The Landscape of Laboratory Corruption

Although an uncomfortable phenomenon to contend with, corruption is a longstanding and damaging problem facing society¹—one that, when translated to the context of the clinical laboratory, can harm everybody.² From affecting patient care and outcomes to harming legitimate service providers and inflating the cost of care, the negative impacts of laboratory fraud and noncompliance make them issues that all laboratorians and administrators should strive to uproot. To this end, it is important to understand the landscape of laboratory corruption and the steps that can be taken to prevent and handle instances of fraud or noncompliance in the lab.

The clinical lab: a target for fraud

Understandably, there is little data to illuminate the true extent of corruption in the clinical laboratory; however, some insight into lab services’ susceptibility to fraud and abuse can still be gained by looking at the prosecution of healthcare fraud. According to an announcement released by the US Office of Public Affairs at the beginning of 2024, the fiscal year concluding at the end of September 2023 saw the highest number of settlements and judgments under the False Claims Act (FCA) in history.³ Of the $2.68 billion in FCA settlements and judgments, healthcare fraud was a leading source, with over 67 percent of those settlements—$1.8 billion—related to matters involving the healthcare sector, including the laboratory. Looking more closely at the involvement of the clinical laboratory, across the entirety of 2023, the Office of Inspector General for the U.S. Department of Health and Human Services (HHS-OIG) reported over 450 cases of healthcare fraud that resulted in criminal or civil action.⁴ Of these cases, approximately five percent were laboratory-related and a further seven percent stated the involvement of fraudulent medical testing.

However, although this percentage is certainly noteworthy, Danielle H. Tangorre, Esq., healthcare lawyer and partner at Robinson+Cole, says it doesn’t necessarily mean that the laboratory services industry is full of malicious defrauders. “Though there are some bad actors, we more often see labs unwittingly caught up in a potential scheme. The myriad regulations governing clinical laboratories sometimes leads to labs running afoul of compliance,” she explains. “Trends in laboratory prosecutions and settlements highlight areas relating to medical necessity, payment of commissions, design of requisition, use of broad panels, and relationships with marketers, among others. Given recent enforcement announcements, the government appears to be seeing more bad actors in marketing and telehealth arrangements.”

The cause of corruption

In 2018, the Healthcare Fraud Prevention Partnership (HFPP), a voluntary public-private partnership working to detect and eradicate healthcare fraud through data and information sharing,⁵published a review, “Examining Clinical Laboratory Services” describing laboratory services in a way that highlights the service vulnerabilities susceptible to fraud and abuse, defining the systemic challenges that enable fraud and abuse, and discussing specific forms of identified fraud and abuse in the laboratory.⁶ The document highlights the increasing number of cases whose losses have been in excess of tens or even hundreds of millions of dollars—something seen over the course of 2023^7,8,9 and the beginning of 2024¹⁰—as demonstrations of the clinical laboratory services industry’s large, and growing potential for fraud and abuse in the absence of any concrete knowledge regarding the total volume of such infractions.

Further, the report identified three systemic challenges that often combine to create opportunities bad actors can exploit:⁵

1. The number and variety of clinical laboratories, which can make abnormal behavior hard to spot.
2. The high-volume, low-dollar nature of ordering, providing, and billing for clinical laboratory services, which lowers the risk of laboratories being audited for any one claim by payers who are more inclined to focus limited fraud protection resources on easier-to-analyze claims with higher individual costs.
3. The technical complexity and continuing evolution of clinical laboratory services, which leaves open the possibility of fraudulent practices being developed around newly covered tests before the pathology and billing risks are fully understood by payers.

These challenges lead to the three main forms of laboratory fraud in the US: abuse of billing standards, medically unnecessary testing, and improper laboratory relationships. Building on this framework in 2021, a research team assessed the forms of pathology and laboratory medicine corruption on a more global scale, focusing its lens on low- and middle-income countries.¹¹ They found that systemic failure to enforce anticorruption regulations, combined with potential greed, can lead to further types of corruption such as absenteeism, theft, and diversion.

Stopping fraud in its tracks

Although the specific needs of each individual laboratory may differ, lab managers and administrators can employ broad approaches to prevent noncompliance and corruption in their labs.¹¹ First of all, laboratories can implement risk management strategies targeting the areas most vulnerable to noncompliance or corruption. “Lab managers and administrators can take a variety of steps that can really be distilled down to understanding who their customers are and periodic audits for compliance,” Tangorre explains. “Laboratories need to have a strong compliance program for sales and marketing, billing, and overall relationships. Additionally, periodic audits to address any potential for noncompliance may be implemented.” Other approaches that can help combat laboratory corruption include increasing the understanding of the state of accountability within the lab—for example, by mapping accountability linkages—and supporting collective action and community engagement initiatives.¹¹ With any anticorruption efforts, it is important to ensure that they are specific and driven by a genuine desire to reduce laboratory fraud; broad “zero-tolerance” anticorruption reforms can result in vague and unduly bureaucratic processes that emphasize paper-based compliance and are themselves susceptible to further corruption.¹²

And for those who do encounter a problem? “In the event that the laboratory discovers noncompliance, it may engage experienced counsel (this may be either in-house or outside counsel) to perform a confidential, privileged internal investigation,” Tangorre offers. “If any issues are discovered, assessment of possible remedies and analysis of compliance with all applicable laws, including reporting and repaying any potential overpayments, will likely be warranted.”

As a key component of strong healthcare systems, ensuring that the clinical lab is both compliant and corruption-free is crucial to ensuring that public resources are not wasted, healthcare costs are reduced, and—most importantly—that health outcomes, especially for vulnerable populations, continue to improve.

References:

1. Brassiolo P et al. Self-selection into corruption: evidence from the lab. J Econ Behav Organ. 2021;192(1):799–812. Doi:10.1016/j.jebo.2021.11.001.
2. Zhi M et al. The landscape of inappropriate laboratory testing: a 15-year meta-analysis. PloS One. 2013;8(11):e78962. Doi: 10.1371/journal.pone.0078962.
3. Office of Public Affairs, US Department of Justice. False Claims Act Settlements and Judgments Exceed $2.68 Billion in Fiscal Year 2023. February 22, 2024. https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023
4. U.S. Department of Health and Human Services, Office of Inspector General. Enforcement Actions. April 01, 2024. https://oig.hhs.gov/fraud/enforcement/?type=criminal-and-civil-actions
5. Centers for Medicare & Medicaid Services. HFPP: About the Partnership. February 9, 2024. https://www.cms.gov/medicare/medicaid-coordination/healthcare-fraud-prevention-partnership/about
6. Centers for Medicare & Medicaid Services. Examining Clinical Laboratory Services: A Review by the Healthcare Fraud Prevention Partnership. May 15, 2018. https://www.cms.gov/files/document/download-clinical-laboratory-services-white-paper.pdf
7. U.S. Department of Health and Human Services, Office of Inspector General. Convicted Lab Owner Ordered To Forfeit Over $187 Million In Health Care Fraud Proceeds. October 03, 2023. https://oig.hhs.gov/fraud/enforcement/convicted-lab-owner-ordered-to-forfeit-over-187-million-in-health-care-fraud-proceeds/
8. U.S. Department of Health and Human Services, Office of Inspector General. United States Obtains More Than $370 Million In Judgments Against Kentucky Businessman And His Companies For Laboratory Testing Scheme That Targeted Medicare. September 26, 2023. https://oig.hhs.gov/fraud/enforcement/united-states-obtains-more-than-370-million-in-judgments-against-kentucky-businessman-and-his-companies-for-laboratory-testing-scheme-that-targeted-medicare/
9. U.S. Department of Health and Human Services, Office of Inspector General. Lab Owner Sentenced for $463M Genetic Testing Scheme. August 18, 2023. https://oig.hhs.gov/fraud/enforcement/lab-owner-sentenced-for-463m-genetic-testing-scheme/
10. U.S. Department of Health and Human Services, Office of Inspector General. Laboratory Owner Pleads Guilty to $30M Medicare Fraud Scheme. March 26, 2024. https://oig.hhs.gov/fraud/enforcement/laboratory-owner-pleads-guilty-to-30m-medicare-fraud-scheme/
11. Glynn EH et al. Corruption: an impediment to delivering pathology and laboratory services in resource-limited settings. Am J Clin Pathol. 2021;156(6)958–968. doi: 10.1093/ajcp/aqab046.
12. Wierzynska A et al. Recalibrating the anti-corruption, transparency, and accountability formula to advance public health. Glob Health Action. 2020;13(Suppl1)1701327. doi: 10.1080/16549716.2019.1701327.n