Clinical laboratory genetic testing labs and telemedicine groups among those charged
In the largest healthcare fraud bust in US history, the US Department of Justice (DOJ) announced it had levied criminal charges against 324 defendants for allegedly participating in various fraudulent healthcare schemes—including clinical laboratory genetic testing and telemedicine fraud—totaling over $14.6 billion in losses.
A DOJ press release states the agency’s 2025 National Health Care Fraud Takedown represents an unprecedented effort to alleviate fraud in healthcare that exploits patients and taxpayers.
The defendants include 96 doctors, nurse practitioners, pharmacists, and other licensed medical professionals. The cases are being prosecuted by Health Care Fraud Strike Force teams from the Criminal Division’s Fraud Section, 50 US Attorneys’ Offices, and 12 State Attorneys’ General Offices.
“This record-setting Health Care Fraud Takedown delivers justice to criminal actors who prey upon our most vulnerable citizens and steal from hardworking American taxpayers,” said Attorney General Pam Bondi in the press release. (Photo copyright: US Department of Justice.)
49 Clinical Lab Defendants Charged
The takedown relied on coordinated investigations from several agencies, including the:
Health Care Fraud Unit of the DOJ Criminal Division’s Fraud Section,
Department of Health and Human Services Office of Inspector General,
Federal Bureau of Investigation,
Drug Enforcement Administration, and,
Multiple US Attorneys’ Offices.
Clinical laboratory testing fraud was addressed in the takedown. Forty-nine defendants were charged with telemedicine and genetic testing fraud schemes where deceptive telemarketing campaigns targeted Medicare beneficiaries, resulting in $46 million in fraudulent claims being submitted to Medicare for durable medical equipment (DME), genetic tests, and COVID-19 tests.
“Make no mistake—this administration will not tolerate criminals who line their pockets with taxpayer dollars while endangering the health and safety of our communities,” said Attorney General Pam Bondi in the press release.
Other High-Profile Cases
The most prominent cases include a $10 billion urinary catheter scheme where foreign straw owners secretly purchased medical supply companies and then used stolen identities and personal health data of more than one million Americans to file erroneous Medicare claims. Known as Operation Gold Rush, the hoax resulted in the arrests of nineteen defendants, including four in Estonia and seven individuals attempting to avoid capture at US airports and at the Mexican border.
In another case involving foreign influence, owners and executives in Pakistan were charged in connection with a $703 million scheme where artificial intelligence (AI) was allegedly used to create fake recordings of Medicare recipients consenting to receive various products. The data was then sold to clinical laboratories and DME companies to fraudulently submit false claims to Medicare. In addition, some of these defendants allegedly conspired to conceal and launder proceeds from US bank accounts to overseas bank accounts.
Also, a defendant who owned a billing company allegedly planned a sham in which Arizona Medicaid was fraudulently billed $650 million for addiction treatment programs where services were never rendered or patients received substandard care. The defendant, who is based in Pakistan and the United Arab Emirates, supposedly received at least $25 million from the scheme and is also charged with a money laundering offense.
“It’s not done by small time operators,” said Mehmet Oz, MD, who leads the Centers for Medicare and Medicaid Services (CMS). “These are organized syndicates who are designing to hurt America.”
Other notable cases include a scam involving $1.1 billion in fraudulent claims for unnecessary amniotic wound allografts for elderly patients resulting in defendants receiving millions in illegal kickbacks. In another scheme, 74 defendants were charged with the illegal distribution of prescription opioids and other controlled substances.
DOJ Property Seizures
As a result of the fraud bust, the US government seized over $245 million in cash, luxury vehicles, cryptocurrency, and other assets and prevented an additional $4 billion from being paid out by CMS due to false and fraudulent claims.
“These criminals didn’t just steal someone else’s money. They stole from you,” Matthew Galeotti, JD, who leads the DOJ Criminal Division, told the Associated Press. “Every fraudulent claim, every fake billing, every kickback scheme represents money taken directly from the pockets of American taxpayers who fund these essential programs through their hard work and sacrifice.”
This latest bust demonstrates the DOJ’s increased resolve to pursue healthcare fraud, including cases involving clinical laboratory testing. Look for further coverage of this aspect in the 7-14-2025 issue of The Dark Report.
Insurers continued receiving payments even after beneficiaries moved to other states, the paper reported
As Congress considers cuts in Medicaid funding, The Wall Street Journal reported that Medicaid managed care plans received at least $4.3 billion in duplicate payments over a three-year period, due to recipients who moved from one state to another.
Centene, the largest private Medicaid insurer, collected $620 million in duplicate payments between 2019 and 2021, while Elevance Health received $346 million and UnitedHealth Group took in $298 million, The Journal reported on March 26.
All told, more than 270 insurers received duplicate payments. The paper noted that private insurers handle coverage for 70% of the 72 million Medicaid recipients.
“We may be paying premiums on behalf of an individual who might have moved, and we don’t know that they have moved,” healthcare consultant Caprice Knapp, PhD, told the newspaper. “It definitely is wasteful.”
The reporting was based on an analysis of the Transformed Medicaid Statistical Information System (T-MSIS), a database of beneficiary information maintained by the Centers for Medicare and Medicaid Services (CMS).
In response to a Wall Street Journal article about managed care plans receiving billions in duplicate Medicaid payments, Craig Kennedy, chief executive of Medicaid Health Plans of America, noted how heavily regulated the health insurance industry is. (Photo copyright: LinkedIn.)
Multiple States Paid Double Payments to Medicaid Insurers
“Government guidelines stipulate that if Medicaid recipients move to another state, they are supposed to cancel their coverage in their former state when signing up in the new one, which often gives them a different insurer,” The Journal reported. “But the recipients don’t always cancel, leaving states to play catch-up.”
States paying the highest rates of duplicate payments include Georgia, Florida, and Indiana, according to The Wall Street Journal’s report.
To illustrate how this works, the story used the hypothetical example of a Medicaid recipient in Florida. There, the state pays $291 per month to the private Medicaid insurer. The individual moves to Georgia and enrolls in that state’s Medicaid program. Georgia begins paying an insurer $339 per month. But Florida continues to pay the monthly fee even though the recipient is now receiving medical care in Georgia. (The payment amounts are estimates based on averages in each state, the paper said.)
The state might not know that a beneficiary has moved until it conducts an annual eligibility check, the story noted. In the meantime, insurers “can collect months of payments before a patient is dropped from the rolls.”
To determine if a patient had moved, the analysis looked at where they received medical care. “The data don’t indicate where recipients are actually living or reflect all adjustments later made to payments,” the story noted.
Some insurers criticized the analysis. Most of the three-year period overlapped with the COVID-19 pandemic, when emergency rules made it difficult to disenroll beneficiaries, insurers told The Wall Street Journal. A Centene spokesman said the analysis “ignores the financial safeguards in place to address potential overpayments.” The insurer told the paper that it had repaid $2 billion to the states between 2019 and 2021.
The duplicate payments amounted to $800 million in 2019, then jumped to $1.3 billion in 2020 and $2.1 billion in 2021, the paper reported. KFF, citing CMS data, reported that states spent an estimated $880 billion on Medicaid programs in fiscal year 2023.
Craig Kennedy, chief executive at Medicaid Health Plans of American—an industry group that represents managed care organizations—told The Journal that insurers are closely watched by regulators.
“[Health insurance is] a heavily regulated industry,” Kennedy said. “Following rules and regulations is the No. 1 priority here.”
Office of Inspector General Weighs In
The Wall Street Journal analysis followed an earlier report from the US Department of Health and Human Services’ (HHS) Office of Inspector General (OIG). The OIG report, issued in September 2022, was based on an audit covering Medicaid managed care capitation payments in August 2019 and August 2020. It was also based on data from T-MSIS.
“All 47 States reviewed made capitation payments on behalf of Medicaid beneficiaries who were concurrently enrolled in two States,” the OIG reported. “Specifically, capitation payments were made on behalf of 208,254 concurrently enrolled beneficiaries in August 2019 and 327,497 concurrently enrolled beneficiaries in August 2020. The Medicaid program incurred costs of approximately $72.9 million in August 2019 and $117.1 million in August 2020 for capitation payments associated with beneficiaries in one of the two concurrently enrolled States.”
OIG advised CMS to provide state agencies with T-MSIS enrollment data. CMS dismissed the recommendation, claiming that the Public Assistance Reporting Information System (PARIS), designed to deter improper public assistance payments, was sufficient, and that T-MSIS would add inefficiency and confusion. However, current and former state Medicaid officials told The Wall Street Journal that PARIS “doesn’t always include up-to-date or complete information.”
HHS Office of Inspector General was the latest to examine the quality control problems that led to distribution of inaccurate test to clinical laboratories nationwide
Failure on the part of the Centers for Disease Control and Prevention (CDC) to produce accurate, dependable SARS-CoV-2 clinical laboratory test kits at the start of the COVID-19 pandemic continues to draw scrutiny and criticism of the actions taken by the federal agency.
In the early weeks of the COVID-19 pandemic, the CDC distributed faulty SARS-CoV-2 test kits to public health laboratories (PHLs), delaying the response to the outbreak at a critical juncture. That failure was widely publicized at the time. But within the past year, two reports have provided a more detailed look at the shortcomings that led to the snafu.
“We identified weaknesses in CDC’s COVID-19 test kit development processes and the agencywide laboratory quality processes that may have contributed to the failure of the initial COVID-19 test kits,” the OIG stated in its report.
Prior to the outbreak, the agency had internal documents that were supposed to provide guidance for how to respond to public health emergencies. However, “these documents do not address the development of a test kit,” the OIG stated.
“If the CDC can’t change, [its] importance in health in the nation will decline,” said microbiologist Jill Taylor, PhD (above), Senior Adviser for the Association of Public Health Laboratories in Washington, DC. “The coordination of public health emergency responses in the nation will be worse off.” Clinical laboratories that were blocked from developing their own SARS-CoV-2 test during the pandemic would certainly agree. (Photo copyright: Columbia University.)
Problems at the CDC’s RVD Lab
Much of the OIG’s report focused on the CDC’s Respiratory Virus Diagnostic (RVD) lab which was part of the CDC’s National Center for Immunization and Respiratory Diseases (NCIRD). The RVD lab had primary responsibility for developing, producing, and distributing the test kits. Because it was focused on research, it “was not set up to develop and manufacture test kits and therefore had no policies and procedures for developing and manufacturing test kits,” the report stated.
The RVD lab also lacked the staff and funding to handle test kit development in a public health emergency, the report stated. As a result, “the lead scientist not only managed but also participated in all test kit development processes,” the report stated. “In addition, when the initial test kit failed at some PHLs, the lead scientist was also responsible for troubleshooting and correcting the problem.”
To verify the test kit, the RVD lab needed samples of viral material from the agency’s Biotechnology Core Facility Branch (BCFB) CORE Lab, which also manufactured reagents for the kit.
“RVD Lab, which was under pressure to quickly create a test kit for the emerging health threat, insisted that CORE Lab deviate from its usual practices of segregating these two activities and fulfill orders for both reagents and viral material,” the report stated.
This increased the risk of contamination, the report said. An analysis by CDC scientists “did not determine whether a process error or contamination was at fault for the test kit failure; however, based on our interviews with CDC personnel, contamination could not be ruled out,” the report stated.
The report also cited the CDC’s lack of standardized systems for quality control and management of laboratory documents. Labs involved in test kit development used two different incompatible systems for tracking and managing documents, “resulting in staff being unable to distinguish between draft, obsolete, and current versions of laboratory procedures and forms.”
Outside Experts Weigh In
The OIG report followed an earlier review by the CDC’s Laboratory Workgroup (LW), which consists of 12 outside experts, including academics, clinical laboratory directors, state public health laboratory directors, and a science advisor from the Association of Public Health Laboratories. Members were appointed by the CDC Advisory Committee to the Director.
This group cited four major issues:
Lack of adequate planning: For the “rapid development, validation, manufacture, and distribution of a test for a novel pathogen.”
Ineffective governance: Three labs—the RVD Lab, CORE Lab, and Reagent and Diagnostic Services Branch—were involved in test kit development and manufacturing. “At no point, however, were these three laboratories brought together under unified leadership to develop the SARS-CoV-2 test,” the report stated.
Poor quality control and oversight: “Essentially, at the start of the pandemic, infectious disease clinical laboratories at CDC were not held to the same quality and regulatory standards that equivalent high-complexity public health, clinical and commercial reference laboratories in the United States are held,” the report stated.
Poor test design processes: The report noted that the test kit had three probes designed to bind to different parts of the SARS-CoV-2 nucleocapsid gene. The first two—N1 (topology) and N2 (intracellular localization)—were designed to match SARS-CoV-2 specifically, whereas the third—N3 (functions of the protein)—was designed to match all Sarbecoviruses, the family that includes SARS-CoV-2 as well as the coronavirus responsible for the 2002-2004 SARS outbreak.
The N1 probe was found to be contaminated, the group’s report stated, while the N3 probe was poorly designed. The report questioned the decision to include the N3 probe, which was not included in European tests.
Also lacking were “clearly defined pass/fail threshold criteria for test validation,” the report stated.
Advice to the CDC
Both reports made recommendations for changes at the CDC, but the LW’s were more far-reaching. For example, it advised the agency to establish a senior leader position “with major responsibility and authority for laboratories at the agency.” This individual would oversee a new Center that would “focus on clinical laboratory quality, laboratory safety, workforce training, readiness and response, and manufacturing.”
In addition, the CDC should consolidate its clinical diagnostic laboratories, the report advised, and “laboratories that follow a clinical quality management system should have separate technical staff and space from those that do not follow such a system, such as certain research laboratories.”
The report also called for collaboration with “high functioning public health laboratories, hospital and academic laboratories, and commercial reference laboratories.” For example, collaborating on test design and development “should eliminate the risk of a single point of failure for test design and validation,” the LW suggested.
CBS News reported in August that the CDC had already begun implementing some of the group’s suggestions, including agencywide quality standards and better coordination with state labs.
However, “recommendations for the agency to physically separate its clinical laboratories from its research laboratories, or to train researchers to uphold new quality standards, will be heavy lifts because they require continuous funding,” CBS News reported, citing an interview with Jim Pirkle, MD, PhD, Director, Division of Laboratory Sciences, National Center for Environmental Health, at the CDC.
OIG warns that without adequate clinical laboratory testing healthcare organizations could see more deaths and increased spending
Clinical laboratory leaders and pathologists know that lab test volume decreased dramatically during the early months of the COVID-19 pandemic. That was primarily because community lockdowns stopped people from seeing their doctors for the standard range of chronic health conditions, many of which require clinical laboratory tests for diagnosis and chronic disease management.
• 24% reduction in Medicare Part B test volumes in March • 53% in April • 30% in May
The decline of Medicare patients visiting clinical laboratories continued through the balance of 2020. During the first 10 months of the pandemic—March through December 2020—Medicare beneficiaries who pursued lab testing decreased by about 9% compared to the same 10-month period in 2019, according to a news release.
This is a strong indicator that the government’s response to the pandemic had a measurable effect on clinical laboratory testing volume among all age groups, especially among the elderly.
“The cumulative decline in lab test volume across all client labs for [March 9 to April 12] was just over 40%. But in that time, some of our lab customers were hit with a decline of maybe 50% to 60% in test volume,” Kyle Fetter (above), COO, XIFIN, told The Dark Report in 2020. Clinical laboratory testing that originates from a routine patient visit to a doctor—such as blood testing—may have been affected the most, Fetter explained. (Photo copyright: XIFIN.)
Clinical Laboratory Tests Key to Well-being of Patients with Chronic Conditions
The OIG study was limited to Medicare beneficiaries and thus did not provide information about testing fall-off among people who have private health insurance. But in “From Mid-March, Labs Saw Big Drop in Revenue,” Dark Daily’s sister publication The Dark Report reported early in 2020 on a 40% decline in test volumes and the pandemic’s varying effects on clinical labs, anatomic pathology (AP) groups, and AP subspecialties.
The OIG’s Report in Brief on its study recognized that medical laboratory testing is critical to helping healthcare providers manage chronic conditions that affect patients’ well-being and increase their healthcare costs.
“Lab tests are important for beneficiaries with chronic medical conditions, which are associated with hospitalizations, billions of dollars in Medicare costs, and deaths,” the OIG said.
“The information may be useful to stakeholders involved in ensuring that beneficiaries avoid the potential bad outcomes that may result from missing or delaying appropriate care,” the report noted.
Overall, 23.7 million Medicare beneficiaries received medical laboratory tests during the first 10 months of the pandemic, down 2.4 million from 26.1 million in 2019, the OIG reported.
Overall Medicare lab test volume and spending also declined during the reported period:
Part B clinical laboratory tests for Medicare beneficiaries decreased 15% from 419.9 million tests in 2019 to 358.4 million tests in the first 10 months of the pandemic.
Medicare spending for these tests decreased 16% from $6.6 billion in 2019 to $5.5 billion during the first 10 months of the pandemic.
“OIG’s audit of Part B clinical laboratory tests, reimbursed under the Clinical Laboratory Fee Schedule (CLFS) is a useful benchmark for how Medicare beneficiaries received fewer lab tests during the pandemic, especially during the early months,” said Robert Michel, Editor-in-Chief of Dark Daily and The Dark Report.
Medical Laboratory Tests That Were Down Most During COVID-19
The following 10 clinical laboratory tests experienced a 10% or more decline in Medicare beneficiaries seeking them during the pandemic period as compared to pre-pandemic, according to the OIG report:
Comprehensive urine culture test fell 16% to three million Medicare patients.
Uric acid level blood down 13% to 1.9 million Medicare beneficiaries.
Evaluation of antimicrobial drug decreased 17% to 1.74 million Medicare patients.
Folic acid level down 12% to 1.73 million Medicare beneficiaries.
Urinalysis manual test plunged 28% to 1.4 million Medicare patients.
Beyond Medicare, Clinical Laboratory Test Volume Dropped 40%
OIG was not the only organization to analyze medical laboratory testing volume during the pandemic’s early phase.
The Dark Report correlated data tracked by XIFIN, a San Diego-based health information technology (HIT) company providing revenue cycle management services to clinical laboratories and pathology groups. XIFIN’s collected data showed a steep drop in routine test volume as COVID-19 testing ramped up.
“Starting in the third week of March, we saw medical laboratories suffer a sharp drop in routine testing. But at about the same time, many labs began to offset those revenue losses with testing for the novel coronavirus,” Kyle Fetter, XIFIN’s then Executive Vice President and General Manager of Diagnostic Services told The Dark Report in 2020. Fetter is now XIFIN’S Chief Operating Officer.
“Over four weeks beginning March 9, we saw a cumulative drop of over 40% in test volume from all of our lab clients,” he added.
According to XIFIN’s data, lab specialty organizations experienced the following drop in routine testing during the period March 9 to April 16, 2020:
58% at clinical laboratories.
61% at hospital outreach laboratories.
52% at molecular and genetic testing laboratories.
44% at anatomic pathology (AP) groups.
70% to 80% at AP dermatology and other AP subspecialties.
Many medical laboratories are still recovering from the COVID-19 pandemic’s effects on testing volume.
Notably, the OIG’s report acknowledges the importance of adequate clinical laboratory testing and declares that—without these essential lab tests to manage some healthcare conditions—the healthcare industry could see increased morbidity, deaths, and Medicare spending.
Regulators and lawmakers are considering proposed changes to CLIA and PAMA involving medical laboratory services
Clinical laboratories and pathology groups should monitor a series of federal regulatory developments underway this fall. The proposals and documents will potentially affect how lab managers and staff do their jobs and how much Medicare reimbursement medical laboratories receive for certain diagnostic tests next year.
Among the initiatives under consideration are the following:
Below are details about these laboratory-related federal bills and regulatory documents that observant laboratory managers will want to track in the coming months.
“Clinical laboratories need to make sure that they have proper requisitions and documentation for genetic testing that involves telemedicine.” Danielle Tangorre, JD (above), a partner at law firm Robinson and Cole LLP in Albany, NY, told Dark Daily. (Photo copyright: Robinson and Cole LLP.)
CLIA Fee Increases and Testing Personnel Changes
The federal Centers for Medicare and Medicaid Services (CMS) is examining fee and personnel changes for CLIA. Officials from CMS are reviewing public comments on the proposal ahead of publishing a final rule.
Among other changes, the proposal would:
Institute a 20% across-the-board increase on existing fees.
Establish a biennial increase of CLIA fees for follow-up surveys, substantiated complaint surveys, and revised certificates.
Add doctoral, master’s, and bachelor’s degrees in nursing to qualify testing personnel for high and moderate complexity testing.
“The Practitioner does not have sufficient contact with or information from the purported patient to meaningfully assess the medical necessity of the items or services ordered or prescribed.
“The Telemedicine Company compensates the Practitioner based on the volume of items or services ordered or prescribed, which may be characterized to the Practitioner as compensation based on the number of purported medical records that the Practitioner reviewed.
“The Telemedicine Company only furnishes items and services to Federal health care program beneficiaries and does not accept insurance from any other payor.
“The Telemedicine Company does not expect Practitioners (or another Practitioner) to follow up with purported patients nor does it provide Practitioners with the information required to follow up with purported patients (e.g., the Telemedicine Company does not require Practitioners to discuss genetic testing results with each purported patient).”
And more.
“In the telehealth space, the issue the OIG has flagged is that genetic tests are being ordered without patient interaction or with only brief telephonic conversations,” Danielle Tangorre, JD, a partner at law firm Robinson & Cole LLP in Albany, N.Y., told Dark Daily.
New Bill May Eliminate 2023 Medical Laboratory Payment Cuts Under PAMA
Medical labs and pathology groups face payment cuts of up to 15% for 800 lab tests on the Medicare Clinical Lab Fee Schedule (CLFS) on Jan. 1, 2023, as part of PAMA.
The bill proposes to move regulatory oversight of LDTs from CLIA to the federal Food and Drug Administration (FDA). Champions of the bill argue that FDA regulation is needed for in vitro clinical tests (IVCTs) because they are similar to medical devices and bring with them patient safety concerns.
The bill seemed ready for a Senate vote over the summer but stalled. On Sept. 30, Congress passed a short-term resolution to keep the federal government funded. During negotiation, the VALID Act was removed from the larger spending package, according to Boston law firm Ropes and Gray.
Expect discussion to renew in Congress about the VALID Act after the mid-term elections.
Clinical laboratory leaders and pathology group managers will want to closely monitor the progress of these four federal legislative and regulatory developments. Each of the possible actions described above would significantly change the status quo in the compliance requirements and reimbursement arrangements for both clinical laboratory testing and anatomic pathology services.
