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Over the past few years, lab fraud has become a concern in the USA with the increase in financial gains obtainable through fraudulent billing practices, unnecessary testing, bundling of expensive tests (such as tests for rare respiratory pathogens or genetic tests) with COVID-19 tests, and increase in the number of genetic testing labs. A recent update in the compliance and regulatory requirements and increased focus on analyzing fraud testing schemes are expected to help curb lab fraud in the country.

Genetic testing, due to its increased use in the healthcare industry, is a particularly lucrative fraud target. Despite the presence of various compliance programs and regulations, several laboratories, together with patient brokers, telemedicine companies, and call centers, commit fraud and defraud Medicare. This strains the healthcare system as it increases healthcare costs and influences the patients’ trust in testing, labs, and other stakeholders.

Clinical labs face less scrutiny than full-service health centers. Thus, they are more frequently involved in lab fraud activities. Some of the most commonly noticed lab fraud cases in the USA include kickback schemes, fraudulent billing, and unnecessary testing, among others. Labs team up with parties such as patient brokers to get patients, doctors to refer patients or prescribe unnecessary tests, telemedicine companies to order tests, and call centers to target Medicare beneficiaries and then defraud Medicare by submitting claims.

Lab fraud in genetic testing has emerged in the USA over the past few years due to sprouting genetic testing labs across the country and the increasing use of such tests in health practices to assist disease diagnosis and predict disease risk. Genetic testing enables healthcare providers to offer personalized medicine based on the individual’s genetic makeup and helps identify how the patient will respond to treatments. Genetic testing fraud, mainly targeting cancer screening, pharmacogenetics, and cardiovascular diseases, is on the rise.

One of many such fraud cases was noted in August 2023, when LabSolutions LLC, based in Georgia, USA, submitted over US$463 million worth of unnecessary genetic and other laboratory tests to Medicare, the national health insurance program, of which Medicare paid over US$187 million. These tests were obtained through kickbacks and bribes. The scale of similar fraud is evident from the fact that in July 2022, the Department of Justice announced criminal charges against 36 defendants in 13 federal districts for more than US$1.2 billion in fraudulent telemedicine, cardiovascular and genetic testing, and durable medical equipment purchases.

The COVID-19 outbreak in 2020 further spiked fraud cases, as it gave an opportunity to bundle COVID-19 testing with other forms of expensive testing that patients did not need, including genetic testing for various diseases and tests for rare respiratory pathogens. Financial incentives offered by the federal government to encourage participation in COVID-19 control-related businesses also attracted fraudsters in the laboratory business. According to the US Department of Health and Human Services report, in May 2023, around 378 labs billed Medicare Part B for add-on COVID-19 tests at high volume and payment amounts. Of these, around 276 labs billed for more add-on tests, such as billing Medicaid for COVID-19 tests alongside respiratory pathogen panels (RPPs), individual respiratory tests (IRTs), allergy tests, and genetic testing. An additional 161 of these 378 labs also reported higher costs than usual for add-on testing.

Lab fraud behind money loss, erosion of trust, and increased insurance premiums

Lab fraud causes a significant adverse effect on the integrity and quality of the healthcare system as unnecessary testing and fraudulent billing practices increase healthcare costs, compromise the accuracy and reliability of diagnostic tests, and erode trust in healthcare providers, including doctors and hospitals, among others. Healthcare providers who unknowingly refer patients to fraudulent labs are also likely to face a reputation hit.

Above all, healthcare fraud can cause tens of billions of dollars in yearly losses. According to the National Health Care Anti-Fraud Association, taxpayers are losing over US$100 billion annually to Medicare and Medicaid fraud, including billing for unapproved COVID-19 tests, genetic testing fraud, home healthcare billing, and fraud billing for medical equipment.

Companies manufacturing genetic testing kits may face reputational damage if their products are used in the genetic testing fraud scheme. This is expected to negatively impact their market presence as customers/patients will lose confidence and will likely move to reputed competitors. Also, healthcare providers may stop referring the company products to their patients.

Increasing fraud will likely drive the need for more stringent regulations for genetic companies manufacturing genetic testing kits (requiring compliance in conducting in-depth clinical studies, providing extensive data, maintaining necessary documentation, labeling and packaging requirements, etc.). This is expected to increase the operational costs for genetic testing companies and, thus, the price of genetic testing services. Ever-increasing genetic testing fraud is expected to potentially disrupt the market’s growth trajectory as patients become more cautious. Individuals are likely to receive tests that are not appropriate or required and may become skeptical about the necessity and accuracy of the test result.

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Lab fraud also increases insurance premiums as fraudulent activities increase the cost of claims, which in turn increases insurance companies’ expenses. The insurance companies are bound to raise premiums to cover additional costs. Additionally, individuals receiving genetic testing through fraud schemes will likely be denied future coverage. This is because many genetic tests for inherited diseases are offered as a one-time payment for a lifetime of coverage, and fraud schemes can compromise the individual’s access to this benefit.

Regulatory updates and strategies aimed at combating lab fraud

Preventing lab fraud is crucial to maintaining the integrity of scientific research and the functioning of healthcare systems. Lab fraud can be prevented, or at least significantly diminished, by establishing comprehensive compliance programs, stringent licensing and certification requirements for labs and healthcare providers, encouraging employees and stakeholders in labs and healthcare organizations to report any suspected fraud incidences, education, secured data handling, continuous monitoring, improved medical billing processes, and enforcing penalties and legal consequences.

In January 2023, the US government updated compliance and regulatory requirements for laboratories to prevent lab fraud. As per the updates, the laboratories must submit a medical necessity document supporting the ordered test, progress note, and the treating doctor’s signature to support a claim.

Also, providing incentives to physicians to encourage them to refer patients for lab services will be considered a violation of the federal Anti-Kickback Statute, and both laboratory and healthcare professionals will face legal consequences.

Laboratories that fail to adhere to lab billing guidelines published through National Coverage Determinations (NCDs) or Local Coverage Determinations (LCDs) will face civil liability and triple damages under the False Claims Act.

The government also continued its scrutiny of medically unnecessary genetic testing schemes, audited genetic labs, and tried to recoup funds where the medical necessity requirement was unmet. Also, the Office of Inspector General (OIG) issued a fraud alert warning the public about the proliferation of COVID-19 testing and genetic testing scams.

Moreover, in June 2023, the US Food and Drug Administration (FDA) took a crucial measure to regulate an extensive array of laboratory tests, including prenatal genetic screenings, to ensure test result accuracy and prevent unreliable outcomes. The US FDA ensures that the lab test delivers results as claimed by the lab test developer by analyzing the device’s accuracy, specificity, clinical characteristics, and analytical sensitivity. Regulating these laboratory tests will likely reduce the chances of fraud, as laboratories will not be allowed to run specific tests if they are not cleared or approved by the FDA.

EOS Perspective

Increased awareness about genetic testing and its easy accessibility have made it more vulnerable to lab fraud in the country. Genetic testing scams are evolving significantly wherein the scammers (a lab owner or a genetic testing company’s representative) are offering free screening, cheek swabs, or testing kits for genetic testing to get the individual’s Medicare information and submit claims. An increase in the number of genetic testing companies manufacturing direct-to-consumer genetic testing kits is expected to further contribute to genetic testing fraud as it will become easier for lab owners to get access to genetic testing kits and scam Medicare beneficiaries.

Also, the introduction of new tests creates potential opportunities for lab fraud as the lack of proper oversight and safeguards makes it easier for lab fraudsters to exploit gaps while appropriate regulatory norms for those tests are being developed. Thus, there is an increased need to set the regulatory norms for any new tests being developed before they are put to use.

While various compliance and regulatory measures are in place to prevent lab fraud, ethical practices, education, and training for lab employees will likely play a significant role in preventing lab fraud in the country. Many healthcare professionals are often involved between doctors prescribing the test and the persons administering the test. Thus, it becomes challenging to determine whether the referrals are conducted efficiently.

In addition, strong collaboration among healthcare insurers, healthcare providers, and the government can also help prevent this kind of fraud. The government plays a vital role here, as it has the tools to lay more emphasis on continuous monitoring and auditing of genetic testing labs to keep track of lab activities and prevent fraud cases.

Comprehensive Genomic Profiling (CGP) is a diagnostic tool that sequences a patient’s tumor DNA to identify genetic mutations that drive cancer growth. Insurance coverage for CGP varies widely depending on the type of cancer, the patient’s stage of disease, and the specific test being used.  Despite CGP’s tremendous potential to transform cancer care and diagnosis, its implementation is hindered by inconsistent insurance coverage policies.

Comprehensive genomic profiling is a cutting-edge technology that is revolutionizing cancer diagnosis and treatment. Unlike standard gene testing, which looks at a small number of genes, CGP analyzes thousands of genes across the entire genome. This provides a much more comprehensive picture of genetic mutations that may be driving a patient’s cancer, thereby leading to more personalized and effective treatment options. Despite the benefits of CGP, access to this technology remains limited due to a variety of factors, which include high costs, limited insurance coverage, and regulatory hurdles.

One of the biggest challenges for CGP has been payer acceptability. Payers tend to be cautious about covering CGP because it is a relatively new technology, and there is still some debate about its clinical value and cost-effectiveness.

Private payers in the USA are more likely to cover CGP for patients with rare or complex cancers or for patients who have failed standard therapies, such as chemotherapy or radiation therapy.

In contrast, public payers, such as Medicare, may have more restrictive criteria for coverage and only cover CGP for certain types of cancer or for patients who meet specific clinical criteria. These criteria could include a requirement that CGP tests be performed in Medicare-accredited labs. Other major public payers in the USA, such as Medicaid and Veterans Affairs (VA) health plans, also cover CGP, but each payer has different criteria for coverage. Generally, they require that the test is ordered by a physician and is deemed medically necessary for the patient’s treatment plan.

The lack of coverage makes it financially inaccessible for many patients, which limits the ability of healthcare providers to consistently offer CGP testing. This presents a significant obstacle to the widespread adoption of this promising diagnostic tool. Some payers are hesitant to reimburse CGP due to concerns about the cost-effectiveness of the test and the lack of long-term data on clinical outcomes. However, major public and private payers such as Medicare, UnitedHealth (UHC), Aetna, and Cigna, among others, have included CGP tests in their health policies in recent years, nonetheless, the coverage remains uneven.

Cost and regulatory hurdles are stifling the growth of CGP

Payers have historically covered traditional testing, such as immunohistochemistry (IHC), fluorescent in situ hybridization (FISH), and single gene tests, but have been hesitant to provide coverage for CGP. This is mainly because these tests have been around for longer than CGP, so payers are more familiar with them and are more comfortable covering them.

Another reason is that CGP is more expensive than traditional tests. While the exact cost varies depending on the specific test and lab performing it, the cost of CGP tests can range from a few hundred dollars to several thousand dollars, while traditional tests are typically in the range of a few hundred dollars. This is due to the fact that CGP tests are more complex as they analyze a large number of genes, whereas traditional tests focus on analyzing one specific gene at a time, making them less expensive.

According to a study published in 2021 by the Journal of Clinical Oncology, CGP could improve overall survival by about 6% (0.06 years, a relatively small but meaningful amount of time for cancer patients and their families) for US$9,000 per patient, compared with traditional testing strategies. On the other hand, as per a 2022 article by the American Journal of Managed Care, although the cost of CGP tests is high, these tests can help identify the most effective treatment options for each patient, which can lead to better outcomes and fewer unnecessary treatments, which in turn can lower overall healthcare costs.

Read our related Perspective:
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To further educate the industry about the benefits associated with CGP, Illumina, a California-based biotechnology company, established Access to Comprehensive Genomic Profiling (ACGP) in 2020, which is an alliance of seven members, including leading molecular diagnostics companies, pharmaceutical manufacturers, and laboratories. ACGP aims to educate about CGP for advanced cancer patients by engaging directly with the US payers.

Additionally, a few strategies are being adopted by the healthcare industry, such as bundling CGP tests with other diagnostic tests to reduce the overall cost per test. This way, instead of running a CGP test and a separate test for a specific genetic mutation, both tests could be combined into one-panel tests. This could reduce the overall cost per test by eliminating the need to run two separate tests, as well as reducing the need for multiple lab visits and samples. However, it’s important to note that the savings may vary depending on the specific tests and the laboratory.

The ambiguity surrounding reimbursement for CGP tests among the insurers also stems from the FDA’s ongoing debate over proper classification and regulatory framework for these tests. While the FDA recognizes the potential benefits of CGP, concerns linger about its quality, accuracy, and cost-effectiveness. To address these concerns, the FDA has been working with stakeholders to establish reimbursement policies that make CGP tests accessible to patients. These stakeholders range from academic institutions (such as Mayo Clinic and Memorial Sloan Kettering) to health insurance companies (such as UnitedHealthcare and Aetna) to CGP test developers (such as Guardant Health and Foundation Medicine).

Payers’ coverage for CGP is expanding but is highly uneven

Payers, such as Aetna and Cigna, have included CGP tests in their health plans but do not cover all types of cancers. While an increasing number of payers is expanding coverage for CGP, there is a lot of variation in terms of what is covered and for which types or stages of cancer.

For instance, Aetna announced in 2020 that it would cover CGP testing for certain types of breast and colorectal cancer. However, the coverage for each type of cancer gene mutation is different.

While Aetna’s policies for CGP coverage are very nuanced, Cigna’s are complicated. Cigna‘s coverage varies depending on the type of CGP test being ordered, whether the test is considered medically necessary for the patient’s condition, and the patient’s location. Sometimes, the patient needs to meet certain criteria to be eligible for coverage (e.g., only the advanced stage of cancer is considered under coverage).

Similarly, UHC, one of the leading private health plan providers in the USA, also limited its CGP coverage to patients with advanced cancers, such as lung, breast, or colorectal cancer. However, in early 2023, UHC issued a new policy expanding coverage for CGP tests from Foundation Medicine and Guardant Health. The new policy covers CGP tests for a wider range of cancers, including early-stage cancers and other types of tumors. The goal of this policy change is to increase access to CGP testing and to help catch cancer earlier when it is more treatable.

Aetna and Cigna are not far behind in expanding their coverage for CGP tests. In 2023, both companies included additional benefits for members receiving CGP testing, such as on-site care in some facilities and counseling services.

There’s an increasing recognition that CGP can help identify patients who may benefit from targeted therapies. Overall, payers are becoming more open to covering CGP, but there is still variability in their policies and coverage levels.

EOS Perspective

The adoption of CGP is creating a ripple effect throughout the healthcare industry. Payers are increasingly recognizing the value of CGP tests and expanding their coverage. By providing broader coverage for CGP tests, payers can position themselves as offering more cutting-edge care options. This can give them a competitive edge over other insurers who may not provide coverage for these tests. In addition, by broadening the coverage of tests for early-stage cancer, payers can help to identify and treat cancers earlier, which can lead to better outcomes for patients and potentially lower costs in the long run.

Further, the growing adoption of CGP has an impact on healthcare industry stakeholders beyond payers. It is likely to fuel a shift towards precision medicine, where treatments are tailored to the individual patient based on genetic information.

Diagnostic companies are likely to invest in CGP technology to stay competitive and offer more comprehensive tests. For healthcare providers, offering CGP tests allows them to differentiate themselves, improve patient outcomes, and attract more patients. However, it can also add complexity to the treatment process and increase costs if not managed correctly (e.g., wrong interpretation of genetic information due to the large amount of data for individual patients).

For test kit producers and labs, CGP is creating new opportunities for growth and market share but also increased competition and pressure to lower costs and improve accuracy.

Overall, while still not fully embraced by the industry, CGP is shaking up the healthcare landscape, creating both great opportunities and new challenges for all stakeholders.