Criminal Defense Lawyers

Federal Lab Testing Fraud – Unnecessary Testing Charges – What You Need to Know

Federal Lab Testing Fraud – Unnecessary Testing Charges – What You Need to Know

Federal agents just seized records from your clinical laboratory. Or you received a target letter from the Department of Justice. Or a former employee told you that investigators have been asking questions about your billing practices. Your first instinct might be to think this is some kind of misunderstanding – you run actual tests on actual samples, you employ qualified technicians. Heres the first thing you need to understand: lab testing fraud prosecutions dont require proof that tests were performed incorrectly. You can be convicted for tests that were actually performed if those tests werent medically necessary or if the orders were obtained improperly. One lab owner received 27 years in federal prison for a genetic testing kickback scheme. Another received 17 and a half years. Elizabeth Holmes got 11 years for Theranos. These arnt theoretical outcomes.

Welcome to Spodek Law Group. We handle federal healthcare fraud defense cases regularly, including cases were laboratory owners first realize theyre facing serious criminal exposure through exactly this kind of contact. The second thing you need to understand is this: laboratory fraud has become a federal enforcement priority. In the 2025 National Healthcare Fraud Takedown, the Department of Justice charged 324 defendants in connection with over $14.6 billion in intended losses. In 2024, 193 defendants faced charges involving $2.75 billion in false claims. Thirty-six of those defendants were charged specifically for telemedicine and clinical laboratory fraud schemes totaling $1.1 billion. Federal prosecutors are aggressivly targeting laboratory billing practices – and the sentences are devastating.

Heres something most laboratory owners dont realize about this industry. The paradox of lab testing fraud is brutal. You can run every test correctly. Your lab can meet every quality standard. Your technicians can be perfectly qualified. And you can still go to prison for decades. The crime isnt performing bad tests. The crime is ordering tests that patients didnt need. The crime is obtaining orders through kickbacks. The crime is billing Medicare for tests that werent medically necessary – even if those tests were actualy performed.

The Testing That Creates Criminal Liability

Heres the uncomfortable truth about laboratory billing. Everything depends on medical necessity. A test can be perfectly performed and still be fraudulent if the patient didnt need it. An order can look proper and still be fraudulent if it was obtained through kickbacks.

Medical necessity is the foundation of every lab claim. Medicare only pays for tests that are medically necessary. If a physician orders a test for a patient who dosent need it, the claim is false. If you obtained that order through improper means – paying the physician, using marketers who bribed referral sources – the claim is false regardless of whether the test was needed.

Leland Roberts designed “dummy proof” order forms. As CEO of Luminus Diagnostics, he allegedly created genetic testing order forms that were pre-populated with diagnosis codes and check-the-box panels. The forms were designed to make it easy for doctors to sign orders without actualy evaluating whether patients needed the tests. The scheme involved over $30 million in Medicare billing. The “dummy proof” design itself became evidence of criminal intent – proving the orders were manufactured rather than medically determined.

Keith Gray ran Axis Professional Labs and Kingdom Health Laboratory in Texas. The scheme involved billing Medicare for medically unnecessary cardio genetic testing. Medicare reimbursed approximately $54 million for fraudulently billed claims. Gray allegedly laundered the proceeds by purchasing expensive luxury vehicles. The total scheme exceeded $335 million in false claims.

Think about what that means for your laboratory. Every test order is potential criminal liability. If physicians are signing orders without properly evaluating patients, those orders may be fraudulent. If you designed systems that make ordering easier without medical evaluation, you may have created evidence of criminal intent.

The MSO Kickback Machine

Heres something about laboratory operations that creates massive criminal exposure. The business structures that bring referrals to your lab may be illegal kickback arrangements disguised as legitimate investments.

MSOs – Management Services Organizations – are the primary kickback vehicle. Laboratories partner with hospitals or healthcare companies. Those entities create MSOs that offer “investment opportunities” to physicians. Physicians invest in the MSO. The MSO pays them “returns” on their investment. The physicians refer patients to the laboratory. The “investment returns” are actualy kickbacks for referrals.

Robert O’Neal was a Texas hospital CEO. His hospitals partnered with clinical laboratories and used MSOs to facilitate payments to physicians in return for laboratory referrals. The hospitals paid a portion of laboratory revenues to marketers, who kicked back a portion to referring physicians who ordered tests. O’Neal recieved 36 months in federal prison.

Christopher Grottenthaler was CEO of True Health Diagnostics. He allegedly agreed to a kickback scheme in which marketers offered and paid doctors kickbacks disguised as MSO distributions to induce laboratory testing referrals. He settled for $4.25 million. The Department of Justice has secured over $59 million in settlements for MSO kickback schemes – from 50 physicians alone.

Heres the irony that destroys laboratory owners. MSOs are marketed as sophisticated business structures. They look like legitimate investment vehicles. Physicians genuinly believe theyre receiving investment returns. But prosecutors see the MSO structure itself as evidence of criminal sophistication – proof that participants knew they needed to disguise the kickbacks. The more legitimate it looks, the more suspicious it becomes.

The Telemedicine Testing Pipeline

Heres something about laboratory fraud that has exploded in recent years. The telemedicine model has created a pipeline for manufacturing fraudulent test orders.

The scheme works like a factory. Telemarketers cold-call Medicare beneficiaries. They offer free genetic testing or health screenings. They collect patient information. Telemedicine doctors – who never actualy examine the patients – sign orders authorizing the tests. The laboratory bills Medicare. Everyone gets paid. Everyone goes to prison.

Jamie P. McNamara operated laboratories in Louisiana and Texas. His scheme obtained doctors’ orders for genetic testing from telemarketers using aggressive campaigns to induce Medicare beneficiaries to agree to testing. The orders were signed by telemedicine doctors who were not the patients’ treating physicians and did not perform consultations. He paid illegal kickbacks disguised through sham contracts. He recieved 10 years in federal prison for a $174 million scheme.

The lab owner sentenced to 27 years paid kickbacks to “patient brokers” who arranged for telemedicine doctors to order genetic tests. The telemedicine doctors signed orders without examining patients. The total scheme involved $187 million. His sentence is effectively a life term.

Heres the consequence cascade. You pay a marketer to find patients. The marketer pays a telemedicine company. The telemedicine doctor signs orders for patients theyve never examined. Your lab bills Medicare. Years later, the telemedicine company is investigated. They cooperate and provide records of every lab that paid them. Your lab is on the list. Now youre a target.

The COVID Testing Trap

Heres something about laboratory fraud that caught hundreds of providers. The COVID-19 pandemic created opportunities for fraud that prosecutors are still pursuing.

COVID emergency rules were exploited for fraud. CMS relaxed rules related to COVID-19 testing during the public health emergency. Relaxation of ordering requirements allowed laboratories to bill for tests without the usual physician oversight. Unscrupulous actors used this leeway to add unnecessary tests to COVID orders.

Osman Syed operated BioDX Labs in Texas. The government alleges his laboratory billed more than $79 million in fraudulent claims to Medicare and Medicaid for respiratory pathogen panel tests that were not medically necessary. His lab performed COVID-19 screening for nursing homes but allegedly added claims for RPP tests that ordering providers and facility administrators never requested. He allegedly laundered proceeds by transferring large amounts to foreign bank accounts. The government seized over $15 million.

Christopher Licata owned Boca Toxicology in Florida. He admitted exploiting the COVID-19 pandemic by bundling COVID testing with genetic testing that patients did not need. He bribed patient brokers who would refer Medicare beneficiaries and obtain doctors’ orders authorizing medically unnecessary genetic testing. The scheme totaled $6.9 million.

Heres the irony that should terrify laboratory owners. The COVID emergency created genuine opportunities to help patients. Many labs legitimately expanded testing. But prosecutors are now scrutinizing every COVID-era billing pattern. If you added tests to COVID orders, you face investigation. If billing increased dramaticaly during the pandemic, you face investigation. The emergency that seemed like an opportunity has become a enforcement priority.

The Cases That Show What Happens

If you think laboratory fraud prosecutions are theoretical, look at what actualy happens to lab owners and operators.

Elizabeth Holmes founded Theranos. The company claimed revolutionary blood testing technology that didnt actualy work. Holmes was convicted of four counts of lying to investors. She recieved 11 years and 3 months in federal prison. Her partner Sunny Balwani recieved 12 years and 11 months. The Theranos prosecution demonstrated that laboratory fraud extends beyond Medicare billing to investor fraud.

A lab owner in Arkansas was sentenced to 15 years. He and his coconspirators submitted more than $134 million in false and fraudulent claims for urine drug testing and respiratory illness tests that were not ordered, medically unnecessary, or not provided as represented. He was required to pay almost $30 million in restitution.

Dehshid “David” Nourian was a Texas pharmacist. He recieved 17 years and 6 months in federal prison and was ordered to pay over $115 million in restitution. The sentence demonstrates that healthcare fraud prosecutions result in sentences comparable to violent crimes.

Armen Muradyan owned a blood testing lab in Burbank. He evaded more than $11.2 million in federal taxes by using a shill to illegally collect Medicare payments. He pleaded guilty to conspiracy to commit healthcare fraud, wire fraud, and tax evasion. The tax evasion charges added additional exposure to his healthcare fraud charges.

These arnt unusual cases. They represent standard enforcement outcomes. The prison sentences are measured in decades. The restitution orders are in the hundreds of millions. The consequences are catastrophic.

How Lab Investigations Begin

Heres something about how these cases develop that should concern every laboratory owner. Investigations often begin long before anyone contacts you.

Data analytics identify suspicious billing patterns. Your claims are compared against statistical norms. If your lab bills significantly more per patient then similar labs, thats flagged. If your testing patterns deviate from typical laboratory operations, thats flagged. If certain test codes spike dramaticaly, thats flagged. OIG uses sophisticated data analytics to identify aberrant providers before any complaint is filed.

Telemedicine companies become cooperating witnesses. When the government investigates a telemedicine company for signing orders without exams, that company identifies every laboratory that paid them. When they investigate marketers, those marketers identify every lab that paid for referrals. You may become a target because someone in your referral chain was investigated first.

Whistleblowers have massive financial incentive to report. Under the False Claims Act qui tam provisions, whistleblowers can receive 15-30% of government recoveries. Your billing staff, your sales team, your compliance officer – anyone who sees something questionable has powerful financial motivation to report it. A single employee could receive millions for reporting billing irregularities.

Heres the consequence cascade. You pay a marketer for referrals. The marketer is investigated years later. The marketer cooperates and provides records of every lab they worked with. Your laboratory is on the list. Now youre a target. The investigation that started with someone else ends with federal charges against you.

What You Cannot Do When Investigated

Heres what laboratory owners do when they learn about investigations. They panic. They try to fix things. They make decisions that create additional criminal exposure.

Do NOT destroy or alter documentation. Order forms, billing records, contracts with marketers or telemedicine companies, payment records. Destroying any of this is obstruction of justice. The government probly already has copies through Medicare claims data. Destruction proves consciousness of guilt while accomplishing nothing.

Do NOT contact marketers, telemedicine providers, or others to coordinate stories. If you paid kickbacks or obtained orders improperly, your natural instinct is to talk to the people involved about the investigation. Dont. Coordinating testimony is witness tampering. They may already be cooperating with the government. Your conversation could be recorded.

Do NOT continue questionable billing practices. If youre billing for tests you know are problematic, stop. But dont try to “clean up” by backdating documentation or restructuring referral arrangements. Thats additional fraud.

Do NOT assume cooperation will protect you. Laboratory owners often think full cooperation will result in leniency. Cooperation might help at sentencing if youre convicted. But it dosent prevent prosecution. Everything you say to investigators can be used against you. You need an attorney before you say anything.

The False Claims Act Multiplier

Heres something about lab testing fraud that exponentialy increases legal exposure. Every improper test triggers False Claims Act liability for that claim – and labs process thousands of tests.

How the multiplier works. You obtain an order through improper means. Every test billed based on that order becomes a false claim. Each false claim carries penalties of up to $27,894 (as of 2024). Plus treble damages – three times the government’s loss. A laboratory processing hundreds of tests daily can accumulate thousands of false claims in months.

The exposure compounds across your referral network. If your laboratory has systemic issues with how orders are obtained, every order from problematic sources becomes a source of False Claims Act liability. The $59 million in MSO kickback settlements represents settlements from just 50 physicians – not the laboratories that processed their referrals.

Dehshid Nourian was ordered to pay $115 million in restitution. That number reflects the False Claims Act multiplier applied to years of billing. The scheme might have generated tens of millions in revenue – but the liability exposure was crushing. He will never be able to pay that amount. It will follow him for the rest of his life.

Heres the uncomfortable truth about False Claims Act exposure. Individual kickbacks might seem manageable. A few thousand dollars to a marketer here. An MSO distribution there. But the False Claims Act transforms every connected test into seperate liability. What seems like limited exposure becomes financial devastation.

The Exclusion That Ends Everything

Heres something about laboratory fraud convictions that owners need to understand. Federal conviction triggers mandatory exclusion from Medicare, Medicaid, and all federal healthcare programs.

Exclusion means your laboratory cannot bill federal programs. In clinical laboratory testing, where Medicare represents a huge percentage of revenue, exclusion effectively closes your business. You cannot process tests for Medicare beneficiaries. Your business model disappears.

Individual exclusion follows you personally. Even if you close the laboratory, you cannot work for any entity that bills federal healthcare programs. You cannot start a new lab. You cannot work for another laboratory. Your career in healthcare is effectively over.

The punishment extends far beyond the prison sentence. You serve your time. You pay your fines. But you still cant work in laboratory services because youre excluded. Even a favorable resolution that avoids prison might still result in exclusion that ends your career permanantly.

What You Should Do Right Now

If federal investigators have contacted your laboratory, or if you have billing practices that might trigger scrutiny, heres exactly what you should do:

Contact a federal healthcare fraud defense attorney immediatly. Not a general business lawyer. Not your regulatory compliance consultant. Someone who specificaly handles federal healthcare fraud cases and understands how these investigations become prosecutions.

Do NOT speak to investigators without counsel. Federal agents may approach you or your staff for “voluntary” interviews. There is nothing voluntary about it. Anything said can be used to build the case against you. Politely decline and contact an attorney immediatly.

Preserve all documentation exactly as it is. Order forms, billing records, contracts with marketers, telemedicine agreements, physician arrangements, financial records. Do not alter, destroy, or organize anything. Document preservation is critical.

Identify all potential exposure areas. Marketing relationships. Telemedicine arrangements. Physician referral patterns. MSO distributions. Staff who might have concerns. Your attorney needs to understand the full scope.

Do NOT discuss the investigation with staff, marketers, or referral sources. Anyone you talk to can be compelled to testify. They may already be cooperating with the government. Only attorney-client communications are protected.

Todd Spodek tells every laboratory owner in this situation the same thing: federal lab testing fraud investigations are serious criminal matters. One lab owner got 27 years. Dehshid Nourian got 17 and a half years. Elizabeth Holmes got over 11 years. Jamie McNamara got 10 years for the telemedicine scheme. Your response in the next few days could determine wheather this becomes a matter that resolves favorably – or federal charges that destroy your business and your freedom.

Call Spodek Law Group at 212-300-5196. Before you speak to investigators. Before you make decisions that create additional exposure. Before a billing question becomes a federal prosecution.

Laboratory fraud is a federal enforcement priority. The 2025 takedown charged 324 defendants for $14.6 billion. What you do next matters enormosly.