Written by: Ricky Bell
Having spent a decade advising clinical laboratories and health systems on revenue cycle management, I can tell you that molecular diagnostics remains one of the most volatile operational areas in healthcare. Federal spending on genetic testing under Medicare Part B now sits above $3.6 billion every year. That rapid financial growth brought aggressive oversight from the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) and the Department of Justice.
In the complex arena of medical billing, molecular diagnostic testing sits right in the crosshairs of federal auditors. Regulators no longer rely on random sampling. Instead, they deploy advanced data analytics to flag billing anomalies instantly. For compliance officers and practice managers, ensuring every claim meets strict coverage standards isn’t just a recommendation—it is a survival strategy that lab executives cannot afford to sleep on. Rules change overnight. When billing protocols lack internal controls, financial penalties and False Claims Act liability follow quickly behind.
Where Labs Usually Get Burned
When reviewing Federal enforcement actions, one may find specific aspects of operations that lead to regulatory setbacks, including clawbacks and fines. For example, OIG has on multiple occasions published fraud alerts with the primary goal of targeting genetic testing practices and has pointed out that claims that result in financial penalties most often stem from major failure of the system’s processes rather than from honest error.
Common High-Risk Testing Behaviors:
- High-Risk Testing Behaviors.
- Billing unbundled molecular CPT codes.
- Bill a panel without a chart proof.
- No signature by the doctor on the order.
Use of non-compliant lead-generation practices that may violate healthcare marketing regulations. Incorrect use of unlisted codes that relate to the genome.
Examine billing of multi-gene panels for cancer. Legal consequences come immediately when multi-gene hereditary cancer or pharmacogenomic panels are billed without showing the medical necessity of each individual gene target. Paying entities do not generally accept that a broadly screening panel is a medical necessity simply because a patient has a family history of disease. In addition, laboratory-marketing relationship set-ups frequently breach the Eliminating Kickbacks in Recovery Act (EKRA) and the Anti-Kickback Statute. When labs pay for marketing services in proportion to volume or claim value, they open themselves up to the possibility of being investigated by the Department of Justice, a common compliance issue that many lab managers face.
Navigating Medical Necessity and Coverage Controls
Defining medical necessity in genetics testing is really about finding a middle ground between clinical utility and coverage criteria determined by payers. An example is when a physician thinks a 50-gene panel is the ideal choice for giving the right diagnosis. Still, if the local coverage policy (LCD) lists just five genes as the only ones that are covered and the patient’s condition is consistent with only these genes, then the doctor will be referring to the patient for the other testing that the insurance is not covering.
Maintaining billing compliance, organizations must master the requirements set by the Molecular Diagnostic Services (MolDX) program and commercial utilization management policies. Commercial payers and state Medicaid programs frequently diverge on prior authorization rules, creating administrative friction for billing staff. Truth is, what works for Medicare might fail completely with a commercial plan.
Key Operational Checks for Coverage:
- Review local coverage rules monthly.
- Get prior approval before testing.
- Document clinical rationale in charts.
- Verify specific CPT code coverage.
- Check doctor order signatures daily.
A pre-test verification procedure is a compulsory setup. If a lab gets referrals from community physicians outside, it will be wrong to assume that the requesting provider already wrote medical necessity notes in their EMR. The lab on its own has to verify that clinical records back up the selected test panel before carrying out the test and presenting the charge. Not checking the chart papers exposes the lab to risks during an after-payment review of billing practices. So, you don’t ever want to end up having that as your big error.
How to Build an Audit Framework That Works
To prevent improper payments, progressive health systems are moving away from passive retro-audits. Implementing an active Genetic Testing Stewardship Program (GTSP) provides a proven operational blueprint. For example, Nemours Children’s Health successfully curtailed unnecessary genetic testing orders by placing certified genetic counselors directly into the ordering workflow and embedding hard-stops in their Electronic Health Record (EHR) systems.
A solid internal audit framework evaluates claims both before submission and after payment. Health systems must establish routine internal controls that evaluate coding accuracy, physician intent, and documentation completeness.
Essential Audit Program Controls:
- Add decision support in EHR.
- Audit high-risk codes monthly.
- Use genetic counselors as gatekeepers.
- Track payer denial codes weekly.
- Check fair market value rates.
Concurrently, compliance teams should conduct random quarterly audits on claims utilizing unlisted CPT® codes (such as CPT® 81479). Unlisted codes attract automatic payer scrutiny. If your team uses unlisted codes to bypass prior authorization or LCD restrictions, auditors will flag those claims for recoupment. Training billing personnel to double-check local coverage policies ensures that claims align precisely with current billing guidelines.
Real Exposure Under Federal Statutes
The risks linked to statutory non-compliance are not just limited to denial of claims. Compliance risks related to molecular diagnostic services can have far-reaching consequences, including the imposition of heavy statutory penalties under the False Claims Act, Stark Law, and EKRA. Pursuant to the False Claims Act, if one submits claims for tests that do not have a documented medical necessity, this may result in the payment of triple damages plus the imposition of compulsory civil money penalties per claim.
Labs need to figure out as well, how they relate their working relationships, if any, with ordering physicians, and clinical consultants. It is a federal crime under anti-kickback laws to distribute free point-of-care testing devices, offer lavish consulting arrangements, or to provide generous collection fees to ordering clinics. Basically speaking, financial arrangements between you and a referrer should only be as much as the Fair Market Value (FMV) of the service actually done. Besides, having clear and complete documentation of FMV determinations and legal opinions is another defense measure that every lab board should definitely work on.
About the Author
Ricky Bell (https://www.dastifysolutions.com/team/rickybell/) is Head of Operations at Dastify Solutions, where he oversees healthcare operations, revenue cycle management, and compliance initiatives for physician practices, clinical laboratories, and healthcare organizations across the United States. With extensive experience in medical billing, coding compliance, denial management, and revenue cycle optimization, he helps healthcare providers strengthen operational efficiency while maintaining regulatory compliance.
Resources
- U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG): Fraud Alert: Genetic Testing Scam.
https://oig.hhs.gov/fraud/consumer-alerts/fraud-alert-genetic-testing-scam/ - American Health Law Association (AHLA): Fraud and Abuse Issues in Diagnostic and Molecular Testing.
https://www.healthlawyers.org - Centers for Medicare & Medicaid Services (CMS): MolDX: Molecular Diagnostic Tests (LCD L35025).
https://www.cms.gov/medicare-coverage-database/view/lcd.aspx?lcdid=35025 - Kaiser Family Foundation (KFF): Coverage of Breast Cancer Screening and Prevention Services.
https://www.kff.org/womens-health-policy/coverage-of-breast-cancer-screening-and-prevention-services/ - National Center for Biotechnology Information (NCBI / PMC): The Genetic Testing Stewardship Program: A Bridge to Precision Diagnostics for the Non-genetics Medical Provider.
https://pmc.ncbi.nlm.nih.gov/articles/PMC9124555/
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