The $704M Drug-Test Loophole Behind Labcorp's $14.5M Settlement

Medicare pays laboratories more for drug tests the more drug classes they check.▸ A February 2023 audit by HHS's Office of Inspector General⧉ found that fee-schedule design created a $704.2 million problem: from 2016 through 2020, Medicare Part B paid that sum to 1,062 laboratories and physician practices that routinely billed the single highest-paying drug-test code, in a pattern OIG says may not reflect the tests patients actually needed. Separately, on July 15, 2026, the Justice Department announced⧉ that Laboratory Corporation of America -- Labcorp, one of the country's largest diagnostics companies -- agreed to pay $14.5 million to settle a False Claims Act case built on a related maneuver: billing Medicare for two drug tests on the same urine sample, one of them the same top-paying code, without always confirming both were needed.

Definitive drug testing identifies specific drugs in a patient's system, down to concentration, and Medicare's 2020 fee schedule pays labs on a sliding scale by how many drug classes a test panel covers: $114.43 for testing 1 to 7 classes (procedure code G0480), rising to $246.92 for 22 or more classes (code G0483) -- more than double the bottom tier⧉, this outlet's own calculation from OIG's fee-schedule table.▸ The system is meant to work in sequence: a cheaper presumptive test screens broadly first, and only the drug classes that screen positive, or that a patient's history calls into question, get the pricier definitive follow-up. Bill G0483 for every patient regardless of what a presumptive test showed, and the top tier becomes the default rather than the exception.

That's the pattern OIG's 2023 audit measured directly.▸ Of the 3.4 million definitive drug tests the 1,062 flagged providers billed, 89.6 percent used the top-tier code G0483 -- compared with just 21.2 percent among the other 4,227 providers billing the same service nationwide, who tested similar patients at a similar frequency but reached for the cheaper codes far more often. Presumptive testing, the screening step meant to narrow down what needs definitive follow-up, preceded only 70.1 percent of the flagged providers' definitive tests, against 79.6 percent for everyone else -- a gap OIG says helps explain why the flagged group's billing skewed so heavily toward the priciest code.

CMS's own annual accuracy reviews (its Comprehensive Error Rate Testing program) had already flagged G0483 as one of Medicare Part B's most error-prone services for three straight years before OIG's audit: a 71.7 percent overpayment rate in fiscal 2018, 58.9 percent in 2019, 42.7 percent in 2020, totaling an estimated $423.5 million in overpayments for that single code.▸ The documentation CMS's reviewers found missing was basic -- a risk assessment for the test, a signed physician order, notes supporting why the testing was medically necessary.

Against that $423.5 million in CMS-identified overpayments, Medicare's contractors had recovered just $10.8 million during the audit period -- about 2.6 percent, this outlet's recomputation of OIG's own 'less than 3 percent' comparison.▸ OIG calculated that if the 1,062 flagged providers had billed G0483 at the same 21.2 percent rate as everyone else, Medicare would have saved up to $215.8 million over the five-year period. CMS agreed to tighten safeguards going forward -- OIG's first recommendation -- but explicitly declined to review the at-risk payments already made or to notify the providers who received them, arguing that billing patterns alone, without a full medical-record review, don't prove any single payment was improper. OIG maintained its position anyway: it noted CMS didn't need proof of individual improper payments to justify targeting the highest-dollar outliers for review, only evidence the billing was anomalous -- evidence CMS's own $423.5 million in identified overpayments already supplied.

This wasn't the government's first warning on this exact code.▸ A 2021 OIG audit⧉ of 2019 drug testing for substance-use-disorder patients specifically found Medicare paid $180 million that year for those patients' drug testing overall -- presumptive and definitive combined -- across 274,000 beneficiaries, with an improper-payment rate of 58.9 percent for the top-tier definitive code -- eight times the 7.3 percent rate across all of Medicare fee-for-service. That audit's core finding was structural: Medicare's contractors had no consistent rule for when a lab could skip straight to definitive testing without a presumptive test first, the same gap the 2023 audit would go on to quantify at $704.2 million.

Labcorp's case, settled three years after OIG's $704.2 million audit, isn't the same violation OIG measured -- it's a related one, run through the same seam in the fee schedule.▸ OIG's at-risk providers billed G0483 alone, without enough presumptive testing to justify it. Labcorp, according to the Justice Department's press release, billed both: from Jan. 1, 2018 through Nov. 22, 2023, its "ToxAssure Comprehensive" panel routinely billed Medicare for a presumptive test (a flat-rate code, 80307, paid regardless of how many drug classes it screens) and the top-tier definitive test (G0483) on the same patient, the same day, the same urine sample -- and for some substances, ran the definitive test directly, without a presumptive result establishing it was needed at all. Labcorp admitted to those facts as part of the settlement and represented that it has stopped billing that code combination.

"The government expects that any testing it pays for is medically necessary and not wasteful or structured in a way that maximizes billing opportunities for providers at the expense of the federal fisc," Assistant Attorney General Brett A. Shumate said⧉ in DOJ's announcement.▸ "We will continue to hold providers who do otherwise accountable." Labcorp received credit under DOJ's False Claims Act guidelines for disclosing, cooperating, and remediating the conduct -- and the $14.5 million settlement carries no admission of criminal wrongdoing and no independent confirmation that the underlying testing caused patients harm, only that Medicare paid for tests DOJ says weren't shown to be necessary.