Investigating Fraud Under the False Claims Act

In a significant ruling for healthcare laboratories, the U.S. Court of Appeals for the First Circuit affirmed a summary judgment in favor of MD Labs in a False Claims Act (FCA) case, finding insufficient evidence that the laboratory knowingly submitted false Medicare claims.

The case, “United States ex rel. OMNI Healthcare Inc. v. MD Spine Solutions LLC,” centered on allegations that MD Labs had knowingly billed Medicare for medically unnecessary urinary tract infection tests. OMNI Healthcare, acting as a whistleblower (relator) under the FCA’s qui tam provisions, appealed after a lower court dismissed their claims.

Writing for the court, Judge Thompson framed the central question as “straightforward” despite the case’s complex regulatory backdrop: Did OMNI produce enough evidence that MD Labs “knowingly” submitted false Medicare claims to survive summary judgment? Both the district court and appeals court concluded it did not.

In a precedent-setting decision for the First Circuit, the court held that in FCA cases involving Medicare fraud based on laboratory testing, labs can generally rely on a doctor’s order to establish that a test is “reasonable and necessary” under Medicare law. Once a lab demonstrates this reliance, the burden shifts to the FCA claimant to rebut this showing.

“The doctor’s determination of medical necessity demonstrates ‘the absence of any genuine issue of material fact’ about a lab’s scienter of a false claim,” the court explained. This essentially creates a “safe harbor” that whistleblowers must overcome to establish liability.

The court emphasized that laboratories still maintain “a legal duty to ensure that they do not submit claims for medically unnecessary tests” and can still face FCA liability. However, the doctor’s order serves as prima facie evidence of medical necessity that a relator must convincingly challenge.

OMNI had argued it produced substantial evidence showing MD Labs and its founders deliberately ignored the risk that PCR testing was medically unnecessary. However, the court found that none of OMNI’s evidence explained why MD Labs couldn’t reasonably rely on OMNI’s own orders indicating these tests were medically necessary.

“We see nothing here demonstrating why MD Labs should have had any reason to ‘second-guess’ OMNI’s determinations of its patients’ medical needs,” the court stated. The judges also found no basis for a jury to determine that “doctors later discovered, or even now believe, that they were tricked or confused into ordering medically unnecessary tests.”

This ruling holds significant implications for healthcare fraud litigation, particularly in laboratory testing cases. By establishing a clearer standard for scienter (knowledge requirement) in Medicare fraud cases, the decision may make it more challenging for whistleblowers to prevail in FCA claims against labs that rely on physician orders.

The case highlights the tension between preventing healthcare fraud and recognizing the traditional division of responsibilities between ordering physicians and testing laboratories. While the decision provides laboratories a stronger defense framework, it doesn’t eliminate their compliance obligations or potential liability when they knowingly process unnecessary tests.

The First Circuit’s ruling was issued on December 1, 2025, with the case having been appealed from the U.S. District Court for the District of Massachusetts, where Judge Saris had originally granted summary judgment to the defendants.

Evan Bianchi, Thomas M. Kenney, and Spiro Harrison & Nelson represented the relator-appellant OMNI Healthcare, while Seth B. Orkand, Julianna M. Charpentier, Danielle H. Tangorre, Edward J. Heath, Scott T. Garosshen, and Robinson & Cole represented MD Labs and other defendants-appellees.