First Circuit Affirms Labs Can Rely on Doctor Orders to Establish Medical Necessity for Medicare Tests

The First Circuit recently ruled in U.S. ex rel. OMNI Healthcare Inc. v. MD Spine Solutions LLC that clinical laboratories can generally rely on a doctor's order to demonstrate that a Medicare-covered test is medically necessary under the False Claims Act (FCA). This decision clarifies that labs staffed with technicians, who lack authority to diagnose patients, are not required to independently assess the medical necessity of tests ordered by physicians. The court emphasized that imposing such a duty on labs could lead to delays in care and inappropriate second-guessing of doctors' medical judgments. The case involved allegations that the defendant lab knowingly submitted false claims to Medicare by billing for PCR tests claimed to be medically unnecessary in comparison to less expensive bacterial urine culture tests. However, the defendants showed a good faith belief that PCR testing was superior and therefore medically necessary. The court granted summary judgment for the defendants on the FCA scienter element, citing lack of evidence that the lab knowingly submitted false claims. The decision references guidance from the Department of Health and Human Services Office of Inspector General (OIG), which does not require labs to independently determine test necessity. Instead, labs bear the responsibility to ensure compliance with Medicare billing and recordkeeping requirements to avoid submitting false claims. The court highlighted that a doctor's order provides a "safe harbor" regarding medical necessity, shifting the burden to the relator to prove otherwise. This ruling provides important regulatory clarity for clinical laboratories and insurers involved in Medicare billing and compliance. It delineates the roles of providers within the diagnostic testing process, emphasizing reliance on physician orders while underscoring labs' compliance obligations. The opinion further discourages unnecessary administrative burdens that could disrupt patient care. For payer and provider stakeholders, the decision impacts how claims audits and fraudulent billing allegations related to diagnostic testing are evaluated, particularly under the FCA's scienter standard. It also stresses the importance of documentation and due diligence in billing practices without requiring labs to act as independent medical decision-makers. Overall, the ruling aligns with Medicare regulatory frameworks and OIG guidance on test ordering and billing practices.