Genetic Testing Gold Rush Gives Rise To Fraud Allegations

By: Alexander M. Owens

On Sept. 27, the U.S. Department of Justice announced criminal charges against 35 individuals across various jurisdictions, allegedly involved in genetic testing fraud schemes that cost taxpayers over $2.1 billion.

The government asserted that the individuals had engaged in audacious schemes to target seniors and the disabled through the ordering of cancer genetic screening, or CGx, laboratory tests. CGx tests are performed to screen patients for genes that may show that a patient is predisposed to developing certain cancers.

The DOJ alleged that physicians were bribed to order these very expensive DNA tests. The government claimed that in many cases the physicians did not even treat the patients or only saw them via a cursory telemedicine consultation.

U.S. Attorney Bobby L. Christine of the Southern District of Georgia warned that “[w]hile these charges might be some of the first, they won’t be the last.” Christine’s warning may prove prescient.

Just last month, Reuters labeled genetic testing in the elderly as the “[n]ew frontier in health fraud.” Genetic testing fraud indeed appears to be very much on the rise and these recent indictments are not the DOJ’s first foray into the area. The federal government has launched over 300 investigations into alleged fraud in the genetic testing industry, many of which are almost certainly ongoing.

Just as several years ago the toxicology industry became inundated with fraudulent schemes, genetic testing, which is similarly lucrative and prone to abuse, is particularly fertile ground for fraudulent diagnostic testing schemes.

Genetic Testing: The Basics

Genetic tests are not limited to CGx cancer screenings. Genetic testing can be used in various other respects, both legitimate and illegitimate. For example, pharmacogenetic/pharmacogenomic, or PGx, tests are another major growth area in the genetic testing arena where concerns over fraudulent conduct have grown substantially in recent years.

PGx tests, when used legitimately, are aimed at identifying genetic variations suggesting that a patient may have an unusual reaction to a specific medication (e.g., a certain genetic variation may show that a patient may metabolize a medication at an unusually low or high rate). PGx tests may, therefore, be useful if a patient has shown an otherwise unexplained reaction to a certain medication.

Yet, the scientific evidence supporting PGx tests (and genetic testing generally) in the vast majority of cases remains quite slim. To date, Medicare has generally recognized that PGx and other genetic tests are medically necessary in only a very narrow set of cases. Medicare administrative contractors have issued numerous local coverage determinations making that clear.

Even where no local coverage determination is at issue, to be reimbursable, a test must still be medically necessary and thus the absence of an local coverage determination addressing a particular test does not mean that the test meets the medical necessity standard.

Further, the Medicare claims processing manual explains that screening tests (genetic or otherwise) are generally not covered by Medicare.[1] A practitioner who routinely performs genetic tests on patients, regardless of each patient’s clinical history and presentation, would almost certainly run afoul of Medicare’s requirements.

Despite the currently limited utility of genetic tests, Medicare has paid billions for these services. Between 2015 and 2018, Medicare payments for genetic tests more than doubled, to well over $1 billion in 2018. As the recent indictments show, the widespread use of these tests may have less to do with clinical utility and more to do with financial incentives.

Other genetic testing cases show that the DOJ’s recent crackdown is not a flash in the plan.

Given the sums of money at issue, the genetic testing industry has become a magnet for enterprising individuals. As has occurred in health care bonanzas of past, with the potential for great riches have come bad actors. Fraudulent schemes vary from the more nuanced to the facially egregious.

Regulators and whistleblowers have taken notice. In the indictments discussed above, the scheme fell on the latter end of the spectrum, involving payments to doctors to issue referrals for patients that, in some cases, they never even saw. More nuanced but not doubt troubling schemes have drawn the DOJ’s ire. Recent False Claims Act settlements are instructive.

Just weeks after the September indictments, the DOJ announced a False Claims Act settlement on Oct. 9, with pharmacogenetic lab UTC Laboratories Inc. and three of its principals. The lab agreed to pay $41.6 million with the three individuals responsible for another $1 million. The case resolved allegations, brought to light via numerous whistleblower complaints, that the lab paid kickbacks to doctors as well as marketers and relatedly billed for medically unnecessary tests.

The physician kickbacks were, as the government described them, thinly disguised as seemingly legitimate payments for physician work on a UTC-led clinical study. In fact, the government alleged, the payments were used to leverage referrals from the physicians. The clinical study work was purportedly no more than smoke and mirrors.

The UTC case, more so than that set out in the recent indictments, is likely more indicative of the sort of kickback schemes most common in the genetic testing industry, where the kickback is, at least to some degree, concealed as a seemingly legitimate form of remuneration.

In fact, the physician kickback in the UTC case is remarkably similar to that alleged by the DOJ in another multimillion dollar genetic testing fraud settlement involving Primex Clinical Laboratories LLC and its owner, where Primex purportedly concealed its kickbacks as payments to doctors for providing clinical data to the lab. Whenever there is a remuneration arrangement between a laboratory and a referral source (be it in cash or otherwise), the DOJ and relators are likely to take note.

The fact that the DOJ, in both the UTC and Primex civil cases, held individuals to account is notable. Despite robust revenue, oftentimes labs may be thinly capitalized and may move funds to individuals, trusts or shell companies to hide assets from regulators. Individual accountability helps to mitigate those concerns.

That is to say, if the DOJ, consistent with the Yates Memo, continues to hold individuals accountable, the government may be able to avoid what so often occurred during the (still ongoing) toxicology lab crackdown that started earlier this decade: Labs billed the government for billions, moved assets out of their corporate coffers, sought bankruptcy protection once regulators placed them in the crosshairs and avoided the full brunt of FCA liability.

In an earlier January FCA settlement, GenomeDx Biosciences Corp. agreed to pay $1.99 million to resolve allegations that it billed Medicare for medically unnecessary genetic tests. Unlike in Primex, there was no claim that the lab had paid kickbacks to obtain its referrals. While the DOJ has shown a preeminent focus on holding companies and individuals accountable for kickback schemes, GenomeDx serves as a warning to labs that are engaged in billing government payors for tests that are simply unnecessary, a substantial concern given the narrow set of circumstances where genetic testing has been deemed necessary by the Centers for Medicare and Medicaid Services and its contractors.

Ultimately, genetic testing schemes are likely to fall into a discrete number of fact patterns (which may overlap in the event multiple arrangements are at play).

Remuneration to Physicians

As the UTC and Primex cases show, remuneration to physicians for referrals may be disguised as superficially legitimate payments (e.g., consultation fees), services or other forms of remuneration. In some cases, a physician (or his or her practice) may have an equity (or other financial interest) in the genetic testing lab which may give rise to violations of the Anti-Kickback Statute and/or Stark Law.

Payments to Marketers

DOJ has made clear that paying commissions to independent contractors for referrals runs afoul of the Anti-Kickback Statute. In the UTC case, the lab allegedly paid independent marketers for referrals on a commission basis. The facts of UTC are not unusual. It is common practice in the genetic testing industry for labs to pay independent marketers for referrals. In such cases, both the marketers and the lab may be held liable.

Waiving Copays and Other Forms of Remunerations to Patients

Given that genetic testing services can cost upwards of $5,000 per test, patient copays tend to be substantial. In order to avoid scaring off patients via sticker shock, laboratories may waive or substantially reduce copays or similar patient payment obligations. If copay waivers (or other forms of financial assistance) are provided systemically or otherwise without legitimate consideration of a patient’s financial condition, then regulators may find that the arrangement violates the Anti-Kickback Statute.

Policies That Lead to Medically Unnecessary Tests

Practices, particularly those with a financial interest in a genetic testing lab, may institute policies that coerce their practitioners to order genetic tests when they are otherwise unnecessary. These policies may be issued under the guise of the standard of care, claiming that the practice is providing cutting-edge personalized or precision medicine services to its patients. Even in the rare case when a genetic test is necessary to identify a specific genetic variation, an entity may have a policy that pushes physicians to order additional, unnecessary tests to identify other genes.

Upcoding

In some cases, labs may be upcoding, which means billing payors for a more expensive test (or panel of tests) than that which was actually performed. In that genetic testing is relatively new, Medicare and other insurance auditors may find it difficult to adequately crack down on such practices as the auditors may not be fully familiar with the relevant coding standards.

Conclusion

If fraud hotbeds of the past are any indication (e.g., toxicology labs and compounding pharmacies), once the federal government and relators take notice of rapid growth and noncompliance in a specific corner of the health care industry, they are not likely to sit idly by as untoward amounts of government funds are siphoned off to bad actors. The recent indictments as well as the UTC, Primex and GenomeDx cases are likely just the tip of the genetic testing iceberg as whistleblowers and regulators continue to scrutinize this still growing industry.

[1] Medicare Claims Processing Manual, Ch. 16, § 120.1 (“Tests that are performed in the absence of signs, symptoms, complaints, personal history of disease, or injury are not covered except when there is a statutory provision that explicitly covers tests for screening as described.”).

 

Alexander M. Owens, Genetic Testing Gold Rush Gives Rise To Fraud Allegations, Law360 (November 12, 2019), https://www.law360.com/articles/1218668/genetic-testing-gold-rush-gives-rise-to-fraud-allegations

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