On December 1, 2025, the First Circuit Court of Appeals delivered a decision that should bring welcome relief to clinical laboratories facing False Claims Act (FCA) allegations.
In United States ex rel. OMNI Healthcare, Inc. v. MD Spine Solutions LLC, the court held that labs can generally rely on physicians' orders as evidence of medical necessity without fear of FCA liability – absent red flags suggesting improper conduct.
This case addresses a question that has plagued lab operators: Are we liable under the FCA if we process tests that a physician orders, but those tests later get characterized as medically unnecessary?
The First Circuit's answer: Generally, no.
What Happened in OMNI Healthcare?
MD Labs, a Nevada-based clinical laboratory, began offering Polymerase Chain Reaction (PCR) urinary tract infection (UTI) testing in 2017. Between 2017 and 2019, OMNI Healthcare – a Florida medical practice – sent MD Labs nearly 600 requisition forms for UTI testing.
The twist? OMNI's physician-owner, Dr. Craig Deligdish, intentionally instructed his staff to order expensive PCR tests instead of cheaper bacterial urine culture tests – even when clinicians requested the less expensive option. His admitted purpose? To build evidence for a qui tam lawsuit alleging False Claims Act violations.
OMNI then sued MD Labs, alleging the lab knowingly submitted false Medicare claims because PCR tests cost more than traditional bacterial cultures while providing no greater medical benefit, making them “medically unnecessary” under Medicare's reimbursement standards.
The district court granted summary judgment to MD Labs. The First Circuit affirmed.
The Court's Three-Part Framework
The First Circuit established critical guidance for clinical laboratories in three key holdings:
1. Labs Can Rely on Physician Orders as Evidence of Medical Necessity
The court 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 42 U.S.C. § 1395y(a)(1)(A).”
Once the lab raises this defense, the burden shifts to the FCA plaintiff to rebut, discredit, or undermine the physician's determination to create a genuine dispute about the lab's knowledge that claims were false.
2. The Rationale: Labs Don't Diagnose Patients
The court grounded its holding in both practical reality and federal guidance:
- Labs Process Tests, They Don't Diagnose. Clinical laboratories are “staffed with technicians who lack both the expertise and the discretion to diagnose patients directly; their role is instead to process tests that doctors order.”
- Federal Guidance Supports This Approach. The Department of Health and Human Services Office of Inspector General (OIG) issued guidance in 1998 (see p. 4) stating that “laboratories do not and cannot treat patients or make medical necessity determinations.” Neither the Medicare statute nor current regulations require labs to independently determine the medical necessity of tests they bill.
- The Alternative Creates Dangerous Consequences. The court asked whether labs should start “second-guessing a doctor's orders, delaying care to double-check the doctor's work, or even providing different, less expensive care than the doctor ordered just to avoid FCA liability.” The answer: absolutely not.
3. Labs Still Have Compliance Duties
The court emphasized that while labs can generally rely on physician orders, this protection isn't absolute. Labs still have “a legal duty to ensure that they are not submitting false or incorrect claims.”
For example, a laboratory may not trick a physician into ordering tests that they did not intend to order by bundling unnecessary tests on pre-printed forms or panels. Nor may a laboratory trick a physician into ordering tests by misrepresenting the quality, speed, efficacy, or necessity of the tests. Such actions could lead to FCA liability for the laboratory.
Practical Takeaways
This decision provides breathing room for labs operating in good faith. You're not expected to override physician judgment on what tests their patients need. Your role is to process those tests accurately and bill appropriately – not to practice medicine.
What does this case mean for your lab?
- You're Not the Medical Necessity Police. When a licensed physician orders a test for their patient, you can process it and submit claims without independently investigating whether a cheaper alternative exists.
- Physician Orders Create a Legal Safe Harbor. A doctor's order for testing demonstrates “the absence of any genuine issue of material fact” about your lab's knowledge that claims might be false. This shifts the burden to any FCA plaintiff to prove otherwise.
- Focus on Your Compliance Obligations. This liability protection depends on maintaining ethical business practices. Labs that manipulate ordering decisions, use deceptive marketing, or turn a blind eye to obvious problems won't benefit from this safe harbor.
The message is clear: Trust the physician's medical judgment but maintain vigilant compliance with billing and coding requirements.
Critical Compliance Requirements for Medical Labs
This decision doesn't eliminate all compliance obligations. Based on this ruling and the OIG guidance the court cited, labs must:
1. Design Compliant Requisition Forms
Offer clear, unambiguous test options. Avoid bundling that forces physicians to order comprehensive panels when they may only need specific tests. Ensure forms don't “pre-check” expensive options or make it difficult to select less costly alternatives.
2. Maintain Proper Documentation
Retain physician orders showing what was requested. Document any communications with providers about test selection. Keep records demonstrating tests weren't modified without physician consent.
3. Monitor for Red Flags
Track ordering patterns for unusual spikes or changes that might indicate providers don't understand what they're ordering. Be alert for inconsistencies between what providers say they want and what appears on requisitions. Watch for orders that seem templated rather than individualized to patient needs.
When warning signs occur, reach out to the ordering provider for clarification.
4. Ensure Truthful Marketing
Provide accurate information about test capabilities and limitations. Avoid overstating the advantages of more expensive testing. Don't pressure providers to select particular tests.
5. Implement Proper Billing Controls
Have individuals with technical expertise review coding appropriateness before claims submission. Avoid “upcoding” – selecting codes to maximize reimbursement when they're not the most appropriate descriptors.
Jurisdictional Limitations
This is a First Circuit decision, making it binding in Maine, Massachusetts, New Hampshire, Puerto Rico, and Rhode Island. Other circuits aren't required to follow it, though the reasoning will likely prove persuasive nationwide.
The Sixth Circuit (covering Kentucky, Michigan, Ohio, and Tennessee) reached a similar conclusion in United States v. Bertram, 900 F.3d 743 (6th Cir. 2018), holding that, “a laboratory generally may rely on that doctor's order in submitting a claim for reimbursement as medically necessary.”
The Eleventh Circuit (Alabama, Florida, Georgia) recently applied similar reasoning in United States ex rel. Senters v. Quest Diagnostics Inc. (11th Cir. July 16, 2025), affirming dismissal of FCA claims when the relator provided no allegations that doctors were “tricked or confused into ordering medically unnecessary tests.”
Compliance Attorneys for Your Medical Lab
Hendershot Cowart's healthcare attorneys closely follow developments in False Claims Act litigation affecting clinical laboratories. We can help you assess your compliance programs, improve your billing and marketing practices, and defend against FCA enforcement actions.
Call (713) 528-8793 to contact us today for legal counsel on laboratory compliance matters, including critical EKRA compliance.