Labs Can Expect COVID-19 Test Audits, Investigations

Federal agencies will seek to verify that federal funds went to legitimate testing efforts

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CEO SUMMARY: Billions of federal dollars were paid out for needed SARS-CoV-2 testing during the pandemic. Now, even the best-run clinical laboratories and pathology groups may have compliance matters to address during upcoming government audits, according to healthcare attorney Matthew Murer. Some sites— including pop-up COVID-19 testing labs—are already feeling the sting of federal investigations. 

 

CLINICAL LABORATORIES AND PATHOLOGY GROUPS testing patients for the SARS-CoV-2 virus can expect a new level of scrutiny from federal regulators, according to an attorney who represents labs and pathology groups in compliance matters. 

Over the next two years or more, clinical lab directors should anticipate that federal agencies will ask them questions about how their labs spent the funds the government allocated for COVID-19, warned Matthew J. Murer, the Healthcare Chair for the Chicago law firm of Polsinelli. Murer specializes in clinical laboratory compliance. 

In addition, health insurers will conduct similar reviews of COVID-19 testing they’ve already paid to labs. To recover overpayments for coronavirus testing, three Blues plans have filed lawsuits in the past year against GS Labs of Omaha, Neb. (See sidebar, “Three Blues Plans Sue Nebraska Lab,” below.) 

“Not surprisingly, a lot of companies got into the COVID-19 testing business despite the fact that they had not previous done any clinical lab testing,” Murer said. “Now some of those lab testing companies are under investigation,” he added. 

The most recent indication that regulators are concerned about fraudulent testing for the coronavirus came on April 20 when the federal Department of Justice (DOJ) announced a nationwide investigation into healthcare fraud related to COVID-19. In its announcement, the DOJ said several cases involve defendants who allegedly offered COVID-19 testing to induce patients to provide their personal identifying information and a saliva or blood sample. 

Fraudulent COVID-19 Claims 

“The defendants are alleged to have then used the information and samples to submit false and fraudulent claims to Medicare for unrelated, medically unnecessary, and far more expensive tests or services,” the DOJ said. 

Another early sign of the concern that federal investigators have about COVID- 19 came earlier this year when the Federal Bureau of Investigation (FBI) raided several labs in the Chicago area. 

On Jan. 23, USA Today reported that the FBI executed a search warrant at the headquarters of a nationwide chain of labs called the Center for COVID Control. 

Illinois Lab Investigation

State and federal officials are investigating the lab company in Rolling Meadows, Ill., after the lab got more than $124 million in federal payments for coronavirus testing, the newspaper added. Other news reports about similar investigations followed. (See Dark Daily, “Large Operator of COVID-19 Collection Sites Suspends Operations and Clinical Laboratory Testing Following State and Federal Probes,” March 4, 2022.)

But those news stories were just the beginning of investigations that could ensnare not only the so-called pop-up testing labs in Chicago and elsewhere, but also larger, legitimate clinical lab companies that have been in business for many years, Murer warned. 

“Any lab company that took money from the billions of dollars in funding that the federal government made available for COVID-19 testing may face investigations from federal regulators and audits or repayments from private health insurers,” Murer explained. 

“From the federal government’s standpoint, it made sense to pay as many labs as possible to do COVID-19 testing,” he noted. “The government wanted to ramp up testing as quickly as possible for the good of the country, the economy, and for public health.

New Labs Enter Marketplace

“When there’s a lot of money to be made in clinical lab testing, everybody piles into the testing business,” Murer added. “That’s what happened with COVID testing starting in 2020, and it continues even now, although to a lesser extent.”

The investigations into the pop-up labs may be just the start. Other clinical labs should closely monitor what’s happening with pop-up investigations, Murer noted. 

“Look at how much money these pop-up labs got from the federal government. In most cases reported in the press, it was more than $100 million,” he emphasized. “In and of itself, that level of payment is not proof of guilt or wrongdoing. But it shows that if the government is willing to pay this much money, a clinical lab company should perform testing correctly and maintain detailed documentation because audits may follow.”

In early 2020, during the first months of testing for the coronavirus, almost all clinical labs were swamped with more tests than they could handle in the time required. 

“That’s one problem that we saw repeatedly,” Murer explained. “Consumers were told they’d get their test results within 24 to 48 hours, but some were waiting weeks to get results. That became an area of complaint that is leading to a lot of the government’s investigations.

Lying to Customers

“Telling consumers they’ll get their results in a day or two while making them wait for a week or more is like lying to them or defrauding them,” he said. “The Federal Trade Commission (FTC) is involved in a number of these cases and looking into whether any business is lying to consumers while taking their money and defrauding them.”

For the FTC, another area of investigation is the quality of testing, he added. “There are a number of anecdotal stories about people who got SARS-CoV-2 test results that initially were negative,” Murer noted. “However, because those same consumers had COVID-19 symptoms, they were motivated to go to another testing lab where they would then get test results indicating they were positive for COVID-19 all along.” 

While it is unusual for the FTC to oversee testing, Murer sees such action as well within the agency’s purview. “The FTC is really interested in whether labs were providing testing at the quality standard that they represented, meaning whether labs were delivering results in 24 hours and the obvious standard that these tests would be done correctly,” he explained. 

Similar cases occurred when consumers would get a negative COVID-19 test result, but then the lab would call a few days later to say the report was incorrect. “The same lab would call to say, ‘Sorry, we had it wrong. Your test result was positive,’” Murer said.

These anecdotes are not evidence of misdeeds or fraud, he added. “In fact, labs that failed to keep promises of turning around test results in 24 to 48 hours—or labs that reported one result and then corrected that result within a day or so—will claim they were simply overwhelmed,” explained Murer. “Or the labs will say, ‘We didn’t have enough test kits to meet the demand.’”

Such an explanation will likely prompt investigators to dig for the truth, Murer said. “The way regulators, including the FTC, DOJ, or the federal Centers for Medicare and Medicaid Services (CMS) will do their investigations is to start at the bottom of the organization,” Murer explained. “They may start with the person working in reception or with a lab tech. They do that to get to someone who really knows what was going on. 

“The investigators will say, ‘You can cooperate with us by telling us what was really going on, and we’ll give you immunity.’ Or, they may say, ‘We’ll give you a plea deal that’s better than you would get normally,’” he explained.

On the other hand, investigators could also threaten lab workers with stiff penalties. “They might say, ‘If you don’t tell us anything, we’ll make sure that you get charged with the full force of the law,’” Murer said. 

“It’s not hard to imagine investigators telling a lab worker, ‘Once we do that, why would you want to risk going to jail when you’re not the one who made the hundreds of millions of dollars?’” he noted.

Such tactics can be convincing and usually persuade employees to talk if they witnessed problems or wrongdoing, Murer added.

“Investigators don’t have to talk to too many people before they get to somebody who says something like, ‘The lab was operating in total chaos,’” he noted.

The source who provides such details may explain that the lab hired someone who knew nothing about testing, that staff weren’t properly trained, or that whole batches of tests were ruined. “That’s how the government will build these cases,” he said.

“Again, I don’t know if any of those allegations are true,” he noted. “However, labs were running thousands and thousands of tests every day during the height of the pandemic. In that environment, things will go wrong in even the best-run labs. In any lab company that is not well run, I’m certain a lot of things could go wrong. Investigators will be looking for these types of things.” 

Contact Matthew J. Murer at mmurer@polsinelli.com or 312-873-3603.

Federal Prosectors Have Prosecuted Multiple Cases Involving SARS-CoV-2 Testing Fraud

IN MAY 2021, THE FEDERAL DEPARTMENT OF JUSTICE announced an enforcement action that involved the prosecution of multiple defendants who offered COVID-19 tests to Medicare beneficiaries at senior living facilities, drive-through COVID-19 testing sites, and medical offices to induce the beneficiaries to provide their personal identifying information and a saliva or blood sample, the DOJ said at the time. 

The defendants are alleged to have then misused the information and samples to submit claims to Medicare for unrelated, medically unnecessary, and far more expensive laboratory tests, including cancer genetic testing, allergy testing, and respiratory pathogen panel tests, the DOJ reported.

“The proceeds of the fraudulent schemes were allegedly laundered through shell corporations and used to purchase exotic automobiles and luxury real estate,” the agency added.

Those cases were similar to those that the DOJ cited in April. In one of the most recent cases, two owners of a clinical laboratory in the Central District of California were charged in a healthcare fraud, kickback, and money laundering scheme that involved the fraudulent billing of over $214 million for laboratory tests, over $125 million of which allegedly involved fraudulent claims during the pandemic for COVID-19 and respiratory pathogen tests,” the DOJ said in April. 

In two other cases—one in the District of Maryland and one in the Eastern District of New York—the owners of medical clinics allegedly obtained confidential information from patients seeking testing at drive-through COVID-19 testing sites and then submitted fraudulent claims for lengthy office visits even though those office visits never happened, the DOJ said.

Three Blues Plans Sue Nebraska Lab Firm

SINCE JULY 2021, THREE BLUES PLANS HAVE FILED LAWSUITS against GS Labs, a laboratory company in Omaha, Neb., that operates 27 lab facilities in 13 states, according to Modern Healthcare.

On March 1, Blue Cross and Blue Shield of Minnesota filed a lawsuit in U.S. District Court of Minnesota, alleging that GS Labs committed fraud in the past year by submitting tens of thousands of claims for coronavirus testing using inflated cash prices, the news magazine reported.

In October, Premera Blue Cross of Seattle, Wash., filed a lawsuit against GS Labs in U.S. District Court for the Western District of Washington, alleging that the lab company forced commercially insured patients to take unnecessary, expensive tests to defraud Premera of $26 million, according to Modern Healthcare. 

In July, BCBS Kansas City accused GS Labs of upcharging the insurer $9.2 million for COVID-19 tests, the news magazine added. GS Labs did not respond to a request for comment. 

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