Key Takeaways

• Reliance on Physician Orders: Clinical laboratories may generally rely on physician orders to establish medical necessity and are not required to independently reassess clinical judgment.
• Burden Shifting: A physician’s order generally provides a safe harbor regarding medical necessity and, once a defendant shows it acted in accordance with an order, it is up to the relator to produce evidence that undermines the lab’s reliance on that order.
• Subjective Knowledge: The court reaffirmed that knowledge for purposes of the False Claims Act is based on the defendant’s subjective beliefs, not post-hoc assessments of medical necessity.

In a case of first impression, the First Circuit Court of Appeals issued a decision in United States ex rel. OMNI Healthcare, Inc. v. MD Spine Solutions LLC that strengthens laboratories’ defenses in False Claims Act (FCA) cases premised on knowledge of medical necessity.¹ The First Circuit clarified that physician orders can generally shield labs from scienter-based liability unless a relator can show that the lab knew, or deliberately ignored, that the orders were improper.

How the FCA Case Took Shape

The case arose from a qui tam brought by Omni Healthcare, a medical practice, against MD Spine Solutions (MD Labs), an independent clinical laboratory that began offering PCR-based urinary tract infection (UTI) testing in 2017. PCR tests are faster and more expensive than traditional bacterial urine culture (BUC) tests. Omni...

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