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Medicare keeps spending more on COVID-19 testing. Fraud and overspending are partly why

COVID-19 testing

This story was originally published by ProPublica.

As the COVID-19 pandemic continues to churn, Medicare spending on testing for the virus continued to increase in 2022 and is outpacing the two prior years.

Through Oct. 31, Medicare had spent $2 billion on COVID-19 tests in 2022, an amount that will surpass last year’s total as claims are filed, according to new data provided to ProPublica by CareSet, a research organization that works to make the health care system more transparent.

That compares to $2 billion for all of 2021 and $1.5 billion in 2020, a recent analysis by the Department of Health and Human Services’ Office of Inspector General shows.

Fraud and overspending are contributing to the increases, experts say, because federal money for COVID-19 testing is not subject to some of the same financial and regulatory constraints as other tests covered by Medicare, the government insurance program for people 65 and older and the disabled.

The growing costs concern some of these experts, who say the need for financial incentives to expand the availability of testing has passed.

Early in the pandemic, testing was both critical to slowing the spread of the virus and in short supply. So the federal government enacted measures to make it more profitable to get in the COVID-19 testing business. Good for the duration of the public health emergency, which has not yet expired, the measures include a generous Medicare reimbursement rate, requirements for private insurance to cover testing — even compelling insurance plans to pay whatever cash price is demanded by out-of-network labs — and a hefty fund for testing those people who didn’t have insurance.

The measures succeeded in drawing new and existing labs into the COVID-19 business and helped ensure most people had access to testing, even if some faced excessive waits to get their results. But the incentives also attracted price-gougers, fraudsters and people with no experience in the laboratory business. The result was a chaotic approach that ranged from bungled testing programs and confusion over new requirements to outright fraud.

“It was an unprecedented wave of fraud,” said Michael Cohen, an operations officer with the HHS Inspector General, which investigates crimes involving federal health care programs.

This year, ProPublica detailed how one Chicago-based lab, Northshore Clinical, used political connections in Nevada to speed its licensing and generated tremendous volume through agreements with school districts, universities and local governments. The story also detailed questionable billing practices that one insurance expert described as fraudulent. A study of Northshore’s testing on the University of Nevada Reno campus found the company missed 96% of COVID-19 cases during December 2021.

The company submitted 600 pages of documentation to state regulators to support its claim that it fixed deficiencies noted by inspectors, but it ultimately asked the state to close its license and pulled out of Nevada before the investigation was finished. Northshore repeatedly declined to comment to ProPublica.

The OIG, which had been investigating Northshore in Illinois, expanded its probe to Nevada after ProPublica published its report.

Cohen said OIG investigators have faced challenges responding to the onslaught of suspected fraud — from a lack of additional resources to constantly evolving policies.

In April, the Department of Justice announced criminal charges against people in eight states who allegedly submitted more than $149 million in COVID-19 false billings to federal programs. The OIG has also performed analyses on Medicare data, including for a report released this month that found 378 labs had billed Medicare for expensive add-on tests at “questionably high levels” after testing individuals for COVID-19.

Attorneys general in a handful of states have taken action against labs for forging results, charging fees for “expedited results” that arrived days later and deceptive marketing practices.

Programs to pay for COVID-19 testing aren’t the only pandemic assistance funds that have attracted people seeking to profit. Paycheck Protection Program loans went to fake businesses or were spent on luxury goods instead of keeping people employed, ProPublica and other news outlets have reported. Expanded state unemployment programs also saw unprecedented fraud that a partial accounting estimates is $57.3 billion.

Tolerating some fraud is a necessary trade-off to attain legitimate public policy goals, said Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy. But once the incentives and loose regulations boosted the availability of testing, they could have been revised to prevent abuse and overspending, he argued.

“We were in a very different world in April 2020,” Adler said. “We needed to overpay because we needed more capacity. Once we scaled up, it was no longer necessary. We could’ve saved a lot of taxpayer money.”

According to the data provided by CareSet, more than 2,300 new labs have enrolled as Medicare providers since the pandemic began and have been billing for COVID-19 testing, evidence of the increased capacity generated by the federal measures.

Total Medicare spending on COVID-19 testing is a small fraction of the $4 trillion federal response to the pandemic. That figure includes not only testing and treatment but also direct support for individuals, businesses, schools and local governments. Adler said that may be why lawmakers haven’t revisited the incentives.

Still, testing — as funded by Medicare, private insurance and other federal assistance programs — was a lucrative corner of the pandemic response for many providers.

Labs with troubled operations reaped millions from Medicare, the CareSet data shows.

Northshore Clinical, for example, submitted $6.2 million in Medicare claims for COVID-19 testing between Jan. 1, 2021, and Nov. 30, 2022. Doctors Clinical Laboratory, which is facing lawsuits filed by attorneys general in three states, billed $252,000 in 2021. Doctors Clinical did not respond to requests for comment.

Curative Labs, one of the largest COVID-19 testing providers in the country, has billed Medicare $32 million for testing since Jan. 1, 2021. Curative, launched in California by a 25-year-old college dropout, tapped political connections to land a no-bid contract to test in Colorado’s nursing homes, according to the Colorado Springs Gazette. But the state’s decision to use Curative tests on individuals without symptoms — a use the tests had not been authorized for — led to unreliable results, as Colorado’s nursing home death rate was the highest in the nation, according to CPR News. The FDA later revoked authorization for Curative tests and the state canceled its contract with the company.

“During the pandemic, Curative provided millions of Americans with a safe, accessible and reliable way to test for the virus, including when it was extremely difficult to obtain a COVID-19 test,” a Curative spokesperson said. “Our teams deployed tests in an efficient manner, helping to prevent the spread of outbreaks in communities across the state of Colorado and throughout the country.”

The spokesperson also pointed to a Colorado legislative committee’s decision not to audit the procurement process as an exoneration of Curative’s operations in the state. The request for the audit failed in a tied vote along party lines after a state official testified she made the decision to use Curative based on the best science available at the time.

Nomi Health, a lab startup in Utah, launched troubled testing programs in five states, according to a USA Today investigation. The Salt Lake Tribune detailed significant problems with Nomi’s operations in Utah. The company has billed Medicare a total of $1.9 million in 2021 and 2022. Nomi has challenged USA Today’s findings.

“Nomi Health was one of the first partners to provide open accessible testing at scale on behalf of our partners,” Nomi’s co-founder and chief operations officer Joshua Walker said in a statement. “We remain one of the few providers in the markets we serve providing important access to this needed service.”

Walker said Nomi continues to provide free tests for uninsured individuals despite the end of the federal program that paid for those tests. “We still feel strongly that open and easy access is an important part of keeping our communities safe and helping to drive our economy forward.”

The OIG’s Cohen said the most common crime investigated by his agency was identity theft. Nefarious labs would snag Medicare beneficiaries’ information and use it to bill for services not provided or expensive and unnecessary add-on tests.

“They would take it all. ‘We need your Medicare number. We need your Social Security number. Oh, we need credit card information.’ People were giving up just tons of information because people were understandably clamoring for tests,” Cohen said.

Medicare wasn’t the only government program targeted for laboratory fraud.

Health care providers found quick access to money in the federal fund for testing people without insurance. The program, run by another federal agency, the Health Resources and Services Administration, was designed to get money out fast and with few restrictions. “Bad actors bled the program for as much as they could,” Cohen said.

The program was initially funded by Congress with $2 billion. It ended up paying out $11 billion in testing claims. Congress opted not to allocate any more money into it and HRSA stopped accepting claims in March 2022 — leaving many uninsured individuals on the hook for COVID-19 care.

An HHS official said safeguards against fraud were put in place and any providers caught abusing the program could be subject to enforcement measures.

“The COVID-19 Uninsured Program was designed to ensure that every person in the United States had access to COVID-19 testing, treatment and vaccines — regardless of insurance status — and has been successful in getting care to the most vulnerable among us,” the official said.

As the pandemic has evolved, how people test for the virus has changed too. Now, instead of getting lab tests, many patients opt to use at-home rapid tests. And that has opened up another opportunity for fraud, experts say.

While the public health emergency is underway, Medicare is covering up to eight over-the-counter COVID-19 tests per member each month. Some providers are trying to design “subscription” services in which they mail eight tests every month whether the beneficiary needs them or not, Cohen said.

Indeed, the CareSet data shows a dramatic shift in spending for over-the-counter tests and away from PCR laboratory tests beginning in April.

And as investigators try to stay atop new scams, they’re busy investigating the old ones.

“We are still finding entities that defrauded us of just enormous amounts of money,” Cohen said.