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

Precision Diagnostics Toxicology Lab, a major player in the drug testing field, recently agreed to a $27 million settlement to resolve allegations it billed federal healthcare programs, including Medicare, for unnecessary tests. The lab’s billing practices from 2013 to 2022 involved two high-risk practices that others in the toxicology space should consider carefully: “custom profiles” (standing test orders) and free urine test cups. Each practice represents a red flag for compliance under federal regulations and, particularly, the Anti-Kickback Statute.

Custom Panels: A Gateway to Unnecessary Billing

Precision’s “custom profiles” program set up pre-ordered panels, billed each time a patient sample was tested, without assessing the patient’s individual needs. This approach, the DOJ alleged, directly violates federal rules requiring that tests be medically necessary and tied to a specific patient condition or symptom. Routine use of such custom panels often leads to excessive testing, which not only raises healthcare costs but also risks penalties under the False Claims Act if billed to government programs.

This type of testing can quickly attract scrutiny because it appears profit-driven rather than patient-centered. According to DOJ Principal Deputy Assistant Attorney General Brian M. Boynton, the aim of federal healthcare programs is to ensure that tests are ordered based on true medical needs, not profit motives.

Free Urine Cups: Violating the Anti-Kickback Statute

Precision also reportedly provided free urine test cups to physicians with the condition that they return patient specimens to the lab. This practice allegedly violated the federal Anti-Kickback Statute, which prohibits offering anything of value in exchange for referrals. The “free cup” arrangement represents an inducement—one that can significantly increase a lab’s referral volume but ultimately jeopardizes compliance with federal laws.

The Anti-Kickback Statute is explicit: labs cannot give or offer incentives to encourage providers to send patient samples their way. The DOJ has been vigilant in pursuing similar cases, seeing such inducements as potential drivers of unnecessary testing and improper billing practices.

Lessons for Toxicology Labs

The Precision case serves as a cautionary tale for toxicology labs. Here’s what labs should consider to avoid similar liabilities:

1. Assess Patient-Specific Needs: Avoid standing test orders that don’t consider individual medical necessity. Every test should be justified based on a clear clinical reason.

2. Avoid Incentive Programs: Offering free items or discounts to encourage specimen referrals could lead to allegations of kickbacks. Labs should refrain from any practices that could be construed as incentivizing referrals.

3. Compliance Education: Training staff and educating clients about federal regulations can significantly reduce the risk of costly compliance missteps.

As regulatory scrutiny intensifies, toxicology labs must prioritize compliance in billing practices. For guidance on structuring lab operations within federal and state fraud and abuse rules and regulations, reach out to Parrella Health Law at 857.328.0382 or directly contact Chris at cparrella@parrellahealthlaw.com.