Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
Q B
UE  STIONABLE  ILLING FOR 
 
M P B C
ED  ICARE  ART    LINICAL 
L S
ABORATORY  ERVICES 
 
 
Suzanne Murrin  
Deputy Inspector General  
for Evaluation and Inspections  
 
August 2014 
OEI-03-11-00730   
   
EXECUTIVE SUMMARY:  QUESTIONABLE BILLING FOR MEDICARE  
PART B CLINICAL LABORATORY SERVICES  
OEI-03-11-00730 
 
WHY WE DID THIS STUDY 
 
Medicare is the largest payer of clinical laboratory (lab) services in the nation.  From 2005 to 
2010, Part B Medicare enrollment increased by 10 percent, while spending for lab services 
increased by 29 percent. In 2010, Medicare payments for all Part B lab services totaled 
$8.2 billion. We conducted this study to identify questionable billing patterns among Medicare 
lab services.    
 
HOW WE DID THIS STUDY  
 
We based this study on an analysis of Part B claims for lab services with dates of service in 
2010.  Labs submit claims for each lab service provided for Medicare beneficiaries.  Each claim  
contains information about the lab provider, the ordering physician, the beneficiary, and the lab 
service.  We developed 13 measures to describe labs billing patterns and to identify labs with 
questionable billing patterns. We calculated and analyzed the distribution of the measures for 
each lab. We then calculated a statistical threshold for the 13 measures and determined whether 
a labs billing was unusually high for each measure.  Additionally, we calculated the total 
number of claims and total allowed amount associated with certain measures of questionable 
billing. 
 
WHAT WE FOUND 
 
In 2010, over 1,000 labs exceeded the thresholds (i.e., had unusually high billing) for 5 or more 
measures of questionable billing for Medicare lab services.  For example, a lab might have an 
unusually high percentage of claims with ineligible and/or invalid ordering-physician numbers, 
or an unusually high allowed amount per ordering physician.  Almost half of the labs that 
exceeded the thresholds for five or more measures of questionable billingcompared to 
13 percent of all labswere located in California and Florida, areas known to be vulnerable to 
Medicare fraud. Some labs that exceeded the thresholds for fewer than five measures also 
exhibited billing that may warrant further review.  Medicare allowed $1.5 billion across all labs 
for claims associated with questionable billing.     
   
WHAT WE RECOMMEND  
 
There may be some labs that have legitimate reasons for exceeding certain thresholds. However, 
collectively, these findings call for stronger oversight of labs and identify specific issues with 
Medicare payments for lab services that need to be addressed to more effectively safeguard 
Medicare. Therefore, we recommend that the Centers for Medicare & Medicaid Services (CMS) 
(1) review the labs identified as having questionable billing and take appropriate action, 
(2) review existing program integrity strategies to determine whether these strategies are 
effectively identifying program vulnerabilities associated with lab services, and (3) ensure that  
existing edits prevent claims with invalid and ineligible ordering-physician numbers from being 
paid. CMS concurred with all recommendations. 
   
TABLE OF CONTENTS 
 
Objective......................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................3 

Findings........................................................................................................9 

In 2010, over 1,000 labs had unusually high billing for five or 

more measures of questionable billing for Medicare  

lab services.......................................................................................9 

Almost half of the labs that exceeded the thresholds for five or 

more measures of questionable billing were located in  

two States.......................................................................................15 

Some labs that exceeded thresholds for fewer than five  

measures of questionable billing exhibited billing that  

may warrant further review ............................................................16 

In 2010, Medicare allowed $1.5 billion for questionable claims
  
across all labs .................................................................................17 

Conclusion and Recommendations ............................................................20 

  Agency Comments and OIG Response..........................................22 

Appendixes ................................................................................................23 

A: Detailed Methodology for Evaluating Questionable  

Lab Billing  .....................................................................................23 

B: Labs That Exceeded Thresholds for Measures of Questionable 

Billing in 2010 ...............................................................................30 

C: Agency Comments  ...................................................................31 

Acknowledgments......................................................................................34
 
 
   
   
OBJECTIVE 
To identify questionable billing for Part B clinical laboratory (lab) services  
in 2010. 
BACKGROUND 
Clinical lab services include a range of chemical and other types of 
examinations of specimens taken from the human body for the diagnosis, 
prevention, or treatment of a disease or assessment of a medical 
condition.1  Some of the most common lab services are complete blood 
counts, lipid panels (tests for cholesterol screening), and urinalyses.  More 
than half of Medicare beneficiaries receive some type of lab service, other 
than pathology, over the course of a year.2  Part B lab services may be 
performed by independent labs, physician office labs, hospital labs (for 
outpatient services), or labs located in other institutions.  
Lab services are covered under Medicare Part B when they are ordered by 
a physician or qualified nonphysician practitioner who is treating the 
patient.3, 4  Lab services ordered by anyone other than the treating 
physician are not considered reasonable or necessary.5    
Medicare Payment for Lab Services 
Medicare is the largest payer of clinical lab services in the Nation.6 From 
2005 to 2010, Medicare enrollment in Part B increased by 10 percent, 
while spending for Part B lab services increased by 29 percent.7, 8 In 2010, 
 
1 Centers for Medicare & Medicaid Services (CMS), Medicare Benefit Policy Manual, 
Pub. 100-02, ch. 15,  80.1. 

2 Direct Research, LLC.,  Trends in Medicare Carrier-Paid Laboratory Testing Services, 

February 2006, p. 33. 

3 For the purposes of this report, we refer to  physicians and nonphysician practitioners as 

physicians.  

4 42 CFR   410.32(a). 

5 Ibid. 

6 Medicare Payment Advisory Commission (MedPAC),  Clinical Laboratory Services 
 
Payment System, October 2011, p. 1. 
 
7 CMS, Medicare Enrollment:  National Trends  19662010.  Accessed at 
http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
Reports/MedicareEnrpts/downloads/HISMI2010.pdf   on October 18, 2013.  
8 CMS, Data Compendium (2011  Edition), Table II.3  (Medicare Benefit Payments by  
Type of  Benefit, Fiscal Years 20082010).  Accessed  at http://www.cms.gov/Research-
Statistics-Data-and-Systems/Statistics-Trends-and-Reports/DataCompendium/  
2011_Data_Compendium.html on October 18, 2013, and CMS, Data Compendium  
(2008 Edition), Table II.3 (Medicare Benefit Payments by Type  of Benefit, Fiscal Years  
20062007).  Accessed  at http://www.cms.gov/Research-Statistics-Data-and-Systems/  
Statistics-Trends-and-Reports/DataCompendium/16_2008DataCompendium.html on 
October 18, 2013. 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  1    
   
Medicare payments for all Part B lab services totaled $8.2 billion.  Since 
1997, the payment rates for lab services have increased three times.  In 
2003, payment rates increased by 1.1 percent; in 2009, by 4.5 percent; and 
in 2012, by 0.65 percent.9  
Medicare Billing Codes for Lab Services 
Medicare sets payment rates for over 1,100 Healthcare Common 
Procedure Coding System (HCPCS) codes used to bill for lab services.10   
The HCPCS is a uniform coding system consisting of descriptive terms 
and identifying codes for reporting medical services, procedures, products, 
and supplies. HCPCS codes can define a single test or a panel (a group of  
tests that are commonly performed together). 
Each HCPCS code is assigned a Berenson-Eggers Type of Service 
(BETOS) code.  The BETOS coding system was developed primarily to 
analyze the growth in Medicare expenditures.  BETOS codes cover all 
HCPCS codes, and a HCPCS code is assigned to only one BETOS code.   
BETOS codes T1A through T1H (T1 codes) are used for clinical lab 
services.  Most HCPCS codes with a T1 code fall under HCPCS codes  
80000 through 89999, which are pathology and lab services codes.   
Related Office of Inspector General Work 
In 2000, the Office of Inspector General (OIG) issued a report identifying 
a number of common Medicare fraud schemes involving clinical lab 
services.11  These schemes include billing for services not performed, not 
ordered, or not needed; unbundling lab tests; upcoding; duplicate billing of 
lab tests; and falsifying diagnoses.12   All of these fraudulent billing 
practices were identified during Project LabScam, a nationwide law 
enforcement project that focused on the billing practices of all major 
independent labs in the countryspecifically, independent clinical 
diagnostic laboratories. The project resulted in settlements against several 
laboratories, including Laboratory Corporation of America Holdings, 
SmithKline Beecham, MetPath/MetWest, Damon, Roche, and Allied.  The 
report also stated that there were indications that problems similar to those 
uncovered through Project LabScam were occurring with smaller 
laboratories and certain providers. 
 
9 MedPAC, Clinical Laboratory Services Payment  System, October  2011, p. 2. 
 
10 Ibid., p.1. 
 
11 OIG,  Medicare Payments for Clinical Laboratory Services:  Vulnerabilities and 
 
Controls, OEI-05-00-00070, January 2000. 

12 Unbundling is the practice of inappropriately reporting each component of a service or
  
procedure instead of reporting the single comprehensive code.  Upcoding is the practice 

of billing at a higher level than  warranted.  

Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  2    
   
A 2002 OIG study investigated whether Medicare was paying for lab 
services ordered by physicians with invalid or inactive unique physician 
identification numbers (UPINs).13, 14 OIG found that in 2000, Medicare 
paid $7.4 million for clinical lab service claims with invalid ordering 
UPINs and $15.3 million for lab service claims with inactive ordering 
UPINs. 
A 2013 OIG study found that in 2011, Medicare paid between 18 and 
30 percent more than other insurers for 20 high-volume and/or 
high-expenditure lab tests. Medicare could have saved $910 million in 
2011 if it had paid the lowest payment rate among insurers for these 
20 tests. OIG recommended that CMS seek legislation that would allow  
CMS to establish lower payment rates for lab services.  OIG also 
recommended that CMS consider seeking legislation to institute 
copayments and deductibles for lab services.15  
In addition, OIG has issued multiple reports related to questionable billing  
patterns by other Medicare providers.  Some of the most recent such 
reports have reviewed questionable billing by community mental health 
centers, home health agencies, retail pharmacies, and prescribers of Part D  
drugs.16  
METHODOLOGY 
We extracted Medicare claims for lab services from CMSs calendar year 
(CY) 2010 National Claims History Physician/Supplier Part B claims file.  
To identify lab services, we extracted claims with T1B through T1H 
BETOS codes, which identify clinical lab tests as the type of service 
received. 
Exclusions. We excluded the following from our analysis: 
   claims for labs that had less than $1,000 in total Medicare allowances, 
   claim lines with an allowed amount of $0, and 
 
13 CMS discontinued assigning UPINs in June 2007 and began using the National  
Provider Identifier (NPI) as the primary and secondary provider identifier in May 2008. 
14 OIG,  Clinical  Laboratory Claims with Invalid or Inactive Physician Numbers, 
OEI-03-01-00670, October 2002.  
15 OIG, Comparing Lab Test Payment Rates:   Medicare Could Achieve Substantial 
Savings, OEI-07-11-00010, June 2013. 

16 OIG, Questionable Billing by Community Mental Health Centers, OEI-04-11-00100,  

August 2012; OIG,  Inappropriate and  Questionable Billing by  Medicare Home Health 
 
Agencies, OEI-04-11-00240, August 2012; OIG,  Retail Pharmacies With Questionable 

Part D Billing, OEI-02-09-00600, May 2012; OIG,  Prescribers With  Questionable 

Patterns in Medicare Part D, OEI-02-09-00603, June 2013. 

Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  3    
   
 	  claims without an NPI in either the field for the ordering physician or 
the field for the performing provider.  
 	  claims with a placeholder NPI in either the field for the ordering 
physician or the field for the performing provider.17  
Table 1 provides the total number of claims that were excluded from the 
analysis as well as the total allowed amount for these excluded claims. 
 
Table 1:  Total Number of Claims and Total  Allowed Amount Excluded 

From Analysis  

 
  Number of Claims  Allowed Amount  
 
Before Exclusions   160,954,331   $7,289,295,095 
 
After Exclusions   145,613,262   $7,258,915,889 
      Total Exclusions   15,341,069  $30,379,206  
  Source: OIG analysis of claims for 2010 Part B clinical lab services.  
Our final data set contained 145.6 million lab claims, which were 
submitted by 94,609 labs for 23 million beneficiaries.  In total, Medicare 
allowed $7.3 billion to these providers for lab services rendered in 2010.    
Grouping Lab Providers. Because large, nationwide, independent 
laboratories may have greater billing volume and may have different 
billing patterns compared to smaller, nonindependent labs, we separated 
claims data into two groups:  independent labs (ILs) and nonindependent 
labs (non-ILs).18  An example of a non-IL would be a lab in a physicians 
office.  We analyzed these two groups separately.  
Using data from the Provider Enrollment, Chain, and Ownership System  
(PECOS), we identified the specialty reported by each lab during 
enrollment.  For labs for which enrollment records could not be found in 
PECOS, we reviewed specialty information from the Medicare NPI 
Crosswalk (NPIC).19  For 46 labs, no enrollment records could be found in 
PECOS or NPIC, so we used the main specialty code reported in the 
National Plan and Provider Enumeration System (NPPES).   
We considered a lab to be an IL if it had a PECOS specialty description of  
Independent Clinical Laboratories or Histocompatibility Laboratory, 
an NPIC specialty of Clinical Medical Laboratory, or an NPPES 
specialty of Clinical Medical Laboratory.  Labs not meeting these 
 
17 An example of a placeholder NPI is 9999999992, which  was used  on claims submitted  
by beneficiaries.   

18 An IL is independent  both  of  an attending  or consulting  physicians office and  of a 

hospital. 
   
19 This crosswalk validates claims that contain a legacy numbersuch as a  Medicare 

Provider Identification Numberand an NPI. 

Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  4    
   
criteria were considered non-ILs. In our final data set, we identified  
2,598 ILs and 92,011 non-ILs.    
Additional Provider and Beneficiary Data. To obtain addresses for 
ordering physicians in our data set, we matched NPIs  in NPPES.  We also 
used NPPES data to determine whether ordering physicians NPIs were 
valid in 2010. 
We used CMSs Compromised Number Checklist (CNC) to identify 
compromised provider NPIs, ordering-physician NPIs, and beneficiary 
Health Insurance Claim Numbers (HICNs).  In this report, we refer to lab 
provider NPIs as provider numbers, ordering-physician NPIs as 
ordering-physician numbers, and beneficiary HICNs as beneficiary 
numbers.  The CNC includes Medicare provider and beneficiary numbers 
that are suspected of being compromised or verified as being 
compromised.  These numbers are obtained through fraud investigations, 
security breach reports, and complaints from providers or beneficiaries.  
CMS sends an updated CNC to each benefit integrity contractor monthly 
and incorporates the CNC into its Fraud Prevention System, which is an 
initiative to identify aberrant and suspicious billing patterns before claims 
are paid. We considered the identification number for a lab, ordering 
physician, or beneficiary to be compromised if the number was on the 
CNC with no removal date as of August 5, 2013.20    
All Part B Service Claims. In addition to obtaining claims for lab services, 
we obtained claims for Medicare Part B services from CYs 2009 and 2010 
for all beneficiaries identified in our data set.  Using beneficiaries HICNs, 
ordering physicians NPIs, and the dates of service from the lab claims, we 
matched the lab claims to Part B service claims to determine whether 
beneficiaries received other Part B services from the physician who 
ordered the lab service within the 6 months prior to the lab service.  We  
extracted only claims in which the ordering physician on the lab claim was 
the performing provider on the Part B claim.21    
Identification of Labs That Had Questionable Billing 
For each lab in our data set, we calculated the total allowed amount, total 
number of claims, total number of ordering physicians, and total number 
 
20 A removal date indicates that the corresponding provider  number or beneficiary  
number was not verified as compromised.  However, these beneficiary and provider  
numbers are not physically removed from the CNC.  
21 It is  possible that a provider  not enrolled in  Medicare ordered a lab service for a  
beneficiary.  In this case, the physician may have seen the beneficiary  prior  to the lab 
service, but did not bill Medicare for this visit.  Therefore, there would  be  no Part B claim  
for this provider. 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  5    
   
of beneficiaries.22   We then developed 13 measures to describe lab billing 
and to identify labs with questionable billing.  These measures were based 
on information from previous studies on lab services, Federal criminal and 
civil investigations involving lab services, OIG work on questionable 
billing for other Medicare providers, discussions with CMS staff, and our 
own analysis. 
The 13 measures are:  
(1) 	  high average allowed amount per claim,   
(2) 	  high average number of claims per beneficiary,   
(3) 	  high average allowed amount per beneficiary,  
(4) 	  high average number of claims per ordering physician, 
(5) 	  high average allowed amount per ordering physician, 
(6) 	  high percentage of claims for beneficiaries with no associated Part B 
services with the ordering physician, 
(7) 	  high percentage of claims for beneficiaries living more than  
150 miles from the ordering physician,  
(8) 	  high percentage of duplicate lab tests, 
(9) 	  high percentage of claims with invalid ordering-physician numbers,  
(10)   high percentage of claims with ineligible ordering-physician 
numbers, 
(11)   high percentage of claims with compromised beneficiary numbers, 
(12)   high percentage of claims with compromised ordering-physician 
numbers, and 
(13) 	  compromised lab provider number.  
We calculated these 13 measures for each lab and analyzed the distribution 
of labs for each measure.  We considered a labs billing to be unusually 
high, or questionable, on a measure if the number or percentage was 
greater than the 75th percentile plus 3 times the interquartile range.23   We  
calculated the thresholds for ILs and non-ILs separately.24  We then  
 
22 In cases where there was more than one lab NPI on a claim (0.01% of all claims), we 
grouped together the line items associated  with each separate lab NPI. 

23 This is a standard exploratory method for identifying members of a population  with 
 
unusually high values  on a given statistic compared to the rest of the population when  no 
 
established benchmarks exist.  See J.W. Tukey,  Exploratory Data  Analysis, 

Addison-Wesley, 1977.  The interquartile range is the value at the 75th  percentile minus 
 
the value at the 25th  percentile. 

24 One measurecompromised lab numberis a binary measure, as labs either did or did 

not  have a compromised number.  Because this measure is  binary, it does not  have a 

threshold. 
 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  6    
   
determined the total number of measures for which each lab exceeded the 
threshold. 
Appendix A provides a full description of the methodology used to 
calculate the 13 measures of questionable billing.  Appendix B provides 
the calculated thresholds for each of the 13 measures and the number of 
labs that exceeded these thresholds.  
Identification of Labs That Exceeded Thresholds for an 
Unusually High Number of Measures of Questionable Billing  
After determining the total number of  measures of questionable billing for 
which each lab exceeded the threshold, we determined whether each lab 
exceeded the threshold for an unusually high number of measures.  We  
calculated this threshold using the 75th percentile plus 3 times the 
interquartile range. The threshold was four; therefore, any lab that 
exceeded the thresholds for five or more measures of questionable billing 
was an outlier. 
Geographic Analysis of Labs That Exceeded Thresholds for 
Five or More Measures of Questionable Billing  
For labs that exceeded the thresholds for five or more measures of 
questionable billing, we determined whether they were concentrated in 
certain States or counties. We used the ZIP Code on a labs claim to 
determine its practice location.  If a lab had multiple ZIP Codes, we used 
the ZIP Code that appeared on the highest number of claims.  Using 
mapping software, we mapped labs physical locations onto a national 
map.25  We determined which States and counties had the highest 
concentrations of labs with questionable billing. 
Analysis of Claims and Payments  Associated with Measures of 
Questionable Billing 
We calculated the total number of claims and total allowed amount 
associated with 8 of the 13 measures of questionable billing.  Because we 
could perform these calculations only on measures of questionable billing 
that were binary at the claim level (e.g., a claim either did or did not have 
an invalid ordering-physician number), we excluded 5 of the 13 measures 
from this analysis.26   To calculate the total number of claims and total 
allowed amount associated with the measures of questionable billing, we 
 
25 There were 30 labs that did not map by county in  ArcGIS, Version 10.1.   
26 We excluded the following  five measures:   high average allowed amount  per ordering  
physician, high average allowed amount  per claim, high average number of claims per 
ordering physician, high average allowed amount per beneficiary, and high average 
number of claims per beneficiary.  These measures  were based on each labs overall  
billing.  
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  7    
   
first identified the claims associated with each measure.  For example, we 
identified all claims with an invalid ordering-physician number, regardless 
of whether the lab that submitted the claim exceeded the threshold for this  
measure.  We then counted the number of claims associated with the 
measure and summed those claims allowed amounts. 
Limitations 
We did not independently verify the accuracy of the data used for this 
study.  Our findings are based on the analysis of claims; we did not 
conduct a medical record review to determine whether the services for 
which labs billed were inappropriate or fraudulent.  The 13 measures 
included in our analysis are not intended to be a comprehensive set of 
characteristics for identifying labs with questionable billing.  
We designed this study to identify labs that warrant further review.  None 
of the measures analyzed confirm that a particular lab is engaging in 
fraudulent or abusive practices. Some labs may have legitimate reasons 
for exceeding certain thresholds, such as being highly specialized labs that 
provide unique or complex testing for beneficiaries across the country.  
Several of the individual measures have additional limitations specific to 
that measure.  These limitations are discussed in Appendix A. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency.   
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  8    
   
FINDINGS 
In 2010, over 1,000 labs had unusually high billing for 
five or more measures of questionable billing for 
Medicare lab services 
In total, 1,025 out of 94,609 labs exceeded the thresholds for at least 5 of 
the 13 measures of questionable billing.  Together, these labs were allowed  
$1 billion for lab services rendered in 2010 and had an average allowed 
amount of $1 million.  Although some of this billing may be legitimate, all 
labs that exceeded thresholds on five or more measures of questionable 
billing may warrant further scrutiny.   Table 2 shows the distribution across 
labs of the numbers of measures of questionable billing for which labs  
exceeded thresholds. Appendix B provides the thresholds for the 
measures of questionable billing and the total number of labs that 
exceeded each threshold.    
 
Table 2:  Number and Percentage of Labs  by Number of Measures of  
Questionable Billing for Which Labs Exceeded Thresholds 
Number of Measures of  
Questionable Billing for  Number of  Percentage of 
Total Allowed  
Which Labs  Exceeded   Labs   Labs  
Thresholds  
0  45,498  48%   $956,247,883  
1  27,920  30%   $1,563,976,902 
2  12,597  13%   $2,086,588,887 
3  5,496  6%   $1,070,848,549 
4  2,073  2%   $546,665,650  
5  691  0.7%   $477,942,870  
6  247  0.3%   $295,634,078  
7  63  0.07%   $238,716,257  
8  20  0.02%   $13,941,546  
9  4  <0.01%   $8,353,267 
     Total  94,609   100%1  $7,258,915,889 
Source: OIG analysis of claims for 2010 Part B clinical lab services.  
1The percentages do not sum to 100 percent because of rounding.  
For labs that exceeded at least five thresholds, the number of labs that 
exceeded the threshold for each particular measure is shown in Table 3.  
The most frequently exceeded thresholds among these labs were those for 
the following measures:  high average allowed amounts per ordering 
physician, high percentage of claims  with ineligible ordering-physician 
numbers, high percentage of claims with compromised beneficiary 
numbers, and high percentage of duplicate lab tests. 
 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  9    
   
Table 3:  Labs That Exceeded the Thresholds for Five of More Measures of Questionable Billing, by  
Measure  
Percentage of Labs   
Number of Labs  
That Exceeded the 
Measure of Questionable Billing  That Exceeded the 
Threshold 
Threshold (N=1,025)  
(N=1,025)  
High  average allowed amount per ordering physician   810   79%  
High percentage of claims with ineligible ordering-physician  
790  77%  
numbers  
High percentage of claims with compromised beneficiary  
704  69%  
numbers  
High percentage of duplicate lab tests  664   65%  
High average allowed amount per claim   631   62%  
High average number of claims per ordering physician   472   46%  
High average allowed amount per beneficiary   450   44%  
High percentage of claims with compromised 
333  32%  
ordering-physician numbers  
High percentage of claims for beneficiaries with no 
229  22%  
associated Part B services with ordering physician  
High percentage of claims with beneficiaries living more 
211  21%  
than 150 miles from the ordering physician  
High percentage of claims with invalid ordering-physician 
187  18%  
numbers  
High average number of claims per beneficiary   71   7%  
Compromised lab provider number   22   2%  
Source: OIG analysis of claims for 2010 Part B clinical lab services. 
 
Below are some examples of billing patterns found for lab providers that 
exceeded the thresholds for five or more measures of questionable billing 
in 2010: 
 	  An IL in Texas was one of four labs that exceeded the thresholds for 
nine measures of questionable billing.   All of this labs claims  
contained compromised beneficiary numbers, none of these 
beneficiaries had an associated Part B service with the ordering 
physician within 6 months prior to the lab service, and 89 percent of 
claims were for beneficiaries who lived over 150 miles from the 
ordering physician. Furthermore, this lab was allowed an average of 
$61,434 per ordering physician15 times the overall average for ILs.   
 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  10    
   
In addition, 13 percent of this labs claims had ineligible  
ordering-physician numbers. This lab, whose provider number also 
was compromised, was allowed $2 million.   
 	  For a California IL, all 1,224 beneficiaries for whom this lab submitted 
claims had compromised beneficiary numbers.  In addition, 45 percent 
of claims had ineligible ordering-physician numbers and 41 percent of 
claims had compromised ordering-physician numbers.  This lab was 
also allowed an average of $61,041 per ordering physician, which is 
15 times the average among ILs.  This lab was allowed almost 
$1 million in 2010. 
 	  More than  90 percent of one Ohio ILs claims had compromised 
beneficiary numbers, and 58 percent of its claims had compromised 
physician numbers. This labs provider number was also 
compromised.  In addition, 79 percent of the claims were for 
beneficiaries who had no Part B claim with the ordering physician 
within 6 months, and 10 percent of the claims had ineligible  
ordering-physician numbers.  This lab was allowed $2.8 million in 
2010. 
	   A non-IL in Florida was allowed an average of $1,193 per beneficiary,  
16 times the average for non-ILs.  The average allowed per ordering 
physician for this lab was $107,700, or 24 times the overall average for 
non-ILs. This lab also exceeded the thresholds for the percentage of 
claims with a compromised beneficiary number, the percentage of 
claims for beneficiaries who lived more than 150 miles from the 
ordering physician, and the percentage of duplicate lab tests.  This lab 
was allowed $7.8 million in 2010. 
	   For a Michigan IL, almost all claims had an ineligible  
ordering-physician number, and none of the 68 beneficiaries 
associated with the claims had a prior Part B service with the ordering 
physician within 6 months prior to the lab claim. In addition, 
Medicare allowed this lab $204,237 for 1,300 claims that were 
submitted by only 2 ordering physicians.  This is an average of 
650 claims per ordering physician (11 times the overall average for 
ILs) and an average allowed amount of $102,119 per ordering 
physician (25 times the overall average for ILs).   
	   A non-IL in New York exceeded the thresholds for 8 measures of 
questionable billing and had an average allowed amount of $2,422 per 
beneficiary (33 times the overall average for non-ILs) and an average 
allowed amount of $253 per claim (7 times the average).  In addition, 
5 percent of this labs claims  had ineligible ordering-physician 
numbers.  This lab was allowed $1.1 million in 2010.  
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  11    
   
Eighty percent of labs that exceeded the thresholds for five or 
more measures of questionable billing had unusually high 
percentages of claims with ineligible and/or invalid  
ordering-physician numbers 
A large majority of labs that exceeded the thresholds for 5 or more 
measures of questionable billing (821 out of 1,025 such labs) had an 
unusually high percentage of claims with invalid ordering-physician 
numbers, an unusually high percentage of claims with ineligible 
ordering-physician numbers, or both. 
Of the 1,025 labs with 5 or more measures of questionable billing, 
790 exceeded the threshold indicating an unusually high percentage of 
claims with ineligible ordering-physician numbers.  Most of these labs had 
less than 10 percent of their claims  with ineligible ordering-physician 
numbers.  However, for 160 labs, more than a quarter of the labs claims  
had ineligible ordering-physician numbers. The number of ineligible 
ordering-physician numbers for these labs ranged from 1 to 114, and the 
amount allowed per ordering physician ranged from $221 to $132,938.  
Furthermore, 50 of these labs had only 1 ordering physician, so all of their 
claims were for services ordered with an ineligible physician number. 
Four of these labs were allowed more than $100,000 for claims ordered 
with one ineligible physician number. 
Additionally, a number of labs that exceeded the thresholds for five or 
more measures of questionable billing also had unusually high percentages 
of claims with invalid ordering-physician  numbers.  Of the 1,025 labs that 
exceeded the thresholds for 5 or more measures of questionable billing, 
187 had unusually high percentages of claims  for lab services  ordered with 
invalid physician numbers.  Almost all of these labs had less than  
3 percent of claims for lab services ordered with invalid physician 
numbers.  However, one non-IL  submitted 414 claims, of which 
98 percent contained an invalid ordering-physician number.   
A small number of labs had unusually high percentages of claims with 
both ineligible and invalid ordering-physician numbers.  Among these 
labs, the highest amount associated with an invalid or ineligible 
ordering-physician number was $60,097. One non-IL  had invalid 
ordering-physician numbers on 8 percent of its claims and ineligible 
ordering-physician numbers on 20 percent of claims. 
   
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  12    
   
Almost 80 percent of labs that exceeded the thresholds for five 
or more measures of questionable billing had unusually high 
average allowed amounts per ordering physician 
Many of the labs that exceeded the thresholds for 5 or more measures of 
questionable billing (810 labs out of 1,025) exceeded the threshold that 
indicated an unusually high average allowed amount per ordering 
physician. These labs had a range of $902 to $647,179 per ordering 
physician, with an average of $11,576.  More than half of these labs also 
had an unusually high average number of claims per ordering physician.  
Additionally, 10 of the 15 labs with an average of more than $100,000 per 
ordering physician had less than 5 physicians order all of their lab 
services.  
Many labs that exceeded the thresholds for five or more 
measures of questionable billing had unusually high 
percentages of claims with compromised numbers 
Three-quarters of labs that exceeded the thresholds for five or more 
measures of questionable billing exceeded at least one of the thresholds 
indicating a high percentage of claims with a compromised number.   
As shown in Table 3, 704 of the 1,025 labs had unusually high percentages 
of claims with compromised beneficiary numbers.  Eleven labs had 
compromised beneficiary numbers on over 90 percent of their claims.  
These 11 labs were allowed a total of $7.5 million.  
Another 333 labs had unusually high percentages of claims with 
compromised ordering-physician numbers.  These labs were allowed an 
average of $4,981 per compromised ordering-physician number.   Among 
these labs, the highest amount associated with one compromised 
ordering-physician number was $1.2 million.  Additionally, 15 labs had 
more than a quarter of their claims for lab services ordered with 
compromised physician numbers.  These 15 labs were allowed an average 
of $47,918 per compromised ordering-physician number.  
Medicare allowed $11.1 million to 22 labs that exceeded the thresholds for 
5 or more measures of questionable billing and had compromised lab 
provider numbers. These labs were allowed an average of $503,217.  
Twenty of these labs also had unusually high percentages of claims with 
compromised beneficiary numbers and unusually high percentages of 
claims with compromised ordering-physician numbers.  For example, one 
IL with a compromised provider number was allowed $556,403 for claims  
submitted for 820 beneficiariesall of whom had compromised 
beneficiary numbers.   In addition, 37 percent of this labs claims had 
compromised ordering physician numbers. 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  13    
   
Twenty-two percent of labs that exceeded the thresholds for 
five or more measures of questionable billing had unusually 
high percentages of claims for beneficiaries with no 
associated Part B services with the ordering physician 
By regulation, lab services not ordered by the physician who is treating the 
beneficiary are not reasonable and necessary.  Therefore, having an 
unusually high percentage of claims  for beneficiaries with no recent, 
associated Part B services with the ordering physician could mean that the 
lab billed for unnecessary services.  Of the 1,025 labs that exceeded the 
thresholds for 5 or more measures of questionable billing, 229 had 
unusually high percentages of claims  for a beneficiary without recent 
contact with the ordering physician listed on the lab claim.   These labs had 
between 70 and 100 percent of claims for beneficiaries for whom we could 
find no associated Part B service with the ordering physician within 
6 months prior to the lab service.27  For 70 of these labs, all of their claims  
were for beneficiaries without associated Part B services with the ordering 
physician. These labs billed claims  for an average of 256 beneficiaries 
and had an average allowed amount of $63,081 per lab.  Medicare allowed 
$4.4 million to these 70 labs. 
Twenty-one percent of labs that exceeded the thresholds for 
five or more measures of questionable billing had unusually 
high percentages of claims for beneficiaries residing more 
than 150 miles from the physician who ordered the lab 
services 
Although many lab services can be sent across the country for testing and 
review, it is unlikely that a lab would have many beneficiaries that reside  
far from their treating physician.  In 2010, 21 percent of labs that exceeded 
the thresholds for five or more measures of questionable billing had 
unusually high percentages of claims  for beneficiaries residing more than 
150 miles from the physician who ordered the lab services.  These labs 
had a range of 12 to 99 percent of claims for beneficiaries residing more 
than 150 miles from the ordering physician, with an average of 26 percent.  
For two labs, almost all of their claims were for beneficiaries living more 
than 150 miles from the ordering physician.  The average distance 
between beneficiaries and ordering physicians for these 2 labs was 
629 miles. 
 
27 There may be  cases in  which  the ordering  physician was not a Medicare-enrolled  
physician and,  therefore, there would  be  no  prior Part B service claim billed to Medicare 
for this beneficiary.  
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  14    
   
Almost half of the labs that exceeded the thresholds 
for five or more measures of questionable billing were 
located in two States 
In 2010, 43 percent (439 of 1,025) of labs that exceeded the thresholds for 
five or more measures of questionable billing were located in California 
and Florida, areas known to be vulnerable to Medicare fraud.  In 
comparison, only 13 percent of all labs were located in these two States.  
Each State had more than 150 labs with questionable billing in 2010.  
Overall, Medicare allowed a total of $602 million to the 439 labs.  
Six percent of all labs were located in California; however, 28 percent of 
labs with questionable billing were located in the State.  As shown in 
Table 4, Medicare allowed $347 million to 284 labs with questionable 
billing located in California. Of these 284 labs, almost half (49 percent) 
were located in Los Angeles County.   These Los Angeles County labs 
were allowed $46 million of the $263 million allowed to all labs in the 
county. Overall, 14 percent of labs with questionable billing nationwide 
were located in Los Angeles County. 
Additionally, 15 percent of labs with questionable billing, compared to  
7 percent of all labs, were located in Florida.  Medicare allowed 
$255 million to the 155 labs with questionable billing in Florida.  More 
than 40 percent of these labs were located in MiamiDade and 
Palm Beach counties.  
The remaining 586 labs with questionable billing were distributed among 
42 other States, the District of Columbia, and Puerto Rico.  Six States 
Montana, New Hampshire, North Dakota, Rhode Island, South Dakota, 
and Wyomingdid not have any labs with questionable billing. 
 
Table 4:  Number of Labs With Questionable Billing Per State, 2010  
   
Total Allowed For 
Number of Labs That 
Labs That Exceeded  
Exceeded the 
the Thresholds for 
State  Number of All Labs   Thresholds for Five or 
Five or More Measures 
More Measures of  
of Questionable 
Questionable Billing 
Billing  
California   6,046 (6%)   284 (28%)   $347,040,141  
Florida   6,520 (7%)   155 (15%)   $254,809,844  
Other   82,013 (87%)   5861 (57%)   $432,738,033  
    Total2  94,579 (100%)   1,025 (100%)   $1,034,588,018  
Source: OIG analysis of claims for Part B clinical lab services, 2010. 

1 These labs were located in 42 other States, the District of Columbia, and Puerto Rico. 

2 These totals do not include 30 labs for which addresses did not map by county.
  
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  15    
   
Some labs that exceeded thresholds for fewer than 
five measures of questionable billing exhibited billing
that may warrant further review 
In 2010, 51 percent of labs exceeded the threshold for at least one measure 
of questionable billing, but did not exceed the thresholds for five or more 
measures.  These 48,086 labs had a total allowed amount of $5.3 billion 
for lab services in 2010. Although these labs exceeded the thresholds for 
fewer than five measures of questionable billing, some of these labs 
exhibited billing patterns that may require further scrutiny.  Below are 
some examples of billing that could be problematic: 
 	  One non-IL, which exceeded the thresholds on 4 measures of 
questionable billing, had 97 percent of its claims for beneficiaries 
who had no associated Part B service with the ordering physician 
within 6 months prior to the lab service.  Additionally, 97 percent 
of the labs claims were for beneficiaries living more than 
150 miles from the ordering physician.  This lab had a total 
allowed amount of $669,781.   
 	  One IL billed 16,351 claims, of which 41 percent had 
compromised beneficiary numbers and 30 percent had 
compromised ordering-physician numbers.  This lab had a total 
allowed amount of $1.5 million, but exceeded the threshold on 
only two measures of questionable billing. 
 	  Another IL billed 85,416 claims and had a total allowed amount of 
$4 million.  Although this provider exceeded the threshold of only 
one measure of questionable billing, more than half of its claims  
were for services ordered by two physicians with ineligible 
numbers.  The lab was allowed $2,075,661 for lab services with 
ineligible physician numbers. 
 	  One non-IL exceeded the thresholds on 3 measures of questionable 
billing but had an average allowed amount of $5,547 per 
beneficiary (compared to an average of $74) and billed for 
21 claims per beneficiary (7 times the average).  This lab was 
allowed a total of $232,977. 
 
In 2010, Medicare allowed $1.5 billion for 
questionable claims across all labs 
Across all labs, Medicare allowed a total of $1.5 billion for claims  
associated with eight types of questionable billing.  Table 5 provides the 
total Medicare-allowed amount for claims associated with each of the 
eight measures of questionable billing. 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  16    
   
In 2010, Medicare allowed $1.2 billion for claims with 
beneficiaries who had no associated Part B service with the 
ordering physician within 6 months prior to the lab service 
Lab services must be ordered and used promptly by the physician or 
qualified nonphysician practitioner who is treating the beneficiary.   
However, Medicare allowed $1.2 billion in 2010 for 23 million claims  
with beneficiaries who had no associated Part B service with the ordering 
physician within the 6 months prior to the lab service.  Although there may 
be legitimate reasons why a beneficiary may not have a previous Part B 
service with the ordering physician on the lab service, the number of 
claims and total dollar amount for this measure were substantial.   
Table 5: Total Allowed for Claims Associated with Certain Measures of Questionable Billing Across All Labs 
Number of Claims 
Associated With  
Measure of Questionable Billing  Total Allowed1  
Measure of  
Questionable Billing  
Claims for beneficiaries with no associated Part B service with  
22,944,979  $1,178,173,922 
ordering physician  
Claims with beneficiaries living more than 150 miles from the 
5,281,457  $324,531,514  
ordering physician  
Claims with ineligible ordering-physician numbers   1,743,997  $93,530,304  
Claims with compromised beneficiary numbers  1,251,264   $76,323,259  
Duplicate lab tests  997,1512  $38,519,091  
Claims with compromised ordering-physician numbers   400,153   $23,551,040  
Claims with a compromised lab provider number   200,000   $13,654,926  
Claims with invalid ordering-physician numbers  52,604   $2,579,106  
Source: OIG analysis of claims for 2010 Part B clinical lab service claims.
 
1 The total allowed in this table exceeds the $1.5 billion for questionable claims because some claims were included in more than
  
one measure of  questionable billing.    

2 These are numbers of duplicate tests, not duplicate claims.
  
 
In 2010, Medicare allowed $325 million for claims for which the 
beneficiary lived more than 150 miles from the ordering 
physician  
One would expect that a beneficiaryin addition to having a previous 
Part B service with the physician who ordered the lab servicewould 
reside within a reasonable distance from the ordering physician.  Again, 
there may be legitimate reasons why a beneficiary would live far  from an 
ordering physician, e.g., seeing a specialist outside of the area.  However,  
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  17    
   
in 2010, Medicare allowed $325 million for 5.3 million claims in which 
the beneficiarys address was more than 150 miles from the ordering 
physicians address.  These claims had an average distance of  
851 miles between the beneficiary and ordering physician.  As with claims 
for a beneficiary who had no associated Part B service with the ordering 
physician within 6 months prior to the lab service, claims for which the 
beneficiary lives significantly far from the ordering physician may indicate 
that the ordering physician is not the treating physician.  
In 2010, Medicare allowed $96 million for claims with ineligible 
or invalid physician numbers 
Medicare allowed $93.5 million for 1.74 million claims ordered with 
physician numbers that were not eligible to order lab services.  These 
claims were ordered by organizational providers, e.g., labs or group 
practices, which are not eligible to order Medicare lab services.28   
Medicare also allowed $2.6 million for 52,604 claims ordered with invalid 
physician numbers. 
In 2010, Medicare allowed $96 million for claims associated 
with compromised numbers 
Overall, Medicare allowed $96 million for 1,601,710 claims with one or 
more compromised number on the claim.29  Specifically, Medicare allowed  
$76 million for claims for 144,554 beneficiaries with compromised 
numbers.  Medicare allowed $23.6 million for 400,153 claims ordered 
with 861 compromised physician numbers.  Lastly, Medicare allowed 
$13.7 million for claims submitted by labs with compromised provider 
numbers. 
In 2010, Medicare allowed $39 million for duplicate lab tests  
Medicare allowed $39 million for 997,151 duplicate lab tests.  This means  
that a lab billed for the same test on the same day for the same beneficiary,  
raising questions about whether tests were reasonable and necessary.  
 
   
 
28 Only individual physicians and nonphysician  practitioners are eligible to  order or refer 
items or services. 
29 This dollar amount includes claims with  just one compromised number, such as the 
beneficiary number, and claims that have two or three compromised numbers, i.e., a  
combination of compromised provider number, compromised ordering-physician 
number, and/or compromised beneficiary  number. 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  18    
   
CONCLUSION AND RECOMMENDATIONS 
In 2010, 52 percent of labs nationwide exceeded the threshold for at least 
one measure of questionable billing. Prior OIG reports have found that lab 
services are vulnerable to fraud, waste, and abuse.  This report found 
questionable billing by lab providers and continued vulnerabilities in 
Medicare payments for lab services. 
In 2010, a total of 1,025 labs exceeded the thresholds for five or more 
measures of questionable billing.  Almost half of these 1,025 labs were 
located in 2 StatesCalifornia and Floridathat are known to be 
vulnerable to Medicare fraud. Additionally, questionable billing was 
associated with substantial Medicare payments.  For example, Medicare 
paid $325 million for claims for which the beneficiary lived more than 
150 miles from the physician who ordered the lab service.  In total, 
Medicare paid $1.5 billion across all labs for questionable claims for lab 
services.  Although there may be legitimate reasons for some of this 
billing, all of these types of questionable billing for lab services warrant 
further review. 
Collectively, the findings identify specific vulnerabilities with Medicare 
payments for lab services that need to be addressed to more effectively 
safeguard the Medicare program.  CMS must use all of the tools at its 
disposal to more effectively identify and prevent questionable payments 
for Part B lab services.  
Therefore, we recommend that CMS: 
Review the labs identified as having questionable billing and 
take appropriate action 
In a separate memorandum, OIG will refer to CMS the 1,025 labs that we 
identified as exceeding the thresholds for 5 or more measures of 
questionable billing.  To address labs questionable billing, CMS and/or its 
contractors should adequately review the billing of these labs.  After this 
review, CMS should implement actions, as appropriate.  Such actions 
could include, but are not limited to (1) recouping any improper payments 
identified during review of labs billing, (2) suspending payments to the 
labs with questionable billing, (3) educating labs as to how to properly bill 
for services, (4) revoking a labs Medicare privileges, (5) referring a lab to 
law enforcement for criminal investigation, or (6) taking no action, if a 
labs billing is determined to be appropriate.      
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  19    
   
Review existing program integrity strategies to determine 
whether they are effectively identifying program vulnerabilities 
associated with lab services 
CMS should review existing program integrity strategies that are being 
implemented by Medicare Administrative Contractors (MACs), Medicare 
Zone Program Integrity Contractors (ZPICs), Recovery Audit Contractors 
(RACs), and the Fraud Prevention System to monitor labs and lab 
claims.30  CMS should determine whether these program integrity 
strategies are sufficiently identifying vulnerabilities in lab claims and 
identifying labs with questionable billing patterns for further review.  This 
should include reviewing strategies for identifying and addressing claims  
with compromised provider or beneficiary numbers.  
Ensure that existing edits prevent claims with invalid and 
ineligible ordering-physician numbers from being paid 
In October 2012, CMS stated (in an edition of MLN Matters) its plans to 
implement edits that would deny Part B claims for services ordered by 
physicians who are not eligible to order and refer or do not have a valid 
NPI. In March 2013, CMS announced that the edits to deny claims with 
ineligible ordering or referring physicians would become active in 
May 2013; however, in April 2013 CMS announced that there would be a 
temporary delay in implementing the edits.  In November 2013, CMS 
stated (in MLN Matters) that denial edits would be effective as of 
January 6, 2014. CMS should ensure that these edits are preventing 
claims with ineligible and invalid ordering-physician numbers from being 
paid. 
 
   
 
30 MACs are responsible for processing Medicare claims, enrolling  health care providers 
and educating providers on Medicare billing  requirements.  ZPICs and RACs perform  
program integrity work  for Medicare Parts A  and B.  The Fraud Prevention System uses 
predictive analytics technology to identify and prevent the payment of improper claims.  
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  20    
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS concurred with all three of our recommendations.  Regarding the 
first recommendation, CMS stated that it will direct the ZPICs to follow 
up and investigate the laboratories identified with questionable billing.   
In response to our second recommendation, CMS stated that it is using the 
Fraud Prevention System to identify possible fraudulent, wasteful, or 
abusive activities associated with laboratory services, and to provide 
ZPICs and PSCs with actionable information to initiate and facilitate their 
investigations. CMS stated that as a result of this and other proactive 
analysis, 47 labs are under investigation by the ZPICs and PSCs.  CMS 
also stated that MACs regularly analyze data to determine areas of highest 
risk for improper payments in their jurisdictions; currently, five MAC 
jurisdictions incorporate lab services within their medical review 
strategies.  
CMS also concurred with our third recommendation and stated that 
effective January 6, 2014, the agency began denying claims for Part B 
clinical lab services if the provider who ordered or referred the service was 
not enrolled in Medicare or had obtained opt-out status.  According to 
CMS, the edit has resulted in claims being denied for Part B lab services, 
and the agency will continue to closely monitor the number of denials due 
to implementation of these new edits. 
OIG believes that consistent and ongoing use of these strategies will better  
enable CMS to more effectively identify and prevent improper payments 
made for lab services.  
The full text of CMSs comments is provided in Appendix C. 
   
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  21    
   
APPENDIX A 
Detailed Methodology for Evaluating Questionable Lab Billing  
Our first step in evaluating the billing patterns of labs was to calculate 
overall billing characteristics for the 94,609 labs included in our analysis.  
We did this by calculating the following five totals for each lab:  total 
allowed amount, total number of claims, total number of ordering 
physicians, and total number of beneficiaries.  We then developed 
13 measures to describe lab billing and to identify labs with questionable  
billing. These measures were based on information from previous studies 
on lab services, Federal criminal and civil investigations involving lab 
services, OIG work on questionable billing for other Medicare providers, 
discussions with CMS staff, and our own analysis. 
Below are the descriptions of the methodologies used to calculate each of 
the measures of questionable billing. After calculating each measure, we 
analyzed the distribution of labs for each measure.  We considered a labs 
billing to be unusually high, or questionable, on a measure if the number 
or percentage was greater than the 75th percentile plus 3 times the 
interquartile range.31, 32  We calculated the thresholds for ILs and non-ILs 
separately. 
Any limitations with the data used to calculate each measure are also 
noted. Furthermore, some claims and/or labs were excluded from several 
of the measures.  Table A1 shows the final number of labs used in the 
analysis of each measure. 
(1) 	  High average allowed amount per claim. This measure identifies 
labs with unusually high average allowed amounts per claim. For 
each lab, we divided the total amount allowed by the total number of 
claims to determine the average allowed amount per claim.   We did 
not exclude any claims or labs from this analysis.   
(2) 	  High average number of claims per beneficiary.   This measure 
identifies labs with unusually high numbers of claims per 
beneficiary.  For each lab, we divided the total number of claims by 
the total number of beneficiaries to determine the average number of 
claims per beneficiary.   We did not exclude any claims or labs from  
this analysis. 
 
31 This is a standard exploratory method for identifying members of a population  with  
unusually high values  on a given statistic compared to the rest of the population when  no  
benchmarks exist.  See J.W. Tukey,  Exploratory Data  Analysis, Addison-Wesley, 1977.  
32 As  noted in  footnote 24, one measurecompromised lab numberis a binary  
measure, as labs either did or  did not have a compromised number.  Because this measure 
is binary, it does not  have a threshold.  
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  22    
   
(3) 	  High average allowed amount per beneficiary. This measure 
identifies labs with unusually high average allowed amounts per 
beneficiary. For each lab, we divided the total allowed by the total 
number of beneficiaries to calculate the average allowed amount per 
beneficiary.   We did not exclude any claims or labs from this 
analysis. 
(4) 	  High average number of claims per ordering physician.   This 
measure identifies labs with unusually high numbers of claims per 
ordering physician.  For each lab, we divided the total number of 
claims by the total number of ordering physicians to determine the 
average number of claims per ordering physician.   
Section 1877 of the Social Security Act, otherwise known as the 
physician self-referral law or Stark Law, prohibits physicians from  
making referrals for certain designated health services payable by 
Medicare, including lab services, to an entity with which the 
physician or immediate family member has a financial relationship.33   
However, there are various exceptions to the Stark law, including 
physicians ordering and furnishing designated health services in the 
context of their own practices provided that certain criteria are met.  
(This is known as the in-office ancillary services exception.34) 
Because physicians self-referrals to non-ILs in their own offices 
might have qualified for a Stark exception, we did not include non-
IL self-referred claims as questionable for this measure.  Therefore, 
we excluded any claim submitted by a non-IL for which the 
performing provider was also the ordering physician (indicating a 
self-referral). In total, we excluded 40,859,967 claims and 
22,260 non-ILs from this analysis. 
(5) 	  High average allowed amount per ordering physician. This measure 
identifies labs with unusually high average allowed payments per 
ordering physician.  For each lab, we divided the total allowed per 
lab by the total number of ordering physician to calculate the average 
allowed per ordering physician. As we did with the previous 
measure, we excluded 40,859,967 claims and 22,260 non-ILs from  
this analysis. 
   
 
33  Social Security Act,  1877(a), 42 U.S.C.  1395nn(a). 

34 Social Security Act,   1877(b)(2), 42  U.S.C.  1395nn(b)(2).  See also  42 CFR  

 411.355(b). 
 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  23    
   
(6) 	  High percentage of claims for beneficiaries with no associated 
Part B services with the ordering physician. This measure identifies 
labs with unusually high percentages of claims for which 
beneficiaries did not receive a Part B serviceexcluding other lab 
services and durable medical equipment, prosthetics, orthotics, and 
suppliesfrom the ordering physician in the 6 months prior to the 
lab service.  For each lab, we determined the total number of lab 
claims for beneficiaries without recent contact and divided that 
number by the total number of claims to determine labs percentage 
of claims for beneficiaries without recent contact with the ordering 
physician. 
Lab services must be ordered by the physician treating the 
beneficiary.   Therefore, we expect that a claim for service from the 
ordering physician would generally precede the lab service by a 
reasonably short period of time.  For each lab claim, we determined 
whether there was recent contact between the beneficiary and the 
ordering physician by matching the beneficiarys HICN and the 
ordering physicians NPI on the lab claim to the HICN and 
performing provider NPI on the Part B service claim.  If the 
beneficiary had any Part B claim  with a date of service in the  
6 months prior to the lab claim, we considered this to be evidence of 
recent contact with the physician.  One limitation to this analysis, 
however, is that there may be cases in which the ordering physician 
was not a Medicare-enrolled physician and, therefore, a prior Part B 
service claim billed to Medicare would not exist for this beneficiary.   
We did not exclude any claims or labs from this analysis. 
(7) 	  High percentage of claims with beneficiaries living more than  
150 miles from the ordering physician. This measure identifies labs 
with unusually high percentages of claims for beneficiaries residing 
more than 150 miles from the ordering physician.  Because lab 
services must be ordered by the physician or nonphysician 
practitioner treating the beneficiary, we would expect that many 
beneficiaries would reside within a reasonable distance from the 
treating physician, i.e., ordering physician.  For each lab, we 
determined the number of claims for beneficiaries who lived more 
than 150 miles away from the ordering physician and divided this 
number by the total number of claims to determine the percentage of 
claims with beneficiaries living more than 150 miles from the 
ordering physician. 
Using SAS, we determined the geodetic distance (the shortest line 
between two points) in miles between beneficiary and ordering 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  24    
   
physician. We used the beneficiary ZIP Code on the claim and the 
ordering physician practice location ZIP Code in the NPPES files.  
We used the zipcitydistance function in SAS to calculate the distance 
between the beneficiary and the ordering physician.   
For a number of claims, distance could not be calculated using SAS 
because the ZIP Code of the beneficiary or the ordering physician 
was invalid. For these claims, we used ArcGIS, a platform for 
building and using geographic information systems, to calculate 
distances.  We used either the city and State of the ordering 
physicians practice location, or the ZIP Code of that location.  For 
any claim for which the distance could not be calculated because the 
ordering physicians practice location was outside of the 
United States, Canada, or Mexico, we considered the distance to be 
greater than 150 miles.     
Several limitations exist for this analysis.  First, the beneficiary ZIP  
Code on the claim may reflect the beneficiarys mailing address, not 
where the beneficiary actually resides.  Additionally, a May 2013 
OIG report that analyzed the accuracy and completeness of NPPES 
data found that the addresses for practice locations were often 
inaccurate.35     
For this analysis, we excluded claims that were missing the 
beneficiarys ZIP Code.  We also excluded claims that were missing 
the ordering physicians practice location and claims with ordering 
physicians whose practice location addresses changed in 2010.  
Lastly, we excluded claims for which distances could not be 
calculated in either SAS or ArcGIS.  We excluded a total of 
4,620,875 claims and 943 labs from this analysis. 
(8) 	  High percentage of duplicate lab tests. This measure identifies labs 
with unusually high percentages of duplicate lab tests.  We  
considered tests to be duplicates if they matched on HICN, 
performing provider NPI, end date of service, and HCPCS code.  For 
each lab, we divided the number of duplicate tests (not including the 
first occurrence of the test) by the total number of tests to determine 
the percentage of duplicate lab tests. 
Medicare will pay for tests performed more than once on the same  
day for the same patient only in certain cases.  For example, there 
 
35 OIG,  Improvements Needed to Ensure Provider Enumeration and Medicare 
Enrollment Data are Accurate, Complete, and Consistent, OEI-07-09-00440, May 2013. 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  25    
   
may be times when it is necessary to perform a test more than once 
on the same day to obtain multiple results in the course of a patients  
treatment.  In these cases, labs are required to report specific 
modifiers on the claim.  For this measure, we did not consider tests 
with modifiers 59, 76, 77, 91which are used to indicate repeat or 
distinct testsas duplicates. We also did not consider tests with the 
modifiers indicating technical component (TC) or professional 
component (26) to be duplicates.  Lastly, we did not consider 
methodology-based molecular pathology stacked test codes as 
duplicates because these tests could be billed multiple times to 
represent the performance of the entire test.  We did not exclude any 
claims or labs from this analysis. 
(9) 	  High percentage of claims with invalid ordering-physician numbers. 
This measure identifies labs with unusually high percentages of 
claims with invalid ordering-physician numbers.  For each lab, we 
determined the number of claims for services ordered with an invalid 
physician number and divided that number by the total number of 
claims per lab to determine the percentage of claims with invalid 
ordering-physician numbers. 
To determine whether an ordering physician had an invalid number, 
we compared the NPIs of our ordering physicians to NPPES.  If an 
NPI was not in NPPES, we considered the ordering physicians 
number to be invalid.  Additionally, we considered the numbers of  
ordering physicians with deactivated NPIs to be invalid.  We also 
used NPPES to determine whether an ordering physicians number 
had been deactivated. If the ordering physicians NPI was 
deactivated prior to 2010 and either not reactivated or reactivated 
after 2010, we considered the physicians number to be invalid.  We  
did not exclude any labs from this analysis. 
(10) 	  High percentage of claims with ineligible ordering-physician 
numbers.   This measure identifies labs with unusually high 
percentages of claims for services ordered with ineligible physician 
numbers.  For each lab, we divided the number of claims that had an 
ineligible physician number by the total number of claims to 
calculate the percentage of claims with ineligible ordering 
physicians. 
Lab services can only be ordered by individual physicians or 
nonphysician practitioners who treat the beneficiary.   We determined 
whether an ordering physician was an individual using specialties 
found in PECOS.  If the ordering-physician number did not have an 
enrollment record in PECOS, we used NPIC and NPPES data to 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  26    
   
make the determination.  We considered ordering physicians 
identified as nonindividuals, e.g., clinical labs, clinic or group 
practices, to be ineligible to order.   We did not exclude any labs from  
this analysis. 
(11) 	  High percentage of claims with compromised beneficiary numbers. 
For this measure, we first identified any beneficiary HICNs listed in 
CMSs CNC without a removal date as of August 5, 2013.  We used 
the removal date because when CMS verifies that a number is not 
actually compromised, it adds a removal date and reason code, but 
does not physically remove the number from the CNC.  We then 
calculated the percentage of claims with a compromised beneficiary 
number by dividing the number of claims with a compromised 
beneficiary number by the total number of claims for each lab. 
Because the CNC contains suspected  numbers in addition to verified 
numbers, we are not assuming that labs exceeding the thresholds for 
percentage of claims with compromised beneficiary numbers are 
necessarily fraudulent, only that they may warrant further review.  In 
addition, OIG previously reported that some CMS contractors who 
refer provider and beneficiary numbers for inclusion in the database  
have concerns about the quality of the information in the database.36   
We did not exclude any claims or labs from this analysis. 
(12) 	  High percentage of claims with compromised ordering-physician 
numbers. As we did for the previous measure, we first identified any 
ordering-physician NPI listed in the CNC without a removal date as 
of August 5, 2013.  Then, for each lab, we calculated the percentage 
of claims with a compromised ordering-physician number by 
dividing the number of claims with a compromised 
ordering-physician number by the total number of claims.  We did 
not exclude any claims or labs from this analysis. 
(13) 	  Compromised lab provider number. We considered any lab that had 
an NPI listed in the CNC without a removal date as of August 5, 
2013, to be questionable on this measure.  We did not exclude any 
claims or labs from this analysis. 
 
36 OIG,  CMS Response to  Breaches and Medical Identity Theft, OEI-02-10-00040, 
October 2012.   
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  27   Table A1:  Total Labs Included in Analysis For Each Measure 
Measure  N
High averag e allowed amount per claim  94,609 
High average number of claims per beneficiary  94,609 
High average allowed amount per beneficiary  94,609 
High average number of claims per ordering physician  72,349 
High average allowed amount per ordering physician  72,349 
High percentage of claims for beneficiaries with no associated Part 8 service 
94,609
with the ordering physician 
High percentage of claims with beneficiaries living more than 150 miles from 
93,666
the ordering physician 
High percentage of duplicate lab tests  94,609 
High percentage of ordering physicians with invalid numbers  94,609 
High percentage of claims with ineligible ordering-physician numbers  94,609 
High percentage of claims with compromised beneficiary numbers  94,609 
High percentage of claims with compromised  ordering-physician numbers  94,609 
Compromised lab provider number  94 ,609 
Source:  OIG analysis of claims for 201 0 Part 8 clin ical lab services . 
Questionable Billing for Medicare Part 8 Clinical Laboratory Services (OEI-03-11-00730)  28   
   
APPENDIX B 
Labs That Exceeded Thresholds for Measures of Questionable Billing in 
2010 
   
Table B1:   Labs That Exceeded Thresholds for Measures of Questionable Billing in 2010  
  ILs  Non-ILs    
Number of  
Labs that  
Measure   Median1   Questionable   Number  Median1   Questionable   Number  Exceeded  
Threshold  of Labs   Threshold   of Labs  
Questionable  
Threshold  
Average allowed amount per claim  $46   $314   137   $19   $129   5,297  5,434  
Average number of claims per 
3  13   23   2  9  1,157  1,180  
beneficiary  
Average allowed amount per 
$140  $536   179   $47   $303   1,810  1,989  
beneficiary  
Average number of claims per 
18  216   147   3  22   4,988  5,135  
ordering physician  
Average allowed amount per 
$1,081  $12,598   180   $61   $901   5,055  5,235  
ordering physician  
Percentage of claims for 
beneficiaries with no associated 
17.7%  70.1%   113   5.9%  70.3%   3,417  3,530  
Part B services  with ordering 
physician  
Percentage of claims with 
beneficiaries residing more than 
2.8%  17%   58   1.5%  12.5%   4,731  4,789  
150 miles from the ordering 
physician  
Percentage of duplicate lab tests  0%   0.1%   334   0%   0%3  10,210  10,544  
Percentage of claims with invalid 
0%  0%3  455   0%   0%3  3,736  4,191  
ordering-physician numbers  
Percentage of claims with ineligible 
0.4%  7.2%   170   0%   0%3  19,277  19,447  
ordering-physician numbers  
Percentage of claims with 
0.05%  1.6%   330   0%   0.2%  17,118  17,448  
compromised beneficiary  numbers  
Percentage of claims with 
compromised ordering-physician  0%  0.08%   531   0%   0%3  3,881  4,412  
numbers  
Compromised lab provider number2  13     121  134  
Source: OIG analysis of claims for Part B clinical lab services, 2010.
 
1 The median (i.e., the 50th  percentile) indicates that half of all labs were equal to or less than this value. 

2 This is a binary  measure.  Lab provider numbers were either compromised or not compromised.  Therefore, no median or threshold was 

calculated for this measure. 

3 A threshold of 0 percent indicates that not only  was the median value 0, but the IQR, which measures the spread of the middle 50 percent of data 

values, was also 0.  Therefore, any lab that exceeded 0 percent for the measure was considered to have questionable billing. 
 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  29   APPENDIXC 
Agency Comments 
...
,.,..
~.,.,."" 
~
(  DEPARIMENT OF HEALTH & HlJMANSERVICEi  ' CenleTS for Medicare & Medicaid Services 
~'z\-
Administrator 
Washington, DC 20201 
HAY Z2Z014
DATE: 
TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Marilyn T~awmner 

Acting AdmiJ\istrator 

SUBJECT: 	 Office of Inspector General (OIG) Draft Report: Questionable Billing for 
Medicare Part B Clinical Laboratory Services (OEI-03-11-00730) 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
comment on the above subject OIG draft report. The purpose ofthis report is to identifY 
potentially questionable billing patterns among Medicare clinical laboratory services. 
As the largest payer ofclinical laboratory services in the nation, CMS is committed to 
identifYing questionable billing practices and working with all stakeholders in an effort to 
develop stronger oversight of clinical laboratories. By focusing on specific vulnerabilities 
identified in this draft report, CMS will be able to prevent fraud, waste, and abuse more 
effectively in order to safeguard the Medicare program. CMS is committed to utilizing all 
available tools to identify and prevent improper payments made for clinical laboratory services. 
We appreciate DIG' s efforts in working with CMS to ensure that appropriate action is taken 
regarding questionable billing for clmical laboratory services. Our responses to each ofthe OIG 
recommendations are addressed below. 
OIG Recommendation 
The OIG recommends that CMS review the labs identified as having questionable billing and 
take appropriate action. 
CMS Response 
The CMS concurs with' this recommendation and will direct the Zone Program Integrity 
Contracts (ZPICs) to follow up and investigate those laboratories identified with questionable 
billings.   
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  31   
   
 
   
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  31    
   
 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  32    
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and Linda M. Ragone, Deputy Regional Inspector General.  
Maria S. Johnson served as the team leader for this study.  Other Office of 
Evaluation and Inspections staff from the Philadelphia regional office who 
conducted the study include Courtney Fanslau.  Central office staff who 
provided support include Clarence Arnold, Mandy Brooks, Kevin Manley, 
and Christine Moritz. 
 
Questionable Billing for Medicare Part B Clinical Laboratory Services (OEI-03-11-00730)  33    
Office of Inspector General
http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components: 
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections 
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the  Inspector  General (OCIG) provides general legal services to 
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.