Five years ago, Companion DX Reference Lab hoped to cash in oncutting-edge genetic tests paid for by Medicare.

The Houston lab marketed a test to assess how a person’s genesaffect tolerance for drugs such as opiates used to treat chronicpain. It also ran DNA tests to help treat cancer and urine screens to monitor drug abuse.

But the lab went bust last year after Medicare ordered it torepay more than $16 million for genetic tests health officials saidwere not needed.

Companion Dx is one of at least six clinical labs mired inbankruptcy court after Medicare alleged they improperly billed thegovernment for unnecessary urine, genetic or heart disease testsexpected to cause hundreds of millions dollars in losses totaxpayers, an investigation by Kaiser Health News found.

As the nation’s bill for drug and genetic tests has climbed toan estimated $8.5 billion a year, there’s mounting suspicion amonghealth insurers that some testing may do more to boost profitmargins than help treat patients.

Medicare has slashed fees for urine tests and tightened coverageof some genetic screens, which can cost Medicare $1,000 or more perperson. Private insurers, who mostly have paid these bills withoutquestion, also are taking a more penetrating look at spending onthe controversial lab work.

Yet, getting these firms to repay Medicare and private insurersremains a formidable challenge. While some doctor-owned labs havedodged collection efforts for years, several testing firms deeplyin debt to Medicare appear to have few assets to repay overchargesdating back years, court records show.

“Medicare shouldn’t be paying for dubious tests, but the time tocatch that is in the very beginning when [labs] are asking forpayment,” said Steve Ellis, vice-president of Taxpayers for CommonSense, a budget watchdog group. “They need to increase oversight sothe dollars don’t go out the door in the first place.”

A spokesman for the federal Centers for Medicare & MedicaidServices (CMS) had no comment. Neither did the Department ofJustice, which represents the government’s interests in court.

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Kaiser HealthNews (KHN) is a national health policy news service. It isan editorially independent program of the Henry J. Kaiser FamilyFoundation which is not affiliated with KaiserPermanente.

Labs can run a range of genetic and drug tests using a salivasample, blood or urine specimen. The price tag to Medicare canmount quickly, especially when doctors order highly specializedtests for large numbers of patients. Two bankrupt labs that federalofficials say routinely overused tests to detect rare heartailments in the elderly, for instance, could end up owing thegovernment a total of more than $200 million, court recordsshow.

Some labs have kept operating in bankruptcy while othersliquidated equipment and sold off assets. Several bankruptcytrustees, whose duty is to ferret out assets, are suing suppliers,insurers and some doctors to recover funds.

Whether they can raise the pile of cash needed to repay Medicareis doubtful.

Companion Dx, according to bankruptcy records, had $117,497 cashon hand at the end of September. Medicare is seeking the return of$16.2 million paid to the company for services “not consideredmedically necessary,” according to a January court filing.

The Texas lab had no comment, but in court filings has blamedits collapse on disagreements with Medicare over the merits of itstests and government audits that retroactively disallowed claims.Medicare pays only for services it deems “medically necessary,” andaudits typically take many years to complete.

Companion Dx opened in January 2012 expecting to “capturefavorable profit margins that existed in connection with thiscutting edge technology,” the company wrote in its bankruptcyfiling.

However, starting in 2013, Medicare began having second thoughtsabout the validity of some tests and ultimately decided to coverthem on just 1 percent of patients, according to the company. Thelab declared bankruptcy in July 2016. The case is pending.

Iverson Genetic Diagnostics Inc. is another lab that turned tobankruptcy court as Medicare tried to reclaim $19.7 million,court records show. The case is pending.

Medicare took aim at the Seattle firm in November 2013 afterreviewing “numerous” complaints of billings for genetic tests thatpatients “had not actually received,” federal officials wrote in acourt filing.

A later federal audit concluded that Iverson had chargedMedicare for tests that were “not reasonable and necessary.” InSeptember 2015, about two months after Medicare called for therefund, the lab filed for bankruptcy.

Iverson denied overbilling Medicare and is appealing theMedicare decision, which it said in a court filing “was not basedupon sufficient or proper evidence.” And Iverson denied wrongdoingin court filings.

Neither the lab, now located in Charleston, S.C., nor itslawyers would comment.

In another case, Pharmacogenetics Diagnostic Laboratory LLC inLouisville exited bankruptcy in late October without repayingMedicare $26.3 million for disallowed genetic tests. The lab, setup in 2004 by two University of Louisville professors, stronglydisputed Medicare’s findings but said they were the “primaryreason” for the bankruptcy, court records show.

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Kaiser HealthNews (KHN) is a national health policy news service. It isan editorially independent program of the Henry J. Kaiser FamilyFoundation which is not affiliated with KaiserPermanente.

Charity Neukomm, a lawyer for the lab, said another medicalgroup agreed to purchase all its assets “free and clear of liens.”That left nothing for the government.

There’s also little chance that Natural Molecular Testing Corp.,a defunct genetic testing lab, will repay the $71 million it owesMedicare, according to John Kaplan, an attorney for the bankruptcytrustee.

Kaplan said the lab near Seattle, which opened in 2010, was“printing money from billing Medicare” until the governmentsuspended payments in April 2013. The company filed for bankruptcyin 2013 in the face of a Medicare audit of its billing and concernover its business practices, such as paying some doctors whoordered its tests as much as $10,000 a month in consulting fees,according to court records.

Five years in, the bankruptcy case is expected to settle nextyear, but there’s likely to be “no cash left” to repay Medicare,Kaplan said.

Critics argue that Medicare has been slow to assess the benefitsof new and controversial tests and technologies — even when soaringcosts signaled a warning of possible overuse.

Spending on genetic testing, for example, shot up from about$167 million in 2013 to more than $466 million a year later,according to Medicare billing data. In 2015, the program spentabout $317 million on the tests and some $165 million last year.Government auditors credit tighter oversight for the sharp declinein billing.

Ellis, the budget watchdog, said the “huge jump” in these billsshould have “sent out a red flag.”

Medicare officials don’t routinely verify that the sales claimslabs make to doctors are rooted in scientific evidence. Some labshave hawked genetic tests as a tool for making pain managementsafer. The labs contend the tests can pinpoint the proper drugs anddosage for each patient based on their genetic makeup, thusreducing the threat of overdose or other injury.

However, many experts argue that the science hasn’t caught up tothe sales pitch — and that some high-priced tests may do little todiagnose or treat illness.

Genetic tests “are not ready for prime time,” said CharlesArgoff, professor of neurology at Albany Medical College in NewYork. He said their impact on medical care “hasn’t beenmeasured.”

Court records show that the legal battles to recover assets fromfailed labs often plod on for years, especially when trusteesbelieve labs paid illegal fees or other kickbacks to persuadedoctors to order dubious tests.

“Some of these cases never go away,” said David Schumacher, aBoston health care lawyer who has defended doctors against theseclaims. Still, he said that even after years of legal wranglingMedicare often is unlikely to “be made whole and fully repaid.”

The trustee for Heart Diagnostic Laboratory, which marketed apanel of blood tests to detect heart disease and other illnessesbefore its June 2015 bankruptcy, has filed more than three dozenlawsuits to recover money paid to doctors and medical offices,including suspect consulting fees.

“Our analysis is that all of these payments were tainted andtherefore we’re entitled to go after them,” said Richard Kanowitz.He added: “It’s an uphill battle.”

Kaiser HealthNews (KHN) is a national health policy news service. It is aneditorially independent program of the Henry J. Kaiser Family Foundation whichis not affiliated with Kaiser Permanente.