Laboratory Fraud: Follow the Order, the Test and the Claim

Laboratory fraud uses unnecessary, unordered, unperformed or falsely billed tests, often backed by bought referrals, to obtain payment. The scheme can start well before a specimen reaches the bench. Someone chooses the tests, someone supplies the order, someone performs the work, and someone bills for it. If you know how those decisions happen inside a laboratory or referring practice, you may know where the clinical story stops matching the business.

Who Orders, Performs and Bills a Laboratory Test?

The laboratory billing payment chain separates the person who decides a test is needed from the business that performs it and the payer that pays. For Medicare diagnostic testing, the treating clinician orders the service and keeps the medical record supporting its necessity. The laboratory keeps the order information it receives and the documentation supporting its claim. The payer usually receives the claim without the treating clinician’s full record. Across health care, laboratories bill Medicare, Medicaid and TRICARE, as well as Medicare Advantage plans and commercial insurers.

Collection adds another participant. A specimen may leave a physician’s office, a hospital or a laboratory collection site, travel by courier, and reach a different facility for testing. A referring laboratory may send work to a reference laboratory with the equipment or specialist expertise to perform it. The collection site, performing laboratory and billing entity can therefore be different businesses.

Medicare generally pays the laboratory that performed or supervised the test, with exceptions for some send-outs and hospital arrangements. When a hospital obtains testing under a covered arrangement, payment goes to the hospital and the laboratory bills the facility. The contract and specimen route help explain whose work appears on whose claim.

Most clinical laboratory tests fall under the Clinical Laboratory Fee Schedule. Surgical pathology and other services involving physician work fall under the physician fee schedule. In pathology, preparing and staining the specimen is the technical work. The pathologist’s interpretation is the professional work. Each leaves a different record.

For covered clinical laboratory fee-schedule services accepted on assignment, Medicare beneficiaries owe no deductible or coinsurance. The Medicare Payment Advisory Commission’s explanation of laboratory payment puts that feature alongside the payment rules. The patient can supply the sample without seeing a bill that would prompt a question about the tests.

CLIA certification addresses the testing site’s permitted work and laboratory standards. Coverage addresses whether the particular test qualifies for payment.

Why Laboratory Fraud Scales

Routine clinical testing is a healthcare business that combines high volume with inexpensive individual tests. A recurring order can generate recurring claims. That makes a default panel, a referral relationship or a billing-system setting more consequential than the price of a single routine test suggests. The laboratory needs orders from clinicians who often hold the medical-necessity documentation outside the laboratory’s own systems.

The concern is old enough to have been spelled out in Model Plan Helps Laboratories Fight Fraud, published in Laboratory Medicine in 1997. Its account of OIG’s model plan describes telling physicians which tests a profile contains, how those tests will be coded and how Medicare will be billed. It also describes monitoring standing orders and test-use data. The order form and the billing system have needed to agree for decades.

The incentive also depends on which tests the laboratory sells. The Department of Health and Human Services’ Office of Inspector General reported that genetic tests accounted for 5% of Medicare Part B laboratory tests but 43% of spending in 2024. That concentration of payment helps explain why molecular testing reimbursement matters to a laboratory’s sales strategy.

The commercial prize is access to the ordering decision. When a laboratory buys referrals, honest laboratories compete against the payment to the practice. Taxpayers pay for the resulting tests, and patients supply the specimens.

How the Order Becomes a False Claim

The basic comparison is what the clinician ordered, what the laboratory performed and what it billed. A preselected panel can expand the order. An automatic reflex can add another test. A billing rule can turn one panel into separate claims, or describe work the laboratory never did.

Medical necessity adds a separate question: why did this patient need this test? The treating clinician’s record supplies that explanation. The laboratory can request supporting information, but cannot create the clinician’s reason afterward. The same matters when a diagnosis code appears on a claim: did it come from the patient’s medical information, or did someone insert it to obtain payment?

What Evidence Is Needed to Prove Fraud?

Useful laboratory fraud evidence connects the order, specimen, work performed and claim to the people who made the decisions. The requisition shows the selected tests. Specimen and testing records connect the sample’s route to the work reported. Results and billing records show what the laboratory reported and charged. Contracts, invoices and commission schedules explain who received value for the business.

The payer can see a different part of that picture. In its August 2026 laboratory enforcement announcement, the Centers for Medicare & Medicaid Services described using claims analytics to identify unusual combinations of testing, billing, documentation and provider relationships for further review. The person inside the business may be able to explain the instruction or payment behind the pattern.

Who Sees the Decisions Behind the Claim

Laboratory fraud whistleblowers include billers, sales representatives, phlebotomists, technical directors, quality-control analysts, laboratory directors, medical assistants and physicians. Their value comes from knowing different parts of the same transaction.

A biller may recognize the code that keeps appearing despite a different order. A collector may know who fills out the requisition before the doctor sees it. Sales staff may know what a practice was promised for sending specimens. Technical and quality staff may know whether the claimed testing matches the work the laboratory could perform. A director may know who approved the policy that made the problem repeat.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Private parties can bring these qui tam cases on the government’s behalf. Before reporting laboratory fraud, speak with our whistleblower experts about what you know and who made the decisions.

Laboratory Fraud Patterns Behind the Claims

The recurring laboratory fraud cases concern different decisions: selecting the test, paying for the referral, describing the work or choosing the billing entity.

Standing Orders and Custom Profiles

Standing orders and custom lab profiles can default patients into definitive testing for 22 or more drug classes, as Genotox Laboratories admitted in its civil settlement. The company offered providers forms that preselected tests for all or nearly all their patients, generally in the highest reimbursement categories.

For medically unnecessary laboratory tests, the patient-specific decision is the missing link. The insider may know whether anyone revisited the selection when the next patient’s specimen arrived.

When Are Toxicology Tests Unnecessary?

Blanket orders that repeat broad menus without a patient-specific medical reason can make unnecessary testing routine. Urine drug testing fraud allegations led to Labcorp‘s $14.5 million settlement over its ToxAssure Comprehensive panel, in which it admitted billing both the all-inclusive presumptive code and the highest-tier definitive code on the same urine sample.

Presumptive tests detect drug classes. Definitive tests identify individual substances and, where applicable, their concentrations.

The clinical question reaches beyond the test menu. Ethical Perspectives on Urine Drug Screening for Pain Physicians, published in Pain Physician in 2014, explains why a result needs clinical interpretation. The paper cautions against using urine-test results in isolation to diagnose addiction or decide treatment without clinical context.

Do Doctors Get Kickbacks for Ordering Tests?

Yes. Laboratory kickbacks disguised as rent, phlebotomy and toxicology payments were among the allegations Labtech Diagnostics and its founder agreed to resolve for at least $6.8 million in a civil False Claims Act settlement.

What the practice received mattered more than what the contract called it. Across laboratory cases, the value also appears as processing fees, sales commissions, medical-director payments, software subsidies and free staff or supplies. Other referral incentives include below-cost profiles sold to physicians while Medicare is billed the full price for their components, sham research-study payments that buy referrals, and sales commissions tied to the number of tests sold.

The government has also alleged that management services organizations routed laboratory profits back to referring doctors. Supposed investment returns could disguise payments for orders.

The Inspector General’s free-services letter explains the same issue beyond cash: a laboratory employee who takes vital signs, handles clerical work or performs other practice duties supplies something the practice would otherwise provide. The letter also addresses free nursing-home chart review, standing-order administration and infection-control work tied to laboratory referrals.

The whistleblower’s complaint against Health Diagnostic Laboratory alleged that packaging fees encouraged extra testing and that waiving privately insured patients’ charges helped attract the practice’s Medicare business.

Physician-Owned Laboratories and Self-Referral

Physician-owned laboratories put the ordering decision and a financial interest in the testing business in the same hands. The physician self-referral law addresses referrals through ownership, investment and compensation relationships.

Sober-Home and Court-Ordered Drug Testing

Court-ordered and sober-home drug tests can be billed as medical care even when their purpose is monitoring. The government’s allegations against BioTap Medical concerned urine tests performed for the family court system, while those against GENCO LAB concerned sober-home residential monitoring and duplicative testing. OIG’s civil settlement with AIT Laboratories concerned alleged kickbacks to sober homes in the form of free specimen-collection staff.

Processing Fees That Follow the Specimen

Laboratory processing and handling fees can pay a practice again for work Medicare already covers in a bundled payment. The Inspector General’s 2014 laboratory-payments alert describes the work behind those fees: centrifuging specimens, separating serum, labeling tubes, packing samples and supplying forms and insurance information.

The alert identified arrangements where the physician received a processing payment even though a laboratory-supplied phlebotomist actually did the processing. It also identified payments tied to referral volume or a required type of test or panel.

That gives an office manager or phlebotomist a concrete connection to the payment: who did the work, who bore its cost and who received the fee.

Genetic Testing and Purchased Orders

Genetic testing fraud allegations against Genexe, Immerge and their executives resulted in a $6 million settlement. The government’s account followed the sample from collection to payment.

Genexe and its parent company, Immerge, were marketing companies. Genexe allegedly used contractors, most without medical training, to recruit Medicare beneficiaries and collect cheek swabs and insurance information at stores, health fairs, churches and other locations. The specimens went to Immerge. Genexe then obtained physician orders through telemedicine and laboratory arrangements before sending the specimens to a separate medical laboratory for testing. The laboratory billed Medicare and paid Genexe a portion of the reimbursement.

The sequence matters: the sample and prospective customer came first, and the order followed. A paid telemedicine signature can supply the appearance of a treating relationship to a testing business already assembled around the patient.

Pathology and Automatic Extra Stains

Pathology fraud allegations contributed to Atlanta Gastroenterology Associates‘ $4.75 million settlement. The government alleged that the practice automatically ordered special stains before a pathologist reviewed the routine stain and decided whether the patient needed more testing.

The alleged workflow left that decision and its medical-record justification out of the process. The timing of the pathologist’s review explains why a completed stain can still generate a false claim.

Panel Unbundling and Diagnosis-Code Manipulation

Laboratory panel unbundling turns tests performed as one panel on a single sample into separate charges. The government alleged that Health First Urgent Care billed individual pathogen tests instead of the panel it performed. The announcement describes how the claim changed while the underlying work stayed the same.

Diagnosis-code manipulation changes a different part of the claim. A code inserted to obtain coverage can give the payer a clinical reason the treating record never supplied. Upcoding similarly makes the claim describe a level of testing beyond the work performed.

In the case against Physicians Toxicology Laboratory, the government alleged another way to bill for an included service: charging Medicare for urine hormone tests used to check specimen validity, even though that work was already included in the drug-testing payment. The laboratory allegedly knew that a referring practice was ordering the hormone tests with almost every drug test, as a specimen-validity check.

Tests Never Performed and Misrepresented Results

In one example of billing for tests never performed from its August 2026 announcement, CMS reported that the owner of a consulting company enrolled 14 laboratories, none of them found operating, and billed more than $24 million for services that could not have been rendered.

Laboratory quality and result integrity raise a different question: what did the testing actually establish? In its guilty plea, Nichols Institute Diagnostics, which made parathyroid-hormone test kits used by laboratories, admitted knowingly shipping a misbranded assay in interstate commerce. The Justice Department’s account of the criminal case said the company knew the assay did not consistently give results equivalent to the comparison assay, while its marketing claimed excellent correlation.

Hospital Pass-Through Billing and Inflated Travel

Laboratory pass-through billing fraud was the allegation behind approximately $1.4 billion in claims described in a 2020 criminal charging announcement. The charges alleged that operators used rural hospitals’ higher negotiated rates for tests performed elsewhere on patients never treated at those hospitals. The billing identity supplied the higher price.

Inflated collection-travel claims supplied a different route to payment in Labcorp’s $700,000 settlement in 1997. The government alleged that phlebotomists overstated mileage to homebound and nursing-home patients.

You Know How the Tests Became Claims

If you know who chose the panel, filled out the order or paid for the referrals, speak with our whistleblower experts about building your strongest laboratory fraud case. We build the case strategy with you, bring in laboratory fraud whistleblower lawyers who understand testing and reimbursement, and stay beside you throughout the case.