the OIG maintained the pressure by finding that in just one year, total Medicare Part B spending on genetic tests increased 56 percent, from $1.2 billion in 2020 to $1.9 billion in 2021.¹ Expect the OIG to publish a similar report on 2022 Medicare spending on genetic lab tests at the end of this year.

Genetic Testing Fraud & Abuse

As utilization increases, so does the potential for fraud and abuse, not to mention the intensity of scrutiny. Genetic testing investigations, enforcement actions, and recoveries have increased dramatically in the past four years, a trend that’s likely to continue into the future, given the dollars involved. One of the things compliance officers and other leaders can do to protect their labs is to recognize what genetic testing fraud and abuse look like. There are six common patterns to watch out for:

1. Kickbacks to Ordering Physicians

Many of the recent fraud cases involve payment of kickbacks and unlawful remuneration to physicians in exchange for ordering genetic tests. In addition to violating the federal Anti-Kickback Statute (AKS) and Stark Law, these arrangements may run afoul of the False Claims Act (FCA) if the testing lab bills the improperly referred tests to Medicare.

One of the first cases in which providers were criminally indicted for genetic testing fraud involved such a scheme. It began when whistleblowers filed a qui tam lawsuit against pharmacogenetic (PGx) lab UTC Laboratories and three of its principals for allegedly paying doctors kickbacks disguised as legitimate payments for work on a UTC clinical study. But the study was a sham, and the payments were actually buying PGx test orders, the government alleged. In October 2019, UTC agreed to settle the charges for $41.6 million, with the three indicted UTC principals kicking in another $1 million.⁴

This modus operandi of disguised kickbacks to physicians in exchange for referrals of lucrative genetic tests has become a common theme in subsequent cases.

Genetic Testing Kickback Settlements

Lab/Defendant	Settlement Amount	Alleged Violation
Primex Clinical Laboratories	$3.5 million	Paying kickbacks disguised as legitimate payments to doctors for clinical data⁵
Alpha Genomix Laboratories	$200,000	Paying the salary of a referring medical practice’s employee⁶
Seven physicians and a hospital executive	$1,106,449	Accepting kickbacks disguised as investment returns from medical service organizations⁷
Paradigm Diagnostics, Inc.	$3,432,729	Paying remuneration in the form of meals, refreshments, and registry payments to 17 physicians⁸

2. Payments to Marketers

Kickback risks also arise when genetic test labs pay commissions to outside marketers based on the number or dollar volume of referrals they bring in. In a July 2022 Special Fraud Alert, the OIG listed such arrangements as among the red flags providers should look for before entering into telehealth arrangements.⁹ This is significant since so many of the recently reported genetic testing scams include a telehealth component. Typically, genetic test labs pay marketers or “recruiters” a fee for each test order they bring in. These payments are often characterized as compensation based on the number of purported medical records that an ordering physician or NPP reviews.

Example: In December 2022, the owner of LabSolutions LLC was convicted for running a massive healthcare fraud scheme involving over $463 million in false claims to Medicare. The convicted lab owner, Minal Patel, allegedly enlisted telemarketers to lie to Medicare beneficiaries by assuring them that they were covered for expensive genetic cancer tests. Upon getting the beneficiary’s consent for testing, the patient broker, call center, or telehealth company that secured the agreement got a kickback payment from Patel, the U.S. Department of Justice (DOJ) alleged.¹⁰

3. Routine Waiver of Patient Copays

Offering to waive a Medicare patient’s copay, deductible, or other cost-sharing payment is also extremely problematic. As the OIG states in a 1994 Special Fraud Alert, “a provider…who routinely waives Medicare copayments or deductibles is misstating its actual charge.”¹¹ So, if the provider then bills Medicare at its charge without accounting for the waived copay or deductible, it risks liability for submitting a false claim under the FCA.

Waiving copays may also be deemed an illegal form of remuneration to patients banned by the AKS. “When providers…forgive financial obligations for reasons other than genuine financial hardship of the particular patient, they may be unlawfully inducing that patient to purchase items or services from them,” the 1994 OIG Fraud Alert warns.¹¹

Although the government has been cracking down on waiver of copays for decades, genetic testing brings the risks back into play. The reason for this is simple: Genetic testing services are expensive. At thousands of dollars per test, labs may feel that waiving or reducing copays is the only way to get patients to agree to be tested, without fully appreciating the liability risks involved.

4. Laundering Kickback Payments through MSOs

While perfectly legitimate, medical service organizations (MSOs) can also be used to carry out genetic testing scams. The typical pattern: An MSO owned or managed by physicians contracts to provide administrative or management services to a genetic testing lab in exchange for a management fee. But those services are never provided, and the management fee is actually payment for referrals of genetic tests, with the money funneled to the referring physicians in the form of investment returns based on how much of the MSO they own. Such MSO arrangements have become a prominent feature in some recent genetic testing fraud cases.

5. Pass-Through Billing of Genetic Tests

Under a pass-through billing arrangement, a physician purchases a test from the lab and is then allowed to bill the payer for the test. In addition to being illegal in some states, these arrangements may violate the AKS and Stark Law, especially when the lab sells the test at less than fair market value to give the physician a cushion to make a profit by then billing the test to the payer at a higher amount. Despite their liability implications, pass-through arrangements remain in widespread use. The temptation to resort to them may be especially great when the tests involved are genetic tests reimbursed by Medicare and other payers at high amounts.

6. Billing & Coding Violations

Billing and coding violations associated with genetic tests include upcoding, or billing Medicare for a more expensive test or panel of tests than the test the lab actually performs, e.g., billing Medicare for partial breast cancer gene sequencing using the higher-paying code for full gene sequencing. Another potential risk area is use of “stacked” codes to bill for genetic tests, i.e., coding each step of a molecular diagnostic test with a different CPT code to create a “stack.” The latter was among the billing violations admitted by Arizona genetic testing lab Paradigm Diagnostics LLC under a recent $3,432,729 settlement agreement.¹²

So What?

Genetic testing and precision medicine are becoming more important to the diagnostics business. For labs involved in genetic testing, success in the field will depend not only on business acumen but also successful adaptation to unique compliance challenges. While each venture is different, the common starting point is to understand Medicare billing and coverage rules and the different ways you can get into trouble under fraud and abuse laws. Developing such compliance awareness among lab leadership, sales, marketing, and billing staff is important to keeping genetic testing arrangements legally sound.