Unsupported laboratory services linked to various referral patterns and inappropriate business relationships remain prevalent schemes, with numerous civil and criminal prosecution cases brought by the U.S. Department of Justice. Some referring providers for unsupported laboratory services are the same physicians and medical professionals entrusted with improving their patients’ well-being and health, as well as safeguarding health plan dollars by ordering medically necessary services.

Unfortunately, laboratory referral schemes are not new tactics; however, health plans can employ the latest AI technology to determine risk levels for the plan or agency and identify which providers warrant their SIU teams’ efforts. Early detection of provider referral networks and collusive claims traffic can help health plans and healthcare agencies investigate and mitigate long-term losses through pre-pay and, as warranted, civil or criminal actions.

What are some of the common laboratory referral fraud schemes?

Laboratory referral fraud can take several forms, each designed to improperly influence medical referrals or billing practices. The following are frequent schemes observed in this area:

• Kickbacks for Referrals: Laboratories may pay physicians or related entities for directing Medicare or Medicaid patients to their services. Such payments violate the Anti-Kickback Statute and undermine patient care by prioritizing financial incentives over medical necessity.
• Medically Unnecessary Testing: Some providers are induced to order excessive or non-essential tests, such as genetic screenings or urine drug tests, resulting in unnecessary costs and potential patient harm.
• “Custom Profiles” or Standing Orders: Laboratories might promote preset panels of tests ordered without individualized patient assessment, leading to routine over-utilization.
• Free or Below-Market Items: Laboratories may offer free services or items—such as phlebotomists or specimen containers—to doctors in exchange for patient referrals, effectively disguising illegal incentives.
• Unbundling: Instead of billing for a single, lower-cost panel, some laboratories bill each individual component test separately, inflating the overall cost.
• Misrepresenting Services: Fraud can also occur when tests are billed as if performed by licensed personnel or in certified facilities when they are not.
• Registry Arrangement Abuse: Laboratories may pay physicians for purported “patient data,” which in practice serves as a disguised payment for high referral volumes.

The legal and financial consequences include civil damages, penalties, exclusion from government programs, and criminal charges under numerous statutes, including but not limited to the False Claims Act [FCA], the Anti-Kickback Statute [AKS], the Eliminating Kickbacks in Recovery Act (EKRA), and the Stark Law.

What are strong signals related to laboratory referral schemes?

Since referring providers do not receive direct payments from the plans, utilization signals related to claim volumes and payments are not sufficiently discrete to identify subtle, early indicators of an inappropriate relationship in laboratory claims. As such, we developed methods to identify claim lines from laboratory providers that exhibit one or more strong signals of a referral scheme.

• Testing frequency is too high or unnecessary
• Medical providers with a high volume of referrals for patients who have no medical history with the referring provider
• Laboratories with high claim volumes for only a few procedure codes, usually COVID tests or molecular diagnostic tests, and a limited number of referring providers

How can Fraud Scope help our partners identify referring schemes?

Over the past several years, Codoxo’s Customer Success Team has assisted our partners in identifying code trends, code combinations, and unlikely claim volumes from laboratories using Fraud Scope’s AI detection models. While those detectors remain valuable, the presence of an inappropriate relationship signal within those claims was uncertain and required additional research into each laboratory, the referring providers, and patient histories. AI Query, Codoxo’s generative AI tool, can quickly and effectively interrogate your claims data to identify laboratory claims with inappropriate referring provider relationships.

One recent example of Fraud Scope’s AI Query tool identifying a referring scheme for laboratory services involved thousands of claims for over 2,100 patients in less than six months, submitted by three referring providers to one laboratory, where the three providers had no prior medical relationship with the patients. The bulk of the claims were for CPT 87637, with a smaller group for 81515, a molecular diagnostic test. A deeper dive using AI Query found that over 100 patients were shared by the newly identified laboratory and a previously identified laboratory, with referring provider issues and claims for COVID tests that preceded the newly identified laboratory. AI Query summarized its observations on the service date and patient relationships, while providing all supporting claim line details.

A simple AI Query prompt takes less than two minutes to process and identifies all laboratory claim lines with strong signals for referring provider schemes. The clearly written observations from the generative AI for the initial set of claim lines or summary information provide our users with insights that can be difficult to discern from charts and tables.

References / New Articles:

United States Department of Justice

https://www.justice.gov/opa/pr/south-carolina-laboratory-pleads-guilty-and-agrees-pay-least-68m-settle-allegations

Qui Tam Law Firm

https://www.falseclaimsact.com/laboratory-fraud-the-gift-that-keeps-on-giving