Fayetteville Associates in Laboratory Medicine: When the Laboratory Disclosed Its Own Upcoding

The Fayetteville Associates laboratory upcoding case ended in a $493,470 resolution of the practice’s own self-disclosure, reported in the HHS Office of Inspector General’s Semiannual Report for April through September 2001. According to that report, the North Carolina practice’s director discovered in early 1995 that, from about 1990 to 1994, a portion of its anatomic pathology services had been billed under an improper code, and the practice acknowledged upcoding. For a laboratory director, pathologist or billing employee, the case puts a familiar part of the business under scrutiny: the code that turns completed laboratory work into a claim for payment.

Upcoding makes the bill describe a more expensive service than the work supports. The specimen can pass through the laboratory and a result can reach the physician, while the claim tells a different story about what deserves payment. When a government health care program pays that inflated claim, taxpayers pay for the difference.

What Laboratory Upcoding Changes

Laboratory upcoding changes the amount claimed by selecting a higher-paying code than the code that best describes the test performed. The comparison starts with the actual procedure.

If a laboratory replaces an obsolete test but leaves the ordering and billing process unchanged, the claim can describe a different service from the one performed. The bench has moved on. The billing has not. In a high-volume laboratory, that mismatch can recur across claims for the same test.

The documentation may also be divided. An outside physician can hold the only record showing that the test was ordered and why it was medically necessary, while the laboratory holds the testing and billing records. An insider who understands the change in the test can explain a discrepancy that the claim alone does not show.

Why Pathology Billing Needs the Pathology Work

Pathology adds another distinction to the comparison: preparing the specimen and interpreting it are separately identifiable services. The technical component includes specimen processing, sectioning, staining, equipment and the technician’s work. The professional component is the pathologist’s interpretation. Either component can be billed separately or purchased from another provider.

MedPAC’s explanation of laboratory payment places surgical pathology under the physician fee schedule because it includes physician work. Most clinical laboratory services instead fall under the Clinical Laboratory Fee Schedule.

In the later Dianon Systems case, the government alleged that the laboratory ran 26 flow-cytometry tests on every sample, a question of test selection rather than the payment code attached to the work.

What Internal Discovery Adds

An internal review can show how a billing discrepancy was found, who understood it and what the laboratory did next. For an insider looking at another laboratory, the communications around discovery may explain the billing decisions as clearly as the claims themselves.

Laboratory compliance literature was already treating internal review as part of the job. In June 1997, Laboratory Medicine published Model Plan Helps Laboratories Fight Fraud, describing the Office of Inspector General’s model compliance plan. The article connected written policies and staff training with audits, record retention, investigation and correction of identified problems. It also described analyzing test-use data by billing code.

The article’s examples reached into the laboratory’s test offerings. It described notices to ordering physicians that would identify the components of a test profile, the billing codes used and how the laboratory would bill Medicare for the profile. It also described monitoring standing orders for continued validity. Those details connect what the physician requested with what the laboratory’s billing system would do, including when a recurring order kept generating tests.

Fayetteville disclosed its own upcoding. In a separate LabCorp case, the whistleblower alleged that a manager offered only partial credits after the company discovered it had overbilled Walter Reed.

When Software Changes the Claim

In a separate case involving Family Medicine Centers of South Carolina, the Justice Department’s September 2017 announcement alleged that the practice programmed its billing software to change certain laboratory billing codes systematically to ensure Medicare payment.

What Evidence Is Needed to Prove Fraud?

For laboratory upcoding, useful evidence connects the ordered service, the work performed, the code submitted and the resulting claim, together with what people inside the business knew. Internal reviews, coding communications and decisions about corrections can explain how the discrepancy arose and what happened after someone identified it.

A director or technical employee may understand why a code does not describe the procedure. A billing employee may understand how that code reached the claim. The original order and clinical documentation may sit with the treating physician. Our work with an insider is to connect those views into an account of the conduct and the government payment.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know the Work Behind the Code

If you know why a laboratory’s claims describe more than its staff performed, talk with our whistleblower experts about the billing you saw. We develop the case with you, bring in laboratory fraud whistleblower lawyers who understand pathology and coding, and stay beside you through the pursuit of a recovery.