First Circuit Clarifies When Clinical Labs Can Rely on Physician Orders

The U.S. Court of Appeals for the First Circuit recently provided important clarity—and welcome relief—for clinical laboratories facing False Claims Act (“FCA”) allegations based on a lack of medical necessity for processing tests ordered by a physician.

In a case of first impression, United States ex rel. OMNI Healthcare, Inc. v. MD Spine Solutions LLC,[1] the First Circuit held that clinical laboratories may rely on an ordering physician’s determination that lab tests billed to Medicare are medically necessary. The First Circuit held that laboratories need not second-guess a physician’s certification absent red flags or suspected improper conduct. While the First Circuit’s decision does not relieve clinical laboratories of their existing obligation under the FCA to ensure they are not submitting a false claim to government payors, it provides much-needed clarity for clinical laboratories across the country on what constitutes the knowing submission of false claims to the government and highlights several practical takeaways for managing compliance risk.

The Case

OMNI Healthcare, Inc. (“OMNI”), a Florida medical practice, sued MD Spine Solutions LLC (“MD Labs”) under the FCA, alleging in part that MD Labs submitted false Medicare claims by performing polymerase chain reaction (“PCR”) urinary tract infection (“UTI”) tests that OMNI argued were much more expensive and provided no added medical benefit as compared to bacterial urine culture (“BUC”) tests, thereby rendering the PCR tests “medically unnecessary” under the Medicare Act.

After MD Labs settled with the government and OMNI on other issues, during discovery, an unusual fact appeared: OMNI’s physician-owner had intentionally instructed his staff to order PCR UTI tests—even when clinicians requested BUC tests—for the specific purpose of generating evidence for a FCA lawsuit.[2] However, OMNI failed to prove that MD Labs knew or had reason to suspect that the tests were medically unnecessary. The District Court granted summary judgment to MD Labs on January 6, 2025, reasoning that OMNI failed to show that the laboratory knowingly submitted false claims—a required element of FCA liability (see EBG blog post on a separate issue in the case here). The First Circuit  affirmed, in a December 1, 2025 decision.

FCA and What “Knowingly” Means for a Lab

Under Medicare law, to secure reimbursement from Medicare, the items or services provided must be “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”[3] The FCA imposes liability on anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.”[4] In other words, a clinical laboratory is liable only if it knowingly submits a false claim to the federal government.

There are three ways a clinical laboratory could knowingly submit a false claim:[5]

1. Actual Knowledge: where the laboratory is aware of information about the claim’s falsity;
2. Deliberate Ignorance: where the laboratory is aware of a substantial risk that its statements are false but intentionally avoids taking steps to confirm the statement’s truth or falsity; and
3. Reckless Disregard: where the laboratory is conscious of a substantial and unjustifiable risk that its claim is false but submits the claim anyway.

Importantly, under Supreme Court precedent, all three of these “scienter” standards are determined by the laboratory’s subjective beliefs at the time of submitting the claim to Medicare, not what an objectively reasonable person may have known or believed, or what the laboratory learned after submission of the claim.

Relying on these principles, as well as case law and longstanding federal guidance from the Department of Health and Human Services, Office of Inspector General, the First Circuit emphasized that clinical laboratories do not diagnose patients and do not decide what tests are medically necessary. They process tests that a licensed medical provider has ordered on a requisition form. In other words, labs cannot be expected to second-guess physicians about whether a test is medically necessary.

In this case, the First Circuit found that OMNI did not produce sufficient evidence to show that MD Labs knew, was deliberately indifferent to, or reckless about a test being medically unnecessary when it received a completed requisition form from OMNI directing it to perform PCR testing.

The Holding

The First Circuit held that a clinical laboratory may ordinarily rely on a doctor’s test order as evidence that the test is reasonable, necessary, and appropriate. This holding effectively creates a guardrail for laboratories: unless there are tangible warning signs, laboratories should follow the physician’s direction without fear that they are responsible for determining whether the provider made the “right” medical decision. The First Circuit opined that requiring laboratories to second-guess physicians’ orders would create a bad precedent that could risk further delay of the needed test results or delivery of incomplete results due to a laboratory’s election of a less-expensive care option just to avoid FCA liability.

The burden to overcome this “safe harbor” rests at the feet of the FCA qui tam relator, who must show that the laboratory ignored red flags or engaged in otherwise improper conduct. For example, if the laboratory tricks or pressures providers into ordering tests, uses misleading marketing, alters or adds services beyond what was ordered, constructs requisition forms to add or bundle medically unnecessary tests on a preprinted form, or advises providers regarding billing of tests with negative coverage determinations or limited evidence of clinical utility, then it may be liable under the FCA. But the First Circuit concluded that none of these scenarios had been established with MD Labs, and therefore OMNI’s claims failed.

Practical Implications for Clinical Laboratories

Overall, this decision is a win for clinical laboratories—a properly completed physician order is strong evidence of medical necessity. But it is not a total immunity. Laboratoires must still:

• maintain effective compliance programs;
• be mindful not to automatically add tests without physician authorization or require that a test “bundle” be ordered;
• carefully vet their marketing programs;
• carefully construct requisition forms to avoid promotion of unnecessary testing, including using requisition forms that offer clear, unambiguous options, and making sure that providers are not “nudged” toward any unnecessary panels;
• make sure that proper documentation is maintained, which includes retaining physician orders, documenting communication with providers, and ensuring that tests are not modified without physician consent; and
• monitor provider ordering patterns for red flags, and act when a triggering event occurs. Triggers for further inquiry into whether reliance on the physician order is reasonable include:
  • the provider orders in unusually high volumes or there is a substantial change in ordering pattern;
  • there are inconsistencies or contradictory requisitions;
  • orders appear to be unusually templated; or
  • it appears the provider misunderstood the test ordered.

When warning signs occur, clinical laboratories should reach out to the ordering provider for clarification.

Conclusion

The First Circuit’s decision provides valuable clarity: laboratories are not the medical-necessity police. When a licensed provider orders a test, the laboratory can generally rely on that order unless there are clear warning signs to the contrary. While laboratories will always face scrutiny, this decision sets an important boundary that helps labs perform their essential role without being forced into second-guessing physicians—or risking FCA liability for doing what the doctor ordered.

Epstein Becker Green Staff Attorney Ann W. Parks contributed to the preparation of this post.

Endnotes

[1] United States ex rel. OMNI Healthcare Inc. v. MD Spine Sols. LLC, No. 25-1110, 2025 WL 3442574 (1st Cir. Dec. 1, 2025).

[2] As the First Circuit noted, OMNI is a “frequent flyer in the qui tam world, having recovered tens of millions of dollars on behalf of the government in other similar cases.”

[3] 42 U.S.C. § 1395y(a)(1)(A).

[4] 31 U.S.C. § 3729(a)(1)(A).

[5] 31 U.S.C. § 3729(b)(1)(A)(i)-(iii).