As payer audits become more frequent and complex, laboratories and healthcare providers must be equipped to respond effectively. Labs are especially vulnerable due to high-cost services and billing complexity. Triggers include but are not limited to sudden spikes in service volume, changes in test panels or clientele, use of uncommon codes or modifiers, and high denial rates or billing patterns that differ from peers.
Being proactive is the most effective way to manage audit risk. Laboratories should begin by implementing regular internal audits to identify and correct documentation or billing issues before they escalate. Monitoring the Medicare Administrative Contractors (MACs) audit lists is also essential, as these lists highlight services that may be targeted for review. Every year, a report is issued that reflects the total Medicare Part B spending on lab tests. Earlier this summer, the OIG added to its work plan a review of “Medicare Payments for Clinical Diagnostic Tests in 2024” to analyze the top 25 laboratory tests by expenditures which is expected to be released in 2026. The report issued at the end of 2024 for the review of 2023, showed an overall decrease of spending on clinical diagnostic laboratory testing but reflected a steady increase on genetic tests. Genetic testing spending has risen to $1.8 billion, a 32% increase from 2022 to 2023. These reports and the focus on the top 25 tests provide insight to laboratories as to which tests may be more scrutinized for utilization.
While laboratories can rely on the ordering provider’s determination of medical necessity, laboratories still play a role in ensuring medical necessity. As such, laboratories and providers must collaborate to ensure that documentation is thorough and consistent. Laboratories may want to verify that all claims include clear medical necessity documentation. Enhancing requisition forms can help ensure that all necessary information is captured upfront, reducing the likelihood of denials. Staying informed is equally important. Laboratories should routinely review and stay up to date on payor policies, which can change frequently and vary between Medicare, Medicaid, and private insurers.
When an audit occurs, laboratories should prepare all requested documentation carefully and include any supplemental materials that support the claim. It is important to review everything before submission, communicate early and often with auditors, and request extensions if needed. Laboratories may want to consider consulting with knowledgeable legal counsel to ensure compliance and strategy alignment.