First Circuit Clarifies Clinical Laboratory Safe Harbor: Laboratories May Rely on Physicians’ Medical Necessity Determinations in FCA Cases

Key Takeaways

• First Circuit strengthens False Claims Act defenses for clinical laboratories. In United States ex rel. Omni Healthcare Inc. v. MD Spine Solutions LLC, the court held that laboratories may generally rely on physicians’ medical necessity determinations when submitting Medicare claims, absent evidence the laboratory knew the order was improper.
• Clinical laboratories are not the arbiters of medical necessity. The decision reinforces that determining whether a test is medically necessary rests primarily with the ordering clinician, allowing laboratories to rely on physician orders as evidence that services are “reasonable and necessary” under Medicare.
• Physician orders create a presumptive “safe harbor,” but not blanket immunity. Laboratories still retain independent compliance duties, including maintaining appropriate requisition forms, ensuring accurate coding, and avoiding marketing practices that could undermine the integrity of physician medical necessity determinations.
• Relators face a higher evidentiary burden in laboratory-based FCA cases. To survive summary judgment, plaintiffs must present specific evidence that the laboratory had reason to question or discredit the ordering physician’s judgment.

In a significant decision for clinical laboratories, the United States Court of Appeals for the First Circuit held in United States ex rel. Omni Healthcare Inc. v. MD Spine Solutions LLC that laboratories may generally rely on physicians’ orders as evidence of medical necessity, effectively shielding them from False Claims Act (“FCA”) liability for fraudulently billing medically unnecessary tests, absent countervailing evidence of knowledge or recklessness.¹

This ruling, issued December 1, 2025, provides important clarity on the division of responsibility between ordering physicians and clinical laboratories in the Medicare reimbursement process.

Background

The case arose from a qui tam action brought by OMNI Healthcare, a Florida-based medical practice, against MD Labs, a Nevada-based clinical laboratory. OMNI alleged that MD Labs knowingly submitted false Medicare claims by billing for polymerase chain reaction (“PCR”) urinary tract infection tests that were medically unnecessary because less expensive bacterial urine culture (“BUC”) tests could achieve comparable results.

The factual record revealed an unusual wrinkle: OMNI’s owner, Dr. Craig Deligdish, had specifically instructed his medical assistants to order PCR tests from MD Labs — even when providers requested BUC tests — in order to build a fraud case against the laboratory. MD Labs had no knowledge of OMNI’s internal qui tam strategy; it simply processed the tests ordered by OMNI’s physicians.

The Court’s Analysis

The First Circuit affirmed summary judgment for MD Labs, holding that the relator failed to demonstrate the scienter required under the FCA. Under the statute, a defendant must “knowingly” submit a false claim, which requires actual knowledge, deliberate ignorance, or reckless disregard of the claim’s falsity.

Drawing upon the Department of Health and Human Services Office of Inspector General’s 1998 Compliance Program Guidance for Clinical Laboratories, the court emphasized that “laboratories do not and cannot treat patients or make medical necessity determinations.”² The court adopted the reasoning of United States ex rel. Groat v. Boston Heart Diagnostics Corp., 296 F. Supp. 3d 155 (D.D.C. 2017), which held that laboratories are permitted to rely on ordering physicians’ determinations that tests are medically necessary.

The First Circuit established the following framework: in FCA cases alleging Medicare fraud based on laboratory testing, generally, a laboratory may rely on a physician’s order to demonstrate that the test is “reasonable and necessary” under the Medicare statute. Once the laboratory makes this showing, the burden shifts to the FCA claimant to rebut, discredit, or undermine the physician’s order to establish a genuine dispute regarding the laboratory’s scienter.

Regulatory and Compliance Implications

This decision does not provide blanket immunity for clinical laboratories. The court carefully circumscribed its holding by noting that laboratories retain an independent legal duty to ensure they do not submit claims for medically unnecessary tests. Laboratories must maintain proper requisition forms, avoid altering physicians’ orders, and ensure appropriate coding to prevent “upcoding.” However, “the doctor’s order for medical testing will generally offer a safe harbor of medical necessity.”³

The safe harbor may be overcome when laboratories engage in conduct that undermines the integrity of physicians’ orders. The court cited examples where FCA claims survived, such as when laboratories allegedly employed deceptive marketing campaigns or pre-printed requisition forms designed to encourage medically unnecessary testing. Similarly, when a laboratory’s own conduct renders services unnecessary — regardless of the physician’s order — the safe harbor will not apply.

What This Decision Means for Laboratories, Physicians, and FCA Enforcement

Healthcare law practitioners and providers should consider the following takeaways:

For Clinical Laboratories: This decision reinforces that laboratories generally may rely on physicians’ medical necessity determinations without independently verifying each order for medical necessity. However, laboratories should maintain robust compliance programs addressing requisition form design, coding practices, and billing procedures. Laboratories should also develop protocols for flagging suspicious ordering patterns that could trigger independent review obligations.

For Ordering Physicians: The decision underscores that medical necessity determinations rest squarely with physicians, not laboratories. Physicians must ensure their orders reflect genuine clinical judgment and maintain appropriate documentation supporting their determinations.

For FCA Relators and Enforcement: The decision creates a meaningful evidentiary hurdle for relators pursuing laboratories on medical necessity theories. Relators must present specific evidence demonstrating that the laboratory had reason to question the physician’s order — general assertions about industry practices or post-hoc medical literature will likely prove insufficient.

Broader Implications: The court’s reasoning — that laboratories cannot be expected to override physicians’ clinical judgments — may have implications extending beyond the FCA context, potentially affecting other areas of healthcare liability where the division of responsibility between ordering providers and service entities is contested.

[1] 160 F.4th 248 (1st Cir. 2025).

[2] Omni, 160 F.4th at 260 (quoting OIG Guidance, 63 Fed. Reg. at 45079.

[3] Id. at 261.