OIG finds Georgia Medicaid overpaid $26.1 million for lab tests as Medicare's lab-rate reporting window closes July 31

The HHS Office of Inspector General found that Georgia’s Medicaid program paid more for lab tests than federal law allows on 648,412 services from 2019 through 2023 [1]. The excess came to $26.1 million, of which $18.5 million was federal money, and OIG says Georgia should give that federal share back [1]. The audit, issued July 24, is part of a series OIG is running across several states [1].

The ceiling Georgia went over is the Medicare Clinical Laboratory Fee Schedule (CLFS). The same fee schedule is about to change. The window for labs to report the private payer rates that will set 2027 Medicare lab payments closes Friday, July 31 [3, 4].

What changed

Federal law caps what Medicaid can claim for lab work. Section 1903(i)(7) of the Social Security Act provides no federal matching funds for any amount spent on a clinical diagnostic lab test above what Medicare would recognize for it [1]. OIG reviewed $363.7 million in Georgia fee-for-service Medicaid lab payments covering 13.6 million services [1]. Most were within the limit. For 501,021 professional services and 147,391 hospital outpatient services, the state paid above Medicare’s rate [1]. Another 2.5 million lines may have been overpaid by $3 or less apiece, a further $4.4 million that OIG did not validate with the state [1].

Georgia concurred with all five recommendations [1]. In its July 7 response, the Department of Community Health said it would return the $18,541,039 federal share, review payments after the audit period, and that it filed a state plan amendment on June 30 so lab claims would not exceed Medicare’s amounts, with an effective date of June 12, 2026 [1].

The Medicare side moved earlier this year. Section 6226 of the Consolidated Appropriations Act, 2026, signed February 3, set the current reporting period at May 1 through July 31, 2026, using private payer data from January 1 through June 30, 2025 [4]. CMS restated those dates in the 2027 physician fee schedule proposal and proposed matching changes to its regulations [3].

How did Georgia pay more than Medicare for lab tests?

OIG traced the professional overpayments to Georgia’s default rates. When a lab code is first set up in the state’s claims system, it gets a statewide default rate, and that rate is not refreshed when CMS publishes its annual updates. It changes only through legislation or a formal system maintenance request [1]. One example in the report: in March 2020 a provider billed $4,000 for one unit of 81162, BRCA1 and BRCA2 gene testing. Georgia paid $1,988.69, while Medicare’s national limit for that code in 2020 was $1,824.88, an overpayment of $163.81 [1].

Hospital outpatient claims had a different problem. Georgia changed its method in April 2014 to bring hospital lab rates down to Medicare levels, and the system was loaded each year with the current Medicare rates. It kept pricing claims at the April 2014 rates anyway, and the state “was not able to explain this error,” OIG wrote [1]. Two other methods pushed payments higher: out-of-state nonparticipating hospitals were paid 45% of covered charges, and a hospital tax add-on and inpatient cap add-on were applied to lab services [1]. OIG’s example is a February 2023 claim for 0202U, a 22-target respiratory panel, which Georgia paid at $727.65 against Medicare’s $416.78 [1].

California’s audit, issued June 8, found $13.9 million in excess payments ($7.6 million federal share) and blamed a clerical error in updating lab rates [2]. It flagged another $29.3 million as potential overpayments [2].

Who it affects

Practices that bill Medicaid for in-office lab work. OIG’s definition of clinical diagnostic lab services includes tests performed in a physician’s office as well as by independent labs and hospital labs for their outpatients [1]. In Georgia, professional claims, which OIG describes as generally covering services by individuals licensed to practice medicine or osteopathy, accounted for $22.9 million of the validated excess [1].

Hospital outreach and outpatient labs, which made up $3.2 million of the validated Georgia figure [1].

Labs that must report to Medicare. Under CMS’s rules, reporting entities submit private payer rates and volumes for their “applicable laboratories” during the reporting period [3]. Since 2019, CMS has counted hospital outreach labs that bill Part B on the 14x type of bill and has left Medicare Advantage payments out of the revenue test, so more labs qualify [3].

What it means for your practice

There are two separate effects, and they point the same direction.

In Georgia, Medicaid lab rates that sat above Medicare’s should come down to Medicare’s level under the state’s amendment [1]. For a code like 81162, the 2020 gap between what Georgia paid and Medicare’s limit was about 9%; for 0202U in 2023 it was about 75% [1]. OIG’s report does not say whether Georgia will try to recover past overpayments from the providers it paid, and practices should not assume either outcome.

Everywhere, Medicare’s lab fee schedule is about to be recalculated for the first time since 2018. CY 2018 through 2026 rates for most tests rest on private payer data from the first half of 2016 [3]. Under section 1834A, each test’s Medicare rate equals the volume-weighted median of the private payer rates reported for it [3]. The law limits how fast rates can fall: no reduction at all for 2026, and no more than 15% per year for each of 2027, 2028 and 2029 [3, 4]. Medicare rates are not adjusted for geography, budget neutrality or inflation, and coinsurance and deductibles generally do not apply to these tests [3].

CMS has declined to guess at the result. In the 2027 fee schedule proposal, it said it was “unable to estimate a budgetary impact” and would “only know the impact of the CAA, 2026 provisions after collecting actual updated applicable information” [3].

Because the Medicaid limit is whatever Medicare would pay, a lower 2027 Medicare rate for a test also lowers the most a state can pay for it with federal help [1, 3]. States that, like Georgia, update slowly may not pass that through right away, but the federal ceiling moves either way.

What to do now

1. Decide in the next two days whether you must report. The data reporting period ends July 31, 2026 [3, 4]. If your practice lab meets CMS’s definition of an applicable laboratory, the reporting entity has to submit 2025 private payer rates and volumes. CMS has pointed to potential civil monetary penalties for failure to report since the first round in 2017 [3]. If you are unsure whether your lab qualifies, this is a question for your billing advisor.
2. Check your Georgia Medicaid remittances. Compare what Georgia Medicaid paid on your highest-volume lab codes with the Medicare fee schedule for the same dates [1]. Keep records of any rate change after June 12, 2026, the effective date Georgia gave for its amendment [1].
3. Find out how your own state sets lab rates. OIG chose Georgia and California because its data analysis showed them at risk, and it describes the audits as a multistate series [1, 2]. A state with stale default rates could face the same finding.
4. Plan 2027 lab revenue conservatively. Model Medicare lab revenue for 2027 with a range that includes reductions of up to 15% on your main codes [3, 4]. The comment period on the fee schedule proposal, which includes the conforming lab rule changes, runs through September 14 [3].

The policy fight

The audits raise little dispute. Georgia and California both concurred with every recommendation [1, 2]. Georgia told OIG it “welcomes the opportunity to correct any processes” that led to the excess claims [1]. The one point OIG pressed against the state’s own plan was the 45% out-of-state hospital rate: the statute, OIG wrote, has “no exception for services provided by out-of-State nonparticipating hospitals” [1].

The Medicare reset is where the argument is. Congress has delayed the PAMA reporting cycle and the resulting cuts through at least seven laws since 2019 [3, 4]. The American Clinical Laboratory Association welcomed the latest delay in February. It said that without it, cuts of up to 15% would have hit “nearly 800 laboratory tests” and CMS would have used seven-year-old data [5]. ACLA President Susan Van Meter also said “temporary delays are not a solution” [5].

ACLA’s answer is the RESULTS Act, H.R. 5269, which it says would base the fee schedule on “more comprehensive and representative commercial market data” [5]. On July 24 the group announced that the GOP Doctors Caucus, co-chaired by Rep. John Joyce, M.D. (R-Pa.) and Rep. Greg Murphy, M.D. (R-N.C.), had endorsed the bill, and said it has passed 120 cosponsors in the House and Senate [6]. The bill has not passed either chamber. Until it does, the 2027 rates come from whatever labs report by Friday [3, 4].