Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

QUESTIONABLE BILLING FOR 

MEDICARE PART B CLINICAL 

LABORATORY SERVICES 

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 lab’s 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 billing—compared to 

13 percent of all labs—were 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 1966–2010. Accessed at 

http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-andReports/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 2008–2010). Accessed at http://www.cms.gov/ResearchStatistics-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 

2006–2007”). Accessed at http://www.cms.gov/Research-Statistics-Data-and-Systems/ 

Statistics-Trends-and-Reports/DataCompendium/16_2008DataCompendium.html on 

October 18, 2013. 

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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 country—specifically, 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 CMS’s 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 physician’s 

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 physician’s office and of a 

hospital. 

19 This crosswalk validates claims that contain a legacy number—such as a Medicare 

Provider Identification Number—and an NPI. 

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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 CMS’s 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. 

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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 lab’s 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 measure—compromised lab number—is 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.
 

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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 lab’s 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 lab’s 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. 

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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 

Which Labs Exceeded 

Thresholds 

Number of 

Labs 

Percentage of 

Labs Total Allowed 

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. 1

The 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. 

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Table 3: Labs That Exceeded the Thresholds for Five of More Measures of Questionable Billing, by 

Measure 

Measure of Questionable Billing 

Number of Labs 

That Exceeded the 

Threshold (N=1,025) 

Percentage of Labs 

That Exceeded the 

Threshold 

(N=1,025) 

High average allowed amount per ordering physician 810 79% 

High percentage of claims with ineligible ordering-physician 

numbers 790 77% 

High percentage of claims with compromised beneficiary 

numbers 704 69% 

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 

ordering-physician numbers 333 32% 

High percentage of claims for beneficiaries with no 

associated Part B services with ordering physician 229 22% 

High percentage of claims with beneficiaries living more 

than 150 miles from the ordering physician 211 21% 

High percentage of claims with invalid ordering-physician 

numbers 187 18% 

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 lab’s 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 physician—15 times the overall average for ILs. 

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In addition, 13 percent of this lab’s 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 IL’s claims had compromised 

beneficiary numbers, and 58 percent of its claims had compromised 

physician numbers. This lab’s 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 lab’s claims had ineligible ordering-physician 

numbers. This lab was allowed $1.1 million in 2010. 

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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 lab’s 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-physiciannumbers. 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. 

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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 beneficiaries—all of whom had compromised 

beneficiary numbers. In addition, 37 percent of this lab’s 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 Miami–Dade 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 Wyoming—did not have any labs with questionable billing. 

Table 4: Number of Labs With Questionable Billing Per State, 2010 

State Number of All Labs 

Number of Labs That 

Exceeded the 

Thresholds for Five or 

More Measures of 

Questionable Billing 

Total Allowed For 

Labs That Exceeded 

the Thresholds for 

Five or More Measures 

of Questionable 

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 lab’s 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 

Measure of Questionable Billing 

Number of Claims 

Associated With 

Measure of 

Questionable Billing 

Total Allowed1 

Claims for beneficiaries with no associated Part B service with 

ordering physician 22,944,979 $1,178,173,922 

Claims with beneficiaries living more than 150 miles from the 

ordering physician 5,281,457 $324,531,514 

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 beneficiary—in addition to having a previous 

Part B service with the physician who ordered the lab service—would 

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 beneficiary’s address was more than 150 miles from the ordering 

physician’s 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 States—California and Florida—that 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 lab’s Medicare privileges, (5) referring a lab to 

law enforcement for criminal investigation, or (6) taking no action, if a 

lab’s 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 CMS’s 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 lab’s 

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 measure—compromised lab number—is 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 nonIL 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 service—excluding other lab 

services and durable medical equipment, prosthetics, orthotics, and 

supplies—from 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 beneficiary’s HICN and the 

ordering physician’s 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 

physician’s practice location, or the ZIP Code of that location. For 

any claim for which the distance could not be calculated because the 

ordering physician’s 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 beneficiary’s 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 

beneficiary’s ZIP Code. We also excluded claims that were missing 

the ordering physician’s 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 patient’s 

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, 91—which are used to indicate repeat or 

distinct tests—as 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 physician’s 

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 physician’s number 

had been deactivated. If the ordering physician’s NPI was 

deactivated prior to 2010 and either not reactivated or reactivated 

after 2010, we considered the physician’s 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 

CMS’s 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

94,609 

High average number of claims per beneficiary 

High averag e allowed amount per claim 

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 

Measure Median1 Questionable 

Threshold 

Number 

of Labs Median1 Questionable Threshold 

Number 

of Labs 

Number of 

Labs that 

Exceeded 

Questionable 

Threshold 

Average allowed amount per claim $46 $314 137 $19 $129 5,297 5,434 

Average number of claims per 

beneficiary 3 13 23 2 9 1,157 1,180 

Average allowed amount per 

beneficiary $140 $536 179 $47 $303 1,810 1,989 

Average number of claims per 

ordering physician 18 216 147 3 22 4,988 5,135 

Average allowed amount per 

ordering physician $1,081 $12,598 180 $61 $901 5,055 5,235 

Percentage of claims for 

beneficiaries with no associated 

Part B services with ordering 

physician 

17.7% 70.1% 113 5.9% 70.3% 3,417 3,530 

Percentage of claims with 

beneficiaries residing more than 

150 miles from the ordering 

physician 

2.8% 17% 58 1.5% 12.5% 4,731 4,789 

Percentage of duplicate lab tests 0% 0.1% 334 0% 0%3 10,210 10,544 

Percentage of claims with invalid 

ordering-physician numbers 0% 0%3

 455 0% 0%3 3,736 4,191 

Percentage of claims with ineligible 

ordering-physician numbers 0.4% 7.2% 170 0% 0%3

 19,277 19,447 

Percentage of claims with 

compromised beneficiary numbers 0.05% 1.6% 330 0% 0.2% 17,118 17,448 

Percentage of claims with 

compromised ordering-physician 

numbers 

0% 0.08% 531 0% 0%3

 3,881 4,412 

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 

DATE: HAY Z2Z014

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 of clinical 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 OIG’s 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.