Dec 82025

First Circuit Clarifies Application of Medicare’s “Reasonable and Necessary” Standard in FCA Cases Against Clinical Labs

Scott D. Stein, Joseph R. LoCascio and Anna M. Schmitt
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Earlier this week, the First Circuit in OMNI Healthcare held that “in FCA cases alleging Medicare fraud based on laboratory testing, generally a laboratory can rely on a doctor’s order to show that the test is ‘reasonable and necessary’” under the Medicare statute.  U.S. ex rel. OMNI Healthcare Inc. v. MD Spine Solutions LLC, No. 25-1110 (1st Cir. Dec. 1, 2025).

The relator in OMNI Healthcare alleged that a defendant, a clinical lab, submitted knowingly false claims in billing for polymerase chain reaction (“PCR”) tests.  The relator argued that PCR tests were medically unnecessary because they were pricier but no more effective than bacterial urine culture (“BUC”) tests.

Judge Patti Saris granted summary judgment for the defendants based on the FCA’s scienter element.  For liability to attach under the FCA, the defendant must have submitted false claims knowingly.  31 U.S.C.§ 3729(a)(1)(A).  The defendants presented evidence that they believed that PCR tests were superior to BUC testing, such that they were medically necessary—and therefore reimbursable under Medicare.  The relator’s contrary evidence failed to create a triable issue of fact.

Affirming, the First Circuit noted that the defendant lab was “staffed with technicians who . . . lack both the expertise and the discretion to diagnose patients directly; their role is instead to process tests that doctors (who presumably do interact with patients) order.”  So the court strained to see how labs could know that a test was medically unnecessary based on a doctor’s order.  Accordingly, the court observed, the Department of Health and Human Services Office of Inspector General (“OIG”) itself has issued guidance that neither the Medicare statute nor applicable regulations require labs independently to determine the medical necessity of tests.

The court held that a doctor’s order typically provides a “safe harbor of medical necessity that, once raised, a relator must rebut, discredit, or undermine to raise a genuine dispute of material fact as to the lab’s scienter.”  “Put differently, the doctor’s determination of medical necessity (inherent, if not explicitly stated, in the order for the test) demonstrates ‘the absence of any genuine issue of material fact’ about a lab’s scienter of a false claim,” such that the burden on scienter shifts to the relator.

A contrary approach could “lead to dangerous consequences.”  The court asked rhetorically if labs should begin “second-guessing a doctor’s orders, delaying care to double-check the doctor’s work (however that might get accomplished), or even providing different, less expensive care than the doctor ordered just to avoid FCA liability.”

Though the law imposes no duty on a lab independently to determine medical necessity, the court cautioned that the lab still has a “legal duty to ensure that it is not submitting false or incorrect claims to [g]overnment payors.”  OIG, indeed, has prescribed steps to ensure compliance with the requirements of Medicare and other health plans.  Those steps, the court observed, “relate largely to requisition forms, billing practices, and recordkeeping.”

Turning to the record, the court determined that none of the relator’s evidence explained why the defendants “couldn’t rely on [doctors’] orders for . . . patients’ PCR testing to show that such tests were medically necessary for FCA purposes.”  No evidence suggested that the lab had reason to second-guess the doctors’ decisions on their patients’ medical needs.  Nor did the evidence indicate that the lab itself had attempted to encourage doctors to order medically unnecessary tests.

A copy of the opinion is available here.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.

Scott D. Stein

Chicago

sstein@sidley.com

Joseph R. LoCascio

Chicago

joseph.locascio@sidley.com

Anna M. Schmitt

Chicago

anna.schmitt@sidley.com

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