Labcorp: An Industry Competitor’s Case Ended at the Complaint

Labcorp’s 2002 False Claims Act case ended in dismissal because the complaint did not describe the alleged fraud in enough detail. A medical-testing competitor brought the case, drawing on a background in the laboratory business. For an industry whistleblower, it raises a practical question: how does what you know about the testing connect to what the government was billed?

A Laboratory Competitor Brought the Case

The whistleblower had worked for SmithKline Beecham Clinical Laboratories and described himself as a current competitor of Labcorp.

According to the court, Labcorp tested residents of long-term care facilities under contract, serving at least 100 facilities in Georgia and at least three regional or national chains between the late 1980s and 1998. The complaint alleged six overlapping schemes in that work: standing orders set up by Labcorp employees without a physician’s order or regard to medical necessity, screening tests run to give the laboratory a baseline for its records, duplicative testing of patients with several conditions, unbundled tests, blood-draw charges added to the unnecessary tests, and trip charges for unneeded trips or for more trips than were made. None of it was proved; the case ended on the pleadings.

In its May 9, 2002 decision, the Eleventh Circuit left the dismissal in place.

For someone who knows the laboratory trade, the useful distinction is between familiarity with the business and knowledge of a particular transaction. Our work with an industry whistleblower is to connect those perspectives: what the person recognizes, what happened to the specimen, and how the laboratory sought payment.

Standing Orders Depend on Continued Medical Need

The laboratory industry’s compliance guidance put continuing clinical need at the center of standing orders well before the Labcorp decision. A recurring order can keep tests moving through the laboratory, making its continued validity a question with consequences for the bills that follow.

The June 1997 Laboratory Medicine article Model Plan Helps Laboratories Fight Fraud described the federal inspector general’s recommendations for laboratory compliance. Among them were requisition forms with space for the physician to document the medical necessity of each ordered test through a diagnosis code. It also described monitoring existing standing orders to ensure that they remained valid.

The article also described annual written notices to ordering physicians explaining which tests a laboratory profile contained, how the laboratory would bill Medicare and the payment amount for each billing code. That puts the ordering office in the billing conversation: the physician sees what is in the profile and how the laboratory plans to charge for it.

The inspector general’s 1998 laboratory guidance made the continuing-order issue more specific. It called for periodic monitoring, a fixed period of validity and renewal when that period expired. For nursing homes and end-stage renal disease facilities, it called for written confirmation that existing standing orders remained valid.

These controls identify something a laboratory employee or ordering-office employee may recognize: the gap between an order that keeps generating work and a current clinical reason for that work. In our review of suspected laboratory fraud, the order’s history and the claims generated from it belong in the same account.

The Same Tests Can Produce Different Bills

How a laboratory bills a group of tests can change the payment even when the tests themselves stay the same. The General Accounting Office explained that incentive in its 1998 report on the False Claims Act and Medicare billing.

Automated equipment could perform several clinical tests simultaneously on a single blood sample, reducing labor costs. The billing system recognized those savings through profile codes that generally paid less than the same combination of tests billed separately. The agency explained that overpayments could result when tests performed as a profile were submitted and paid as individual tests.

This is the economic point behind unbundling: more money for the same combination of tests. Medicare pays more without getting another test for the patient. It gives the billing specialist and the laboratory technician different views of the same work. One sees the claim’s components, while the other knows how the tests were performed.

Those particular automated chemistry codes were deleted from the 1998 coding handbook, and Medicare stopped recognizing them.

What Evidence Is Needed to Prove Fraud?

For suspected laboratory billing fraud, we examine the connection between the practitioner’s order, the clinical reason for testing, the work performed and the claim sent for payment. Those records let us investigate a particular transaction rather than stop at a description of how a laboratory operates.

The Labcorp decision concerns a competitor’s complaint that failed to state the allegations with sufficient detail. Its practical value for a healthcare insider is the attention it brings to the specifics. An ordering-office employee may understand why a test was requested. A laboratory employee may understand how testing and billing fit together. We work with the reader’s actual knowledge and the records behind it.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Our whistleblower experts help laboratory and health care insiders turn what they have seen into their strongest case.

Turn Your Laboratory Knowledge Into a Case

If you know how orders, test results or billing decisions changed inside a laboratory, we work beside you from the first conversation through the pursuit of a recovery. We build the case with you and bring in laboratory fraud whistleblower lawyers who understand clinical ordering and Medicare billing. Speak to one of our Whistleblower Experts about the testing you saw billed.