Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JANET REHNQUIST 

Inspector General 

JANUARY 2002 

OEI-O5-00-00050 

Common Working File Edits for 

Unauthorized Laboratory Tests 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG) mandated by Public Law 95-452, as 

amended by Public Law 100-504, is to protect the integrity of the Department of Health and 

Human Services programs as well as the health and welfare of beneficiaries served by them. This 

statutory mission is carried out through a nationwide program of audits, investigations, 

inspections, sanctions, and fraud alerts. The Inspector General informs the Secretary of program 

and management problems and recommends legislative, regulatory, and operational approaches to 

correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

The Office of Evaluation and Inspections’ Chicago regional office prepared this report under the 

direction of William C. Moran, Regional Inspector General and Natalie Coen, Deputy Regional 

Inspector General. Principal OEI staff included: 

Region Headquarters 

John Traczyk, Team Leader Bambi Straw, Program Specialist

Thomas Komaniecki, Analyst

Susan Otter, Analyst 

To obtain copies of this report, please call the Chicago Regional Office at (312) 353-4124. 

Reports are also available on the World Wide Web at our home page address: 

http://oig.hhs.gov/oei/ 
EXECUTIVE SUMMARY 

PURPOSE 

To determine whether laboratory payment safeguards have been effective in protecting 

Medicare program funds. 

BACKGROUND 

This report focuses on how well the Common Working File (CWF) edits work when 

processing claims from laboratories holding a CLIA Certificate of Waiver or Certificate 

for Provider Performed Microscopy Procedures. The CWF scrutinizes claims to ensure 

that the laboratory services billed are authorized under a provider’s CLIA certificate. We 

did not analyze claims submitted by laboratories certified by CLIA to do moderate or high 

complexity laboratory testing. These laboratories hold CLIA Certificates of Compliance 

or Accreditation and the services they bill to Medicare are not yet subject to CWF edits. 

FINDINGS 

Claim Processing Edits Appear Effective at Detecting And Denying 

Payment For Services Not Authorized by a Laboratory’s CLIA 

Certificate of Waiver or Certificate For Provider Performed Microscopy 

Procedures 

Only 98 of the 26,456 laboratories (less than 1 percent) in our sample managed to elude 

CMS’s Common Working File claims processing edits and were paid for services not 

authorized by their CLIA certificate. Based on our sample, it appears that CMS’s 

Common Working File edits were effective and resulted in the correct processing (denial 

or payment) of nearly all (998 of every 1,000) services billed by 26,456 laboratories 

holding a Certificate of Waiver or a Certificate for Provider Performed Microscopy 

Procedures. 

Based on our sample, we estimate that, in 1999, about 16,000 laboratory services (out of 

an estimated 8.1 million services submitted) went undetected by CWF edits. We also 

estimate that these claims accounted for less than $76,000 of the estimated $31.3 million 

paid for services submitted by laboratories holding a Certificate of Waiver or a Certificate 

for Provider Performed Microscopy Procedures. 

CWF Laboratory Edits i OEI-05-00-00050 
However, Certain CMS Survey and Certification Policies, in Effect in 

1999, Appear to Adversely Affect Common Working File Payment 

Safeguards 

CMS Policy: Permits laboratories that obtain a CLIA Certificate of Registration to bill 

Medicare before they have been surveyed. 

Fifty laboratories in our sample were holding a CLIA Certificate of Registration when 

Medicare paid them for laboratory services in 1999. These 50 laboratories gained access 

to Medicare and Medicaid payment systems simply by submitting a CLIA application to 

CMS indicating that they would be doing moderate or high complexity laboratory tests. 

Based on unverified application information, they were given a CLIA Certificate of 

Registration and a CLIA number for use in billing Medicare and Medicaid. 

The CMS policy allowed these 50 laboratories to operate without a visit from CLIA 

surveyors for up to 24 months. During this period, they were allowed to receive payments 

from Medicare even though they had not paid all of their CLIA fees. Most of these 

laboratories billed Medicare for less than $1,000 in 1999 and several were paid $10,000 or 

more. One laboratory was paid nearly $200,000. The CWF processed these claims 

correctly; however, we question a policy that permits unrestricted access to the Medicare 

payment system before laboratories have paid their survey and certification fees and been 

inspected. The CMS is aware of this problem and is considering a change in procedure. 

CMS Policy: Prohibits the downgrading of a CLIA certificate until the current 

certificate has expired. 

Analysis of our 5 percent file revealed that 1,104 laboratories had downgraded their CLIA 

certification sometime during 1999. Medicare paid for more than 13,600 moderate and 

high complexity services billed by these laboratories in our sample. These services may 

not have been paid had the CWF received updated information that the laboratory had 

downgraded its CLIA certification. 

When these providers submitted their claims for payment, it was CMS policy not to 

downgrade CLIA certificate information until the existing CLIA certificate had expired. 

Some of the paid services may have been denied if updated CLIA certification information 

had been relayed in a more timely manner to the CWF. The CMS is considering a policy 

change that would result in more timely updates of laboratory certification information. 

Based on our sample, a change in procedure could affect the processing of an estimated 

275,000 laboratory services. 

CWF Laboratory Edits ii OEI-05-00-00050 
RECOMMENDATIONS 

It appears that CMS’s Common Working File has been effective in ensuring that 

laboratories holding CLIA Certificates of Waiver and Certificates for Provider Performed 

Microscopy Procedures are paid correctly. Based on the vulnerabilities identified in this 

report, we encourage CMS to exam and revise its operating procedures to: 

< Shorten the length of time allowed between application and onsite survey of new 

laboratories. 

< Prohibit laboratories from billing Medicare until they have paid all of their CLIA 

fees or been surveyed to ensure compliance with CLIA regulations. 

< Downgrade CLIA certificates and transmit the information to the CWF as soon as 

it becomes known that a laboratory will no longer do moderate or high complexity 

testing. 

AGENCY COMMENTS 

We received comments on this report from CMS. They concur with our all of our 

recommendations and have made changes to their procedures that will help meliorate the 

common working file edit system by addressing the vulnerabilities identified in this report. 

Their comments can be found in Appendix A. 

CWF Laboratory Edits iii OEI-05-00-00050 
TABLE OF CONTENTS 

PAGE 

EXECUTIVE SUMMARY ................................................... 

INTRODUCTION .......................................................... 1

FINDINGS

Laboratory processing edits appear effective ................................. 5

Survey and certification policy vulnerabilities ................................ 6

RECOMMENDATIONS .................................................... 9

APPENDIX A ............................................................ 10

CWF Laboratory Edits OEI-05-00-00050 

i 
INTRODUCTION 

PURPOSE 

To determine whether laboratory payment safeguards have been effective in protecting 

Medicare program funds. 

BACKGROUND 

The Centers for Medicare & Medicaid Services 

The Centers for Medicare & Medicaid Services (CMS) administers Medicare, the nation's 

largest health insurance program, which covers approximately 39 million Americans. 

Medicare provides health insurance to people age 65 and over, and to those who have 

permanent kidney failure and to certain people with disabilities. The CMS also works 

with the States to provide health insurance to another 35 million Americans enrolled in 

Medicaid and the State Children's Health Insurance Program. 

Clinical Laboratory Improvement Amendments of 1988 

In addition to providing health insurance, CMS also performs many quality-focused 

activities, including regulation of clinical laboratory testing. In 1988, Congress enacted 

the Clinical Laboratory Improvement Amendments (CLIA). The CLIA established 

“quality standards for all laboratory testing to ensure the accuracy, reliability and 

timeliness of patient test results regardless of where the test was performed.” 

Under current law, all laboratories must be certified under CLIA to perform testing on 

human specimens.1 Laboratories enroll in the program by completing an application and 

paying a certificate fee to CMS. Fees are based on certificate type, annual volume and 

number of test specialities. 

Each laboratory must have a certificate appropriate for the complexity of the testing they 

conduct. All laboratory test methods are classified based on testing complexity into one of 

four categories: high, moderate, provider-performed microscopy or waived test 

1 The CLIA regulations define a laboratory as a facility for the . . . examination of materials derived from 

the human body for the purpose of providing information for the diagnosis, prevention or treatment of any disease 

or impairment of, or the assessment of the health of, human beings. These examinations also include procedures to 

determine, measure, or otherwise describe the presence or absence of various substances or organisms in the body. 

The regulations allow for some exceptions, including forensic laboratories, research laboratories that “do not report 

patient-specific results,” drug testing laboratories certified by the Substance Abuse and Mental Health Services 

Administration, and some Federal laboratories. 

CWF Laboratory Edits 1 OEI-05-00-00050 
<

methods. The type of CLIA certificate a laboratory receives relates to the complexity of 

testing conducted at that laboratory’s site. All laboratories are required to keep CMS 

informed of major changes in testing, ownership or directorship. 

Of the nearly 170,000 laboratory2 sites certified by CLIA as of July 2000, about 86,500 

sites have been issued a Certificate of Waiver. Approximately 36,000 physicians and other 

approved providers hold Certificates for Provider Performed Microscopy Procedures. 

These laboratories are permitted to perform specific moderate-complexity microscopy 

procedures and waived tests. The remaining 41,500 laboratories conduct moderate or 

high complexity testing. 

A CLIA surveyor must inspect laboratories that conduct moderate or high complexity 

testing before they can receive CLIA certification. These onsite inspections occur after 

the laboratory has paid its CLIA fees. The CMS allows laboratories up to 24 months from 

the date of their application to pay CLIA certification fees. In the interim, laboratories are 

issued a Certificate of Registration and a CLIA number that allows them to conduct 

testing and bill Medicare and Medicaid until CMS inspects them. Once the laboratory has 

proven to surveyors that it meets all CLIA requirements, it is issued a Certificate of 

Compliance or a Certificate of Accreditation. The certificates expire 24 months after 

issue. All laboratories must renew their CLIA certificate every 24 months. 

Medicare Payment 

Medicare and Medicaid require CLIA certification as a condition of payment. Medicare 

has two parts: Hospital Insurance (Part A) and Supplemental Medical Insurance (Part B). 

< Medicare Part A: Provides coverage of inpatient hospital services, skilled 

nursing facilities, home health services and hospice care. These providers are 

required to ensure that the laboratory services furnished to the patients in their care 

are performed by CLIA certified laboratories. Reimbursement for these laboratory 

services is included in Medicare’s payment to these providers. 

< Medicare Part B: Helps pay for the cost of physician services, outpatient hospital 

services, laboratory services, medical equipment and other health care services and 

supplies. Providers of these services submit itemized bills for the services they 

provide to Medicare for payment. 

Medicare carriers and intermediaries process claims for payment of laboratory services. 

These fiscal agents ensure that all claims submitted for payment are accurate and 

complete. Incomplete claims and claims that fail computer system accuracy checks (called 

edits) are rejected. Claims not rejected by the fiscal agents’ payment safeguards are 

prepared for payment using the Clinical Laboratory Fee Schedule. The Clinical 

2 This includes about 5,800 laboratories in New York and Washington which are exempt States. These 

States meet CMS requirements to survey and certify laboratories under their State program. The States must pay a 

fee and show CMS that the State program meets or exceeds the requirements for laboratories under CLIA. 

CWF Laboratory Edits 2 OEI-05-00-00050 
Laboratory Fee Schedule determines the amount Medicare will pay for each laboratory 

service billed to the program. 

Payment Safeguards: Claims Processing and Common Working File Edits 

Laboratory claims submitted to Medicare for payment undergo scrutiny by the fiscal agent 

that received the claim and by the Common Working File maintained by CMS. When 

intermediaries and carriers receive a claim for payment of clinical laboratory services they 

process the claim using the information submitted by the provider and information 

contained in their files. When they have finished processing the claim to the point of 

payment or denial, they submit the claim to the Common Working File (CWF). The CWF 

uses its programs and files to decide whether to accept and pay the claim as submitted or 

reject the claim and deny payment. 

The CWF scrutinizes claims for reimbursement of clinical laboratory services to ensure 

that the provider submitting the claim was certified by CLIA when the service was 

provided to the patient. If the claim is from a laboratory provider holding a CLIA 

Certificate of Waiver or Certificate for Provider-Performed Microscopy, the CWF also 

checks to make sure that the laboratory services billed are authorized under that 

provider’s CLIA certificate. Laboratory services not authorized under the provider’s 

CLIA certificate are denied payment. 

Information about a laboratory’s CLIA survey and certification is periodically transmitted 

to the CWF from CMS’s Online Survey, Certification and Reporting (OSCAR) system. 

The OSCAR system relies on laboratory surveyors to update survey and certification 

information when it becomes known. This updated information is then relayed to the 

CWF. 

METHODOLOGY 

We used a claim sample containing all of the claims submitted for 5 percent of Medicare 

beneficiaries in calendar year 1999. Using this 5 percent sample, we created a file 

containing all of the laboratory services submitted to Medicare for these patients. We 

sorted this file on the CLIA laboratory number of the provider. 

In April 2000, we obtained data about CLIA certified laboratories from the CLIA Online 

Survey, Certification and Reporting (OSCAR) system. We used this data to create three 

other files. One file contained information about laboratories having a CLIA Certificate of 

Waiver. The second contained information about laboratories holding Certificates for 

Provider Performed Microscopy Procedures. The third contained information about 

laboratories certified by CLIA to do moderate or high complexity laboratory testing. We 

sorted these files on the CLIA laboratory number to facilitate the matching of claim 

information with CLIA survey and certification information. 

CWF Laboratory Edits 3 OEI-05-00-00050 
Using information from CMS’s web site, we created an Access database containing all of 

the waived procedure codes. A second Access database was created that contained all of 

the procedure codes for provider-performed microscopy. The provider-performed 

microscopy file also contained all of the waived laboratory procedure codes. 

For our first data run, we used information from the April 2000 CLIA survey and 

certification file containing information about waived laboratories. We merged this 

information with the 5 percent sample file containing 1999 claim information. We created 

a program that enabled us to identify and isolate all of the laboratory services billed to 

Medicare by the laboratories holding a CLIA Certificate of Waiver. Using our Access 

database, we identified authorized and unauthorized services billed to Medicare by 

laboratories holding a CLIA Certificate of Waiver. We also used our program to 

determine whether CMS paid or denied these services. This process was repeated for the 

analysis of the services submitted by laboratories holding Provider Performed Microscopy 

Certificates. 

Our sample selection method prevents us from projecting our findings to the universe of 

laboratories. We selected our laboratories and services from a 5 percent beneficiary file. 

Consequently, projections as to the number of laboratories affected in the universe would 

not be reliable. Our sample methodology does enable us to make projections about 

services and payments. 

We derived some information in this report from discussions that we had with CMS and 

State agency CLIA surveyors. These discussions were held during the winter of 

2000/2001 as part of the inspections entitled: CLIA Regulation of Unestablished 

Laboratory Tests, (OEI-05-00-00250) and Enrollment and Certification Processes in the 

Clinical Laboratory Improvement Amendments Program (OEI-05-00-00251). 

We conducted our review in accordance with the Quality Standards for Inspections issued 

by the President’s Council on Integrity and Efficiency. 

CWF Laboratory Edits 4 OEI-05-00-00050 
FINDINGS 

Claim processing edits appear effective at detecting and 

denying payment for services not authorized by a 

laboratory’s CLIA Certificate of Waiver or Certificate For 

Provider Performed Microscopy Procedures 

The CMS has done a good job in developing and implementing claims processing edits for 

waived and provider-performed microscopy laboratory services. The common working 

file edits they have developed appear effective in identifying: 

< laboratories that attempt to bill Medicare without proper CLIA certification, and 

< nearly all laboratory services billed to Medicare but not authorized under a 

provider’s CLIA certificate. 

Overall, less than 1 percent of the laboratories in our sample managed to elude CMS’s 

Common Working File claims processing edits and were paid for services not authorized 

by their CLIA certificate. Based on our sample, it appears that CMS’s Common Working 

File edits were effective and resulted in the correct processing (denial or payment) of 

nearly all (998 of every 1,000) services billed by laboratories holding a Certificate of 

Waiver or a Certificate for Provider Performed Microscopy Procedures. 

Our 5 percent sample of claims submitted in 1999 shows that Medicare allowed just over 

$1.5 million in payments to laboratories holding a Certificate of Waiver or a Certificate for 

Provider Performed Microscopy Procedures. Of this amount, less than 1 percent appears 

to have been paid incorrectly due to some Common Working File edit failure. Of the 

nearly 26,000 laboratories in our sample, fewer than 100 by-passed CWF edits and were 

paid incorrectly. Most of these laboratories were paid for services not covered by their 

CLIA certificate when they used a procedure code modifier with a laboratory service 

procedure code. 

Based on our sample, we estimate that, in 1999, about 16,000 laboratory services (out of 

an estimated 8.1 million services submitted) went undetected by CWF edits. We also 

estimate that these claims accounted for less than $76,000 of the estimated $31.3 million 

paid for services submitted by laboratories holding a Certificate of Waiver or a Certificate 

for Provider Performed Microscopy Procedures. 

CWF Laboratory Edits 5 OEI-05-00-00050 
However, Certain CMS survey and certification policies, in 

effect in 1999, appear to adversely affect common working 

file payment safeguards 

The CWF functioned correctly and CMS correctly paid claims under the policies that 

existed in 1999. However, the payment decisions made by CMS’s Common Working File 

system may have been affected by CLIA survey and certification information used by the 

CWF system. Two CMS survey and certification policies (in effect during 1999) may 

have affected the way CWF edits handled payment decisions on claims submitted by 1,154 

laboratories in our sample. 

Policy 1: Permits laboratories that obtain a CLIA Certificate of Registration 

to bill Medicare before they have been surveyed 

Permitting laboratories that obtain a CLIA Certificate of Registration to bill Medicare 

before they have been surveyed may be a vulnerability because it enables laboratories to 

bypass Common Working File payment safeguards. 

The payment decisions made by CMS’s Common Working File system may have been 

affected by the quality of CLIA survey and certification information the CWF system 

received from CLIA. Based on our analysis, payments to 1,154 laboratories (496 waived 

and 659 PPM) may have been affected by survey policy and procedures in effect during 

1999. Our analysis found that 50 laboratories holding a CLIA Certificate of Registration 

had billed Medicare during 1999 but were never certified to perform moderate or high 

complexity tests; yet, they billed Medicare for these tests. 

These 50 laboratories had submitted a CLIA application to CMS indicating that they 

would be doing moderate or high complexity laboratory tests. Based on information 

provided on their application, CMS gave these laboratories a CLIA Certificate of 

Registration and a CLIA number. The CLIA registration certificate enabled these 

laboratories to operate for up to 24 months without verification of the information 

provided on the application. Information about these laboratories was then provided to 

CMS’s CWF system. The CWF system then used that information in its payment 

decisions. 

These 50 laboratories submitted their claims for payment during a time when CMS policy 

allowed them to operate without a survey for up to 24 months. They had not paid all of 

their CLIA certification fees. Laboratory surveyors had not made any visits to the 

laboratory to ensure compliance with CLIA regulatory requirements. These laboratories 

were given access to the Medicare payment system that enabled them to bypass many 

CWF edits. 

Of the 50 laboratories paid while holding a Certificate of Registration, 45 had not billed 

Medicare extensively for moderate or high complexity tests. Medicare paid most of these 

laboratories less than $1,000 and several laboratories were paid $10,000 or more. One 

laboratory was paid nearly $200,000. The CWF processed these claims correctly under 

CWF Laboratory Edits 6 OEI-05-00-00050 
the policy that existed at the time provider submitted the claims. We have no reason to 

suspect wrong doing by any of these laboratories. However, we are concerned about the 

potential for an unscrupulous provider to gain unchecked access to the Medicare and 

Medicaid payment systems. Some State laboratory surveyors have told us that they have 

issued CLIA numbers to laboratories that apparently did not exist. These laboratories 

used the 24 months they were permitted to operate under a CLIA Certificate of 

Registration to obtain Medicare and Medicaid payments. 

We do not mean to infer that all laboratories that downgrade their applications to a 

Certificate of Waiver or a Certificate for Provider Performed Microscopy Procedures are 

unscrupulous. Many reasons, including the cost of CLIA certification, inability to meet 

CLIA standards, competition in the marketplace and other factors, could explain why 

laboratories do not follow through and obtain a CLIA Certificate of Compliance or a 

Certificate of Accreditation. 

The CMS is aware of this vulnerability and is considering procedural changes to reduce 

Medicare’s exposure to unscrupulous providers who would seek to defraud Medicare and 

Medicaid. Requiring payment of all CLIA certification and survey fees ensures more 

timely onsite visits to laboratories. Earlier onsite visits will help to ensure that the quality 

of testing done at a laboratory meets CLIA standards before Medicare and Medicaid make 

any substantial payments for substandard or poor laboratory testing. It will also make it 

more difficult for nonexistent providers to defraud Medicare and Medicaid. 

Policy 2: Prohibits the downgrading of a CLIA certificate until the current 

certificate has expired 

Untimely changes to a laboratory’s CLIA certificate information create a vulnerability that 

may affect Common Working File payment safeguards. More than 13,600 (out of 18,200 

plus) laboratory services in our sample got through the Common Working File edits 

because they were billed by providers whose CLIA Certificate of Compliance or 

Certificate of Accreditation was still shown as valid in CMS systems. Our sample 

contained 1,104 providers who changed their laboratory certification from moderate and 

high complexity testing to provider performed microscopy or waived testing at some point 

during 1999. 

During the time period these 1,104 laboratories submitted their claims for payment, CMS 

did not update information about downward changes in a laboratory’s CLIA certification 

until the laboratory’s higher level CLIA certification had expired. For example, a 

laboratory issued a Certificate of Compliance effective January 1, 1998 could continue to 

bill for moderate and high complexity testing until January 2000 even if they had notified 

CMS that effective January 2, 1998 they would only be doing waived tests. 

We did not contact the State surveyors to determine exactly when they were notified that 

the laboratory would no longer be doing moderate or high complexity tests. Some of 

these laboratories may have elected to change their certification when their certificates 

came up for renewal. Others may have had trouble meeting CLIA certification 

requirements during their re-certification visit. Some may have sent notice to CMS that 

CWF Laboratory Edits 7 OEI-05-00-00050 
they had ceased conducting moderate and high complexity testing before their CLIA 

certificate expired. Finally changes in a laboratory’s certification may not become 

apparent until a laboratory surveyor discovers that moderate and high complexity testing 

had ceased at some earlier point in time and the laboratory failed to notify CMS of the 

change. 

The CMS is considering a new procedure that will result in the Common Working File 

having more accurate and timely information about a laboratory’s CLIA certification. 

This change in procedure could help prevent payment of moderate and high complexity 

services billed by laboratory providers whose CLIA certificates are changed to either a 

Certificate of Waiver or a Certificate for Provider Performed Microscopy Procedures. 

Based on our sample, this change could affect the processing of an estimated 275,000 

laboratory services. 

CWF Laboratory Edits 8 OEI-05-00-00050 
RECOMMENDATIONS 

It appears that the CMS’s Common Working File has been effective in ensuring that 

providers holding CLIA Certificates of Waiver and Certificates for Provider Performed 

Microscopy Procedures are paid only for tests authorized under their CLIA certificate. 

We believe that the CMS survey and certification policies and procedures discussed in this 

report create vulnerabilities in Medicare claims processing. Therefore, we encourage 

CMS to examine and revise its operating procedures to: 

< Shorten the length of time allowed between application and onsite survey of new 

laboratories. 

< Prohibit laboratories from billing Medicare until they have paid all of their CLIA 

fees or been surveyed to ensure compliance with CLIA regulations. 

< Downgrade CLIA certificates and transmit the information to the CWF as soon as 

it becomes known that a laboratory will no longer do moderate or high complexity 

testing. 

The first of these three recommendations was also made the the OIG in an earlier report 

entitled, “Enrollment and Certification Processes in the Clinical Laboratory Improvement 

Amendments Program.” 

AGENCY COMMENTS 

We received comments on this report from CMS. They concur with our all of our 

recommendations and have made changes to their procedures that will help meliorate the 

common working file edit system by addressing the vulnerabilities identified in this report. 

Their comments can be found in Appendix A. 

CWF Laboratory Edits 9 OEI-05-00-00050 
APPENDIX A 

CMS Comments on this Report

CWF Laboratory Edits 10 OEI-05-00-00050 
CWF Laboratory Edits 11 OEI-05-00-00050