Dallas Lab to Pay $24 Million for Alleged Covid-19 Testing Fraud

Dallas Lab to Pay $24 Million for Alleged Covid-19 Testing Fraud

Magnolia Diagnostics (Dallas, TX) and its owners and investors have agreed to pay $24 million to resolve allegations that the lab billed Medicare for unnecessary respiratory tests for seniors during the pandemic.

The U.S. Department of Justice alleges that, beginning in April 2020, owners John Bains and Kelly Bains, acting through Magnolia, required senior living communities seeking Covid-19 testing to also obtain expensive respiratory pathogen panels (RPPs).

To implement this strategy, Magnolia used prepopulated requisition forms that selected RPP testing and associated diagnosis codes before any individualized clinical assessment occurred. Magnolia allegedly treated provider signatures on those forms as blanket or standing orders authorizing RPPs for all seniors across entire communities or chains of communities, and then used those purported authorizations to perform RPPs on specimens collected during community-wide Covid-19 testing. At times, John Bains allegedly threatened to withhold Covid-19 testing from communities that asked not to receive RPPs.

Furthermore, Magnolia allegedly froze and stored thousands of respiratory specimens, sometimes for weeks or months, before thawing and testing them. Magnolia thereby billed Medicare for useless test results, according to the DOJ.

During the three-year period from 2020-2022, Magnolia received Medicare Part B payments totaling more than $50 million. The Magnolia laboratory remains in business and now specializes in a wide variety of PCR testing. Ex-CEO John Bains now heads up a real estate development firm named Mountain Town Development.

Tempus AI at the Top of America’s Fastest Growing Labs

Tempus AI at the Top of America’s Fastest Growing Labs

Tempus AI (Chicago, IL) was the fastest growing lab from 2021-2024 based on the newly released Medicare Part B payment data for 2024. Tempus AI’s Medicare Part B allowed payments jumped from $9.1 million in 2021 to $148.8 million in 2024 for a compound annual growth rate (CAGR) of 154%. Tempus AI, which had an IPO in June 2024, specializes in next-gen sequencing and PCR-based testing.

Concord Life Sciences (Houston, TX) received $18.8 million in Part B allowed payments in 2024, an increase of 84% per year from $3 million in 2021. Concord (dba Principle Laboratory) specializes in nursing home lab services and PCR testing.

Natera Inc. (San Carlos, CA) received $195.6 million from Medicare Part B allowed payments in 2024, an increase of 74% per year from $37.4 million in 2021. Natera specializes in minimal residual disease (MRD) testing for cancer patients.

PAMA-Fix Bill Expected in Early September

PAMA-Fix Bill Expected in Early September

PAMA-Fix Bill Expected in Early September

An early start to summer recess for Congress thwarted the potential
for introduction of a PAMA-fix bill in July. ACLA President Susan Van Meter is now anticipating that PAMA-reform advocates in the House and Senate will introduce bills after Congress returns in early September. The hope is that PAMA-reform language can be attached to a larger healthcare bill this fall.

Should there be no progress here by October, the lab industry is likely to push for another one-year delay, or even a six-month delay. Without new legislation, Medicare CLFS rate cuts for nearly 800 lab tests will take effect on January 1, 2026. In addition, independent labs, hospitals and large POLs will be required to report their private-payer volume and payment data for 1,447 lab test codes by March 31, 2026.

CMS will use this data to determine Medicare CLFS rates for 2027-2029.

The Outlook for Medicare CLFS Rates

The Outlook for Medicare CLFS Rates

The Outlook for Medicare CLFS Rates

Without legislative action, Medicare rates for nearly 800 lab tests 
will be cut by up to 15% effective January 1, 2026. “A lot of labs 
have become complacent after five straight years of Medicare CLFS rate 
freezes,” says Mark Birenbaum, PhD, Executive Director of the National  Independent Lab Association (St. Louis, MO). “But they need to start  thinking about the potential for rate cuts next year.”

Birenbaum says that NILA is working with the American Clinical Laboratory  Assn. to introduce a new “PAMA-fix” bill within the next month or two. Any new bill would seek to delay the scheduled Medicare CLFS rate cuts for  2026 and ensure that hospital lab rates are correctly represented 
in future private-payer payments surveys and rate calculations. 
It’s too late to get a PAMA-fix into the Big Beautiful Bill currently being  debated in the Senate. 

The hope is that a PAMA-fix could get inserted into a major government  funding or healthcare policy bill at the end of the year. But this will be a  tough hill to climb, and time is running short. 

Here’s an outline of three possible scenarios: 

Scenario 1: PAMA Proceeds as Scheduled by Law
The first PAMA survey, which was based on private-payer lab rates from  2016, resulted in three straight years (2018-2020) of 10% cuts to most lab  tests on the Medicare CLFS. A second PAMA survey and additional rate cuts  were then frozen for five straight years (2021-2025). 

Under current law, Medicare CLFS rates for approximately 800 lab tests will be reduced by up to 15% on January 1, 2026. See table on page 4. 

In addition, the second PAMA survey is scheduled to begin on January 1,  2026. Independent labs, hospitals and large POLs are required to submit  their private-payer volumes and reimbursement rates from the period  January 1, 2019 to June 30, 2019 to CMS by March 31, 2026. CMS will use 
this data to calculate new median private-payer rates to set the Medicare CLFS for 2027-2029.

Scenario 2: A PAMA-Fix is Introduced and Passed into Law
Despite widespread support from both Democrats and Republicans, the  last PAMA-fix bill SALSA (H.R. 2377/S. 1000) failed to get passed into law. The  culprit was cost. The Congressional Budget Office (CBO) had projected that  passing SALSA into law would cost $6 billion over 10 years. A separate  analysis by ACLA had estimated the cost at less than $3 billion. 

ACLA is now crafting a new PAMA-fix proposal and seeking supporters to  introduce it. A simpler and less costly alternative to SALSA is what’s needed. 

There is little argument that current PAMA law pertaining to labs is  unworkable. In particular, it will be nearly impossible for most hospital labs  to dig up their private-payer volume and payment data from 2019 and  report it to CMS, notes Josh Kramer, Managing Partner at the laboratory IT  company Leap Consulting Group (Teaneck, NJ). Kramer says that many  hospitals have gone through system upgrades and changes since 2019 and these hospitals may not have historical claims data readily available from  legacy systems. In addition, PAMA does not allow hospitals to ignore paper  claims data. And smaller hospitals may not have detailed lab data from  paper claims loaded in their systems at all, according to Kramer. 

A new PAMA-fix bill will need to include a mechanism (e.g., statistical  sampling) to ensure that the higher rates paid to hospital labs are  accurately surveyed and included in CLFS rate calculations. 

Scenario 3: CLFS Remains Frozen and PAMA is Delayed Another Year
In previous scoring of one-year delays in PAMA payment cuts and reporting, the CBO assumed that private payers were adjusting their lab test reimbursement rates for inflation. Based on this assumption, the CBOconcluded that the suspension of PAMAwould result in cost savings.  The CBO is no longer assuming private payer inflation updates. As a result,  another one-year PAMA delay is unlikely to be scored to provide savings and  thus unlikely to be passed into law.

Did Digital Pathology Utilization Increase During The Pandemic?

Did Digital Pathology Utilization Increase During The Pandemic?

Did Digital Pathology Utilization Increase During The Pandemic?

The conventional wisdom says that digital pathology use surged as a result of the pandemic. However, Medicare data for CPT 88361 (computer-assisted IHC for breast cancer) tells a different story. The volume of Medicare Part B allowed claims for 88361 declined by 16% to 160,819 in 2020, followed by only a 3% rebound to 165,231 in 2021. CPT 88361 is the only code devoted specifically to bill Medicare for reading digitized slides. It therefore gives an indication of digital pathology trends in the clinical market.

Another indication that the digital pathology market has not taken off during the pandemic is the falling number of pathologists using it. A total of 736 pathologists billed Medicare for CPT 88361 in 2020 (the latest year of available data), which was down from 871 pathologists in 2019. The number of independent labs billing Medicare for CPT 88361 declined from 96 labs in 2013 to 66 labs in 2019 but increased slightly to 69 labs in 2020.

The main barrier, irrespective of the pandemic, to more widespread adoption of digital pathology has been the added expense of digitizing slides without reimbursement. The problem is that digital pathology comes as an “add on” process that is produced from a traditional glass slide. Digital pathology does not eliminate the need to process, section, glass-slide-mount and stain biopsy specimens. A high-end conventional microscope costs between $9,000 and $12,000, while a complete digital pathology
system can cost between $100,000 and $400,000.

In addition, pathologist practice patterns are hard to change, especially without a clear clinical benefit and/or compelling financial incentive.

 Artificial intelligence could be the game changer that jumpstarts the digital pathology market. AI-based decision-support tools that boost pathologist productivity and reduce errors need digitized images to read. AI vendors (PathAI, Paige, Ibex Medical Analytics, etc.) claim their software can help pathologists read 30+% more slides per day. This may provide hospitals and labs with the return on investment necessary to justify an investment in digital pathology scanners.

Arkansas Lab Owner Indicted in $100 Million Billing Fraud

Arkansas Lab Owner Indicted in $100 Million Billing Fraud

Arkansas Lab Owner Indicted in $100 Million Billing Fraud

 A federal grand jury in the Western District of Arkansas has indicted Billy Joe Taylor, age 42, for an alleged scheme that billed Medicare for over $100 million dollars in fraudulent lab test claims between February 2017 and May 2021.

Taylor is the owner of several lab companies, including Vitas Laboratories (Barling, AR), Beach Tox (Torrance, CA), Nations Laboratory Services (Tecumseh, OK), Corrlabs (Southern Pines, NC) and Imaginus Diagnostic Laboratory (Spiro, OK).

Taylor allegedly used access to beneficiary and medical provider information from prior lab orders to submit fraudulent claims for urine drug tests, Covid-19 tests and respiratory pathogen panels, that were not actually ordered or performed. The complaint also alleges that hundreds of claims were submitted for beneficiaries after they had died or otherwise ceased providing samples.

Taylor used the proceeds of the fraud to live a lavish lifestyle, including purchasing numerous luxury cars, real estate, jewelry and guitars, according to the indictment.

Taylor is charged with 16 counts of health care fraud, and one count of engaging in a monetary transaction in criminally-derived property. Each of the counts is punishable by a maximum penalty of 10 years in prison. He is scheduled for his arraignment on November 23 before the U.S. District Court for the Western District of Arkansas.