Lack of Understanding of Healthcare Rules Exposes Labs and Other COVID-19 Testing Facilities to Federal Fraud Investigations

When the U.S. Centers for Disease Control and Prevention (CDC) rolled out the first COVID-19 test in February 2020, labs and other healthcare providers rushed to make the test available to as many people as possible. Federal authorities understood that the urgency of the situation called for leniency with regard to enforcement of the strict federal healthcare regulatory regime, and they were happy to relax the rules (within reason) for a while.

Things are different in February 2022. Two years later, COVID-19 testing remains critical for controlling the spread of the omicron variant, but federal agencies are no longer willing to let labs and other testing facilities step outside of the traditional rules. Agencies including the Federal Bureau of Investigation (FBI) and U.S. Department of Justice (DOJ) are conducting widespread COVID-19 testing fraud investigations targeting all types of testing providers, and the DOJ is aggressively prosecuting providers suspected of fraud.

While some of these investigations are targeting scam artists and fly-by-night operations, the vast majority are targeting legitimate labs and other registered and licensed testing facilities. In most cases, the providers that are facing prosecution as a result of these investigations are at risk due to a lack of understanding of the rules governing COVID-19 testing and related business practices.

Understanding the Myriad Healthcare Rules Governing COVID-19 Testing

Labs and other facilities that offer COVID-19 tests to the public are subject to myriad federal laws, rules, and regulations. These sources of legal authority govern all aspects of these providers’ COVID-19 testing practices—from their relationships with referring physicians to which tests they can perform, and from how they perform these tests to how and when they seek reimbursement from the federal government.

Recent federal investigations targeting labs and other facilities for COVID-19 testing fraud have involved allegations across the entire spectrum of the federal healthcare regulatory regime. Authorities are seeking to impose penalties for both intentional and unintentional violations, and the DOJ is pursuing criminal charges when warranted.

Here are some examples of rules violations that are getting COVID-19 testing providers in trouble in 2022:

Improper Financial Relationships

From an economic perspective, one of the most notable aspects of the COVID-19 crisis has been the rush to profit from the pandemic on a mass scale. While all types of businesses have found ways to monetize the pandemic, the goldrush in the healthcare sector has been the most prolific by far.

This has led to the consummation of a lot of improper financial relationships. The Anti-Kickback Statute (AKS), Eliminating Kickbacks in Recovery Act (EKRA), Stark Law, and other federal statutes prohibit labs, clinics, doctor’s offices, hospitals, and other providers from engaging in many types of financial relationships when the money involved comes from Medicare or another government benefit program. These statutes speak specifically to forms of “remuneration” paid in exchange for referrals of program beneficiaries, but their scope extends far beyond traditional referral fees.

It has become clear during the pandemic that many lab executives, physician-practice owners, and others in the healthcare industry are not familiar enough with the prohibitions of the AKS, EKRA, and Stark Law. There have been several recent cases involving improper referral fees paid in connection with COVID-19 testing referrals, and we expect to see many more throughout 2022.

Inadequate Test Result Reporting

Labs and other facilities that perform COVID-19 testing are subject to various reporting requirements. As the CDC explains, “A CLIA-certified laboratory or testing site must report all SARS-CoV-2 diagnostic and screening test results to the person who was tested or that person’s healthcare provider. . . . A CLIA-certified laboratory or testing site must also report all SARS-CoV-2 test results to their respective state, tribal, local, and territorial health department’s website in accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act.”

Several labs and other facilities have faced federal liability for failing to satisfy their reporting obligations. Failure to report test results, particularly to the patient or the patient’s healthcare provider, is a matter that federal authorities are taking very seriously—and for good reason. Not only can COVID-19 testing providers face liability for failing to report test results, but they can face allegations of billing fraud when they bill for tests with unreported results as well.

CLIA Certification Violations and Failure to Follow Best Practices

The Clinical Laboratory Improvement Amendments (CLIA) and the regulations promulgated thereunder are a set of rules that apply to all labs and other facilities that conduct diagnostic and preventive testing. This includes facilities that conduct COVID-19 testing—whether or not they also provide other diagnostic or preventive services. Compliance is mandatory for certified labs and other facilities, and providing testing services while in violation of the CLIA certification requirements can lead to substantial fines in addition to loss of certification.

Testing facilities must follow other best practices as well. They must follow these best practices before, during, and after testing, and they must do so on a consistent basis. Labs and other facilities that fail to satisfy the standards enforced by the CDC, U.S. Department of Health and Human Services (DHHS), and other authorities will be at risk for fines, recoupments, treble (triple) damages, loss of program eligibility, and other penalties if federal authorities investigate their COVID-19 testing practices.

Non-Compliance with CDC COVID-19 Testing Guidance

The CDC has issued a significant amount of guidance for COVID-19 testing providers, and it is continuing to release new and updated guidance on a regular basis. Labs and other facilities must adhere to this guidance on top of adhering to all of the other laws, rules, and regulations that apply.

Billing and Coding Violations (Both Intentional and Inadvertent)

Billing and coding violations are a perennial trigger for federal healthcare fraud investigations, but the CDC, DOJ, and other federal authorities are paying particular attention to labs’ and other facilities’ reimbursement requests for COVID-19 tests during the pandemic. They are also on the lookout for providers bundling COVID-19 testing services with other non-medically-necessary tests.

Private insurers are closely scrutinizing COVID-19 testing bills as well, and improperly billing private insurance companies can also be prosecuted as federal healthcare fraud. The same goes for billing patients when Medicare or their insurance companies have already footed the bill.

While some cases involve intentional fraud, many billing fraud investigations are triggered by inadvertent billing errors. Oftentimes, these errors result from a lack of understanding of the rules and regulations that apply. Labs and other facilities need to adopt comprehensive billing compliance programs, and they need to ensure that their billing personnel both (i) know how to maintain compliance, and (ii) are actually maintaining compliance on an ongoing basis.

General Laboratory Compliance Failures

Along with billing issues and issues specific to COVID-19 testing, labs can also face federal investigations and charges related to general laboratory compliance failures. The DHHS Office of Inspector General (OIG) has published a Model Compliance Plan for Clinical Laboratories, but this document just scratches the surface of what lab owners and executives need to know.

Here too, compliance failures often result from a lack of understanding of the scope of the federal regulatory landscape. Numerous federal laws govern laboratories’ practices, from how they operate and equip their facilities to how they test patients and how they bill. When lab owners and executives do not have an adequate appreciation of both the burden and importance of laboratory compliance, they and their facilities will both be at risk in the event of a federal fraud investigation.

Understanding the Scope of the Risk Attendant to COVID-19 Testing

Federal agencies have the authority to investigate several years’ worth of legal and regulatory violations, and many of the DOJ’s recently-publicized COVID-19 testing fraud investigations have involved allegations dating back to 2020. As a result, while labs and other testing facilities need to ensure that their current practices and procedures are compliant, they cannot ignore the risk of facing prosecution for past compliance failures.

With this in mind, labs and other testing facilities should consider engaging counsel to conduct a COVID-19 testing compliance audit. By auditing their COVID-19 testing and billing histories, testing facilities can assess their risk exposure, and they can address any compliance violations before federal agents uncover them. This is a crucial risk mitigation strategy, and it also serves to prepare labs and other testing facilities to favorably resolve any future investigations as efficiently and favorably as possible.

Speak with a Federal Healthcare Compliance Lawyer or COVID-19 Testing Consultant at Oberheiden P.C.

The attorneys at Oberheiden P.C. represent laboratories, lab owners and executives, and other healthcare businesses and professionals in all federal compliance and enforcement matters. Our firm also has a team of former DOJ, FBI, and OIG agents who consult with lab owners, physicians, and other healthcare professionals regarding COVID-19 testing compliance and risk mitigation. If you would like to speak with one of our attorneys or consultants in confidence, please call 888-680-1745 or get in touch online today.