Medicare Pays 500% More for Molecular Test Claims

In some states between 2018 and 2019, Medicare paid 500% to 700% more for some genetic tests

CEO SUMMARY: Rapid growth in what Medicare spent for molecular tests in recent years may lead federal investigators to increase scrutiny of fraudulent billing for clinical laboratory and molecular pathology tests, according to a lab consultant who has tracked such spending in recent years. Data show that Medicare spending for these tests rose sharply since 2017, and that in some Medicare jurisdictions, spending on genetic tests in 2019 rose by 500% to 700% over spending levels from 2018, according to a new analysis.

Newly-released Medicare claims¬†data from 2019 show a previously¬†little-known explosion in claims and¬†payment for molecular and genetic testing‚ÄĒby as much as 500% to 700% in some¬†states in just one year: 2018 to 2019.

The Dark Report is first to report this important development based on an analysis that Bruce Quinn, MD, PhD, did on 2019 Medicare claims data. Quinn is the founder and principal of Bruce Quinn Associates LLC, in Los Angeles.

Using data from Medicare Administrative Contractors (MACs) in all 50 states, Quinn showed that payments for genetic test claims in several states exploded by as much as 700% between 2018 and 2019.

Quinn’s analysis has significant implications for all clinical laboratories. Assuming the accuracy of the assessment is true, the clinical laboratory industry may soon find itself responding to two major developments.

First, Medicare and private payers can be expected to become more aggressive in in their efforts to control the utilization of those molecular and genetic tests they believe physicians are ordering that are inappropriate for their patients. These payers may revoke coverage decisions for tests that lack evidence of clinical utility or make deep cuts in payment for genetic tests and implement tougher audits of genetic testing labs in an effort to recoup payment.

Second, federal healthcare investigators may already have launched a national initiative to investigate genetic testing labs, similar to that of the LabScam investigation in the 1990s. The objective of the latest probe would be to curb fraud by bringing civil and criminal charges against those labs that have violated their contracting agreements and federal laws.

$6 Billion in Fraudulent Claims

The federal Department of Justice announced just such an enforcement action last week. In this latest nationwide crackdown on healthcare fraud, the DOJ brought charges against 345 defendants in states that the department alleged were responsible for more than $6 billion in fraudulent claims. Many of the multi-jurisdictional cases involve clinical and molecular testing laboratories, the DOJ said when it announced what it called the largest healthcare fraud and opioid enforcement action in department history. (For more, go here.)

Quinn suggested that his analysis of the 2019 Medicare claims data showed why some clinical laboratories and molecular pathology groups running genetic tests could be at risk of criminal liability for fraudulent and unnecessary testing. Attorneys with extensive knowledge about state and federal healthcare laws confirmed Quinn’s suggestion.

Criminal Liability for Labs

‚ÄúThe reason for the increased risk in¬†criminal liability for laboratories and¬†pathology groups is that genetic testing in¬†several states rose dramatically last year,‚Ä̬†observed Quinn, a health policy and¬†genetics testing consultant who once was¬†a medical director for a MAC. ‚ÄúIn some¬†states, the Medicare data show spending¬†on genetic tests last year rose by 500%¬†to 700% over spending levels from fiscal¬†2018.‚ÄĚ

Quinn based his assessment on an¬†analysis of Medicare claims data from 2019¬†that the federal Centers for Medicare and¬†Medicare Services (CMS) made public on¬†Sept. 10. That data is on the CMS website¬†under the heading, ‚Äú2019 Part B Carrier¬†Summary Data File.‚ÄĚ

‚ÄúThese spending amounts may be¬†related to massive genetic test fraud that is¬†similar to what federal investigators found¬†in a sting operation in 2019,‚ÄĚ commented¬†Quinn. Last year, the DOJ charged 35¬†defendants with fraud related to genetic¬†testing that totaled $2.1 billion. Many of¬†those 35 defendants were affiliated with¬†clinical laboratories and pathology groups¬†under a DOJ program called Operation¬†Double Helix. (See, ‚ÄúDOJ Charges 35¬†Individuals in Genetic Testing Scam,‚Ä̬†TDR, Oct. 14, 2019.)

Molecular Test Investigations

Justin T. Berger, a partner with the law firm of Cotchett, Pitre, and McCarthy, LLP, in San Francisco, commented that lawyers who work with clinical laboratories and molecular pathologists have speculatedfor more than a year that federal regulators have been looking into molecular test spending. (See sidebar below.)

It‚Äôs worth noting that Quinn published¬†his analysis on his blog, ‚ÄúDiscoveries inHealth Policy,‚ÄĚ on Sept. 22 and Sept.¬†25. The DOJ announced its crackdown¬†on Sept. 30. ‚ÄúThe DOJ‚Äôs action could be¬†related,‚ÄĚ Quinn said in an email. ‚ÄúI suspect¬†what the DOJ found is more of the¬†same genetic testing in the poorly-monitored¬†states that my analysis identified,¬†and likely with the same CPT codes that¬†the DOJ acted on last year. In fact, they¬†could be acting on the 2019 claims that I¬†have analyzed.‚ÄĚ

Quinn’s review of 2019 data is significant because it comes after two separate government reports showed that Medicare spending for molecular pathology tests essentially doubled from 2017 to 2018. In one of those reports, the federal Office of Inspector General showed that spending on genetic tests rose by $500 million in 2017 and to $1 billion in 2018. The Medicare Payment Advisory Commission reported similar numbers.

Quinn’s analysis extends this growth pattern from 2018 into 2019. Spending on genetic testing roughly doubled from 2017 to 2018, and now it has been shownto have doubled again from 2018 to 2019. Quinn found the most unusual 2019 spending in states under just two of the seven CMS MACs (the two MACs were Novitas and FCSO).

‚ÄúBefore spending doubled from 2017¬†to 2018, spending for molecular pathology¬†tests had been roughly level for several¬†years,‚ÄĚ noted Quinn. In those years,¬†spending totaled about $500 million and¬†mostly went to a few tests, such as those¬†for BRCA mutations, Exact Sciences‚Äô¬†Cologuard test, and Genomic Health‚Äôs¬†Oncotype Dx, he added.

Total spending in 2019 for molecular pathology tests was $1.6 billion,an increase of about $600 million over spending levels in 2018, and an increase of $1 billion from 2017, he said. He noted these data do not yet include genetic testing billed to Medicare by hospital outreach labs.

Medicare Spending Levels

In his research, Quinn totaled Medicare¬†spending levels for certain CPT codes¬†from the 28 states. ‚ÄúBasically, I went¬†through more than 50 spreadsheet files¬†state by state,‚ÄĚ he explained. ‚ÄúFor that¬†data, I pulled a sum of spending for CPT¬†codes 811xx, 812xx, 813xx, 814xx, and¬†815xx.‚ÄĚ

In addition, Quinn added spending for 0037U in Massachusetts. The 0037U is a CPT code that labs use when billing for a test from Foundation Medicine.

In 2019, spending on molecular diagnostics in the 28 states under the CMS MolDx program was $570 million, or 35% of the total that Medicare spent last year on molecular tests. Among those four MACs, Noridian accounted for 90% of molecular diagnostic tests in 2019, he reported. MolDx is a formal program under which four of the CMS MACs use the same genetic test policies in 28 states.

$1.07 Billion Spent

In the other 22 states, Quinn reported that¬†$1.07 billion‚ÄĒor 65% of Medicare‚Äôs total¬†spending last year‚ÄĒwas on molecular¬†diagnostic tests. Some of the highlights of¬†Quinn‚Äôs work include the following:

‚ÄĘ In Florida, the total spent on molecular¬†testing was $123 million in 2019,¬†which was seven times more than the¬†$17.5 million that CMS paid for such¬†testing in Florida in 2018.

‚ÄĘ In Washington, D.C., Medicare spent¬†$43 million on molecular tests in 2019,¬†and that amount was 5.7 times more¬†than the $7.5 million that CMS spent¬†in that city in 2018.

‚ÄĘ In Oklahoma, the total was $123 million¬†in 2019, but Medicare spent only¬†$33 million on these tests in 2018,¬†meaning that what labs in Oklahoma¬†were paid in 2019 was 3.7 times more¬†than what CMS spent in 2018.

Many Lab Industry Attorneys Expected Action by Federal Prosecutors against Genetic Labs

LAWYERS REPRESENTING CLINICAL LABORATORIES AND MOLECULAR PATHOLOGY COMPANIES have heard rumors for the past several years that criminal investigators are looking closely at how much the Medicare program spends on molecular testing, said Justin T. Berger, a partner with the law firm of Cotchett, Pitre, and McCarthy LLP, in San Francisco.

Berger specializes in corporate fraud cases¬†and has represented whistleblowers in¬†clinical lab testing cases.¬†‚ÄúFor some time, I‚Äôve heard that scrutiny¬†of these labs and this type of testing¬†has increased,‚ÄĚ he said in an interview with¬†The Dark Report. ‚ÄúWe know about some¬†of this increase because of whistleblower¬†complaints. In addition, increased spending¬†on molecular tests has made these¬†tests an area of focus for the government¬†as we saw last year and again this year.‚ÄĚ

The press release issued last week by the Department of Justice (DOJ) describing criminal charges against 345 defendants involving fraudulent Medicare claims totaling $6 billion is confirmation that ongoing rumors about active investigations are true.

‚ÄúUp until recently, it‚Äôs been almost too¬†early to know exactly how this scrutiny¬†would play out,‚ÄĚ he added. ‚ÄúNow we see¬†that the DOJ is dead serious about cracking¬†down on fraud.

‚ÄúOne thing that stood out to me in Dr.¬†Quinn‚Äôs work is that there‚Äôs a discrepancy¬†between how the different Medicare jurisdictions¬†apply payment rules,‚ÄĚ he commented.¬†‚ÄúOne Medicare contractor might¬†not pay for a test, while another would pay¬†for that same test.‚ÄĚ

Labs ‚ÄėShop‚Äô MACS

When one Medicare Administrative¬†Contractor (MAC) denies coverage for a¬†test, but another MAC pays for that test,¬†labs may then look for ways to bill for¬†their tests through the MAC that pays for¬†them, Berger explained.¬†‚ÄúLabs have gotten pretty wise to this¬†method of trying to find the most favorable¬†MAC,‚ÄĚ he added. ‚ÄúLawyers have a¬†similar strategy that the legal industry¬†calls forum shopping. You try to bring¬†your case in the friendliest state or where¬†you think the judges are best.

‚ÄúBasically, labs have adopted an equivalent¬†strategy by trying to find the MAC¬†that will give them a good coverage determination,‚Ä̬†he said. ‚ÄúThat way they can¬†get paid for running a test by setting up¬†shop in states that are sending out those¬†patient specimens to labs in those states.¬†It‚Äôs a risky strategy, but until we see more¬†uniformity in coverage determinations, it‚Äôs¬†not likely to end.‚ÄĚ

Genetic Labs May Already Have Whistleblowers

T IS COMMON FOR EMPLOYEES AND INDIVIDUALS associated with a lab company to recognize sales and business practices that violate federal and state healthcare fraud laws. These individuals can often become whistleblowers, particularly after they report the illegal behavior to lab management and nothing changes.

For this reason, it may be that some of the cases announced by federal prosecutors last Wednesday were based upon qui tam lawsuits filed by lab whistleblowers. It is also possible that a surprising number of whistleblower lawsuits filed against different molecular and genetic testing companies are active and still under seal. That means an unknown number of such genetic testing companies may be under active investigation, but because the lawsuits are still under seal by the court, the lab executives and owners remain unaware of their existence.

For these reasons, the entire clinical¬†lab industry may find itself at the edge of¬†a growing wave of federal fraud and abuse¬†investigations. In the 1990s, the federal¬†Department of Justice initiated ‚ÄúOperation¬†LabScam‚ÄĚ as a major effort to prosecute¬†clinical labs for test unbundling and related¬†schemes. During its 10-year run, LabScam¬†snared almost every public lab company¬†(sometimes more than once) and generated¬†about $2 billion in settlements.

Contact Bruce Quinn, MD, at or 323-839-8637; Justin Berger at or 650-697-6000.



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