By: Christopher Parrella, Esq., CPC, CHC, CPCO
Parrella Health Law, Boston, MA
A Health Care Provider Defense and Compliance Firm

In a decision that should matter to every laboratory physician group and health care provider facing False Claims Act exposure the U.S. Court of Appeals for the First Circuit just delivered a decisive win for defendants. On December 1, 2025 the First Circuit unanimously affirmed summary judgment for MD Labs holding that there was insufficient evidence the lab knowingly submitted false Medicare claims. In doing so the court answered an important question of first impression in this circuit and sent a clear message about the limits of FCA liability.

At the center of the case was a familiar allegation. A relator claimed that laboratory testing was medically unnecessary and therefore reimbursement violated Medicare’s reasonable and necessary standard. What made this case different was how the court analyzed knowledge. The First Circuit held that in FCA cases involving lab testing, a laboratory may rely on a physician’s order to establish medical necessity. Once that showing is made the burden shifts to the relator to rebut it. That burden was not met here.

The facts matter. Between 2017 and 2019 Omni Healthcare sent MD Labs samples for UTI testing. MD Labs performed the tests reported results and billed Medicare. Behind the scenes, however, Omni’s owner instructed staff to order newer more expensive tests even when providers had requested older less expensive options. The stated goal was not patient care. It was to manufacture evidence to support a future Medicare fraud case against the lab. The government declined to intervene on those UTI test claims and the district court ultimately found no evidence MD Labs knew the testing was unnecessary.

That alone would have been notable. What followed was extraordinary.

In September 2025, Judge Saris granted MD Labs’ motion for attorneys’ fees under the FCA’s rarely used fee shifting provision. The court found that Omni misused its statutory privilege, distorted the intent of the FCA and knowingly manufactured false claims solely to support a qui tam action. The conduct was described as extremely troubling. While the FCA is designed to encourage whistleblowers, it does not do so at any cost. With the First Circuit now affirming summary judgment a final fee award is likely to follow ending a long and costly saga.

This case matters because it draws a hard line at relator conduct. The FCA remains a powerful enforcement tool and DOJ has made clear it intends to expand its use across health care and beyond. But this decision confirms that courts will still police the boundaries especially where a relator contributes to or causes the alleged fraud. Laboratories are not automatically liable simply because testing is later challenged as unnecessary. Reliance on a physician order remains a critical protection absent evidence of knowing falsity.

For providers this is both a warning and an opportunity. It is a warning because aggressive relators continue to target labs diagnostic services and utilization patterns. It is an opportunity because careful compliance documentation and adherence to physician orders still matter and can be dispositive.

Here is the call to action. Laboratories should tighten policies confirming that tests are performed pursuant to valid physician orders and that billing aligns with those orders. Providers should document clinical rationale when ordering higher level testing and ensure staff are not substituting their own preferences or business motives. Compliance teams should monitor referral sources and ordering patterns for red flags that suggest manipulation rather than care. And when facing FCA allegations do not assume settlement is the only path. Courts are willing to push back when the facts support it.

The takeaway is simple. The FCA is powerful but it is not limitless. When whistleblowers cross the line courts can and will enforce accountability on the other side of the caption. If you have any questions or comments about the subject of this blog or want to discuss FCA risk management for your organization, please contact Parrella Health Law at 857.328.0382 or Chris directly at cparrella@parrellahealthlaw.com.