Clinical laboratories face recurring civil exposure under the False Claims Act when billing practices substitute volume for medical necessity. The government and private relators pursue these cases through three theories that return again and again in laboratory enforcement: medically unnecessary or duplicative testing, panel billing that obscures the necessity of each individual test, and compensation paid to marketers or referring physicians tied to referral volume. Each theory can support civil damages and penalties under the Act, detailed in False Claims Act Damages and Per-Claim Penalties, along with program exclusion and a corporate integrity agreement that puts the laboratory's billing under ongoing government oversight.
Unnecessary Testing and Panel Billing
The HHS Office of Inspector General has warned that laboratory arrangements tying physician compensation to referral volume can induce physicians to order more tests than are medically necessary. The OIG's Special Fraud Alert: Laboratory Payments to Referring Physicians, issued June 25, 2014, flagged payment arrangements conditioned on a physician ordering a specified test panel, particularly a panel containing duplicative tests or tests that are not reasonable and necessary. A disease-related panel presented on a laboratory's requisition form draws scrutiny when it makes it harder for the ordering physician to evaluate the necessity of each billed test independently. Medicare pays for laboratory tests only when they meet coverage criteria and are reasonable and necessary, so a claim for a test that fails that standard is a potential False Claims Act exposure point even when no kickback is involved.
Marketer and Referral Kickbacks
A separate theory ties liability to payments made for referrals. The Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b), makes it a felony to knowingly and willfully offer, pay, solicit, or receive remuneration to induce referrals of items or services reimbursable by a federal health care program, a standard that reaches payments to physicians, marketers, and other referral sources alike. Congress added 42 U.S.C. 1320a-7b(g) in 2010, providing that a claim that includes items or services resulting from an Anti-Kickback Statute violation constitutes a false or fraudulent claim under the False Claims Act. That amendment means a kickback-tainted referral does not need a separately false billing code to become actionable. The Department of Justice applied that theory in March 2025, when a group of physicians, their practices, and a laboratory marketer agreed to pay $1,913,808 to resolve allegations that they received or paid kickbacks tied to laboratory referrals. A related False Claims Act exposure theory applies to risk-adjustment reporting under managed care contracts, discussed in False Claims Act Exposure in Managed Care.
What the Government Must Prove
Civil liability under the Act does not require proof of specific intent to defraud. Under 31 U.S.C. 3729(b)(1), knowing means that the laboratory had actual knowledge that a claim was false, acted in deliberate ignorance of its truth or falsity, or acted in reckless disregard of its truth or falsity. A sincerely mistaken billing error, standing alone, does not meet that standard. The claim must also be material: 31 U.S.C. 3729(b)(4) defines material as having a natural tendency to influence, or being capable of influencing, the payment or receipt of money or property. These civil elements are distinct from the criminal healthcare fraud and Anti-Kickback Statute charges a laboratory could separately face, a distinction examined in FCA Civil Exposure vs Criminal Charges: Keeping Them Apart. A laboratory case can begin as a qui tam suit, filed under seal by a current or former employee, biller, or competitor before the government decides whether to intervene.
A kickback-tainted referral does not need a separate billing error to become a false claim. Under 42 U.S.C. 1320a-7b(g), the kickback itself is enough.
Why Early Legal Counsel Is Critical
It is critical that clinical laboratories promptly retain experienced healthcare defense counsel upon receiving a civil investigative demand, subpoena, audit notice, or other government inquiry touching testing or referral practices. Early legal intervention can protect the laboratory's rights, ensure appropriate responses to government requests, avoid inadvertent admissions, preserve relevant defenses, and allow counsel to communicate with investigators on the laboratory's behalf. Delaying legal representation can significantly affect the outcome of a matter and expose the laboratory to unnecessary risk, including OIG exclusion from Medicare and Medicaid.
How Health Law Alliance Can Help
Health Law Alliance defends FCA matters across pharmacies, providers, manufacturers, and corporate defendants. Health Law Alliance's attorneys have overseen 2,000+ audits and handled 5,000+ matters, with 25+ years of experience. If your laboratory has received a civil investigative demand, a qui tam complaint, or an OIG subpoena concerning testing or referral practices, contact us for a free, confidential consultation before you respond.
