Five Ways to Detect Laboratory Services Fraud and Abuse

According to the Journal of Applied Laboratory Medicine, approximately half of emergency department visits and nearly one-third of outpatient encounters involve one or more laboratory tests. While the average cost per test tends to be low, the volume of services billed can result in significant losses.

Fortunately, most providers are ethical in their billing practices, and most claims can be paid without question. However, even the most diligent providers can fall victim to identity theft. And, of course, there are always unscrupulous fraudsters who will try to game the system. 

For healthcare fraud investigators, combating laboratory billing schemes starts with knowing where to look. Here are five strategies for addressing areas that often require further scrutiny.

1. Capture the Ordering Provider ID and Verify Medicaid Enrollment

Capturing the ordering provider field on lab claims is essential to determining which ordering providers or clinics are driving certain lab services billing and behavior. In some cases, payers have discovered that the ordering provider is not qualified to order labs (such as a Licensed Professional Clinical Counselor or other non-ordering provider).

Additionally, if the claims being reviewed are covered by Medicaid, whether through managed care or fee for service, regulation 42 CFR in 455.410 requires state Medicaid agencies to confirm the ordering provider is enrolled the Medicaid program — information that cannot be verified if it hasn’t been captured from the claims data for reporting purposes.   

2. Assess the Frequency of Test Administration

How often a test is administered can be indicative of improper payments — especially when it comes to definitive and presumptive urine drug screening codes. Presumptive tests are inexpensive, easy to administer and often handled in-house. Definitive tests, which are much more sensitive, are often sent to a higher-level credentialed lab. Improperly billing for a definitive test when a presumptive test was performed results in significant overpayments. Further, there may be situations where a definitive test is not warranted without first conducting a presumptive test. In those situations, the added cost for ordering and performing the more sophisticated test is not medically necessary.

3. Query Claims for Lab Services Paid to Rural Providers

The prohibited practice of pass-through billing occurs when the provider who billed for the lab service did not actually perform it but instead sent it to another, or outside, lab. Often, the outside lab may be unable to directly bill the payer or may be colluding with the ordering provider to obtain a higher payment. This can be especially true in the instance of rural providers, who are typically reimbursed at higher rates. The rural provider submits the claim and obtains a higher payment than the outside lab would normally have been paid.  

4. Investigate Use of Modifiers 91 and 59

Modifier 91 (Repeat Clinical Diagnostic Laboratory Test) indicates a lab test that was conducted more than once on the same day and on the same patient. This code should be used only when additional results are needed after the first administration of the test. It is only appropriate on lab services, so it’s a good idea to perform analytics to identify non-lab providers billing with Modifier 91. Also, look for providers that have a high frequency of Modifier 91 on their claims or do not have prior claims for the same code (without the modifier) on the same date for the same patient.

Modifier 59 (Distinct Procedural Service) indicates that more than one lab test was repeated on different areas of the body during the same visit. If a particular provider stands out as an outlier for use of Modifier 59, it could signal the potential for inappropriate billing and excessive payments.

5. Be Cognizant of Provider Relationships & Specialties

After you’ve identified suspect claims for lab services, drill deeper to determine whether the ordering provider billed a medical claim for the patient. In some schemes, physicians have signed off on lab orders in exchange for kickbacks. Other times, the lab falsely identified the ordering provider, which is a form of identity theft.

Reviewing the specialty of ordering providers can also shed light on fraud schemes. For example, a pediatrician ordering large numbers of urine drug tests could be a red flag. Peer comparisons can be useful for confirming that a provider is an outlier within their practice area. In some cases, you may find that the ordering provider is not qualified to order labs. This may indicate the provider is either the victim of identity theft or potentially may be colluding with the lab provider.

Fraud schemes continuously evolve. And, thankfully, so does technology. Powerful analytics can  uncover suspicious patterns and stop the payment of fraudulent claims. Conversely, analytics can also identify the lab providers whose claims can usually be paid with confidence. This allows fraud personnel to concentrate on what they do best — stopping true fraudsters in their tracks.

To learn more about strategies for preventing, detecting and investigating fraudulent lab claims, read Gainwell Technologies’ white paper, Investigations 101: Laboratory Services Fraud and Abuse.