May 12, 2026 | The diagnostics industry is at the intersection of enormous clinical development and technological change, enabling first-ever detection milestones heavily driven by artificial intelligence (AI) and multi-biomarker tests. But it has increasingly been coming into conflict with a decades-old regulatory system that didn’t anticipate these technological changes and a political environment that favors U.S. competition and innovation but is also interested in cutting the budget, according to Brian Carey, JD, a partner in Hogan Lovells' Boston office, specializing in health regulatory, life sciences, and FDA law.
Carey has seen some big developments in his 25 years as a healthcare attorney, including a lengthy and ultimately failed effort by the Food and Drug Administration (FDA) to regulate laboratory developed tests (LDTs), congressional enactment of the Protecting Access to Medicare Act (PAMA) establishing a new payment system for laboratory tests prompting a new coding system and pricing process, and creation of the widely criticized and broadly opposed MolDx program that currently oversees Medicare coverage and reimbursement policies for more than half of the country.
Most recently, Carey says he has been following a debate unfolding over how to deal with algorithmic-type tests where AI is interrogating a digital image of a human specimen rather than the specimen itself. Genomic assays have always had a bioinformatics component, but now more of them are solely AI tests. For payment purposes, the question is whether they should be coded as a laboratory service or a physician service and what the associated fee should be.
Currently, he says, the most attention-grabbing issue is probably the request for information (RFI) issued by the Centers for Medicare & Medicaid Services (CMS) at the end of February for the CRUSH Initiative—short for Comprehensive Regulations to Uncover Suspicious Healthcare. Stakeholder input is being solicited on aggressive new regulatory and operational changes intended to detect and prevent fraud, waste, and abuse across federal health programs, which in the diagnostic realm is highly focused on genetic testing and requests specific comment on the role of the MolDx program and Z-code identifiers.
These are among the many matters up for discussion at the upcoming Next Generation Dx Summit in Washington, D.C., where Carey will be moderating a session on the regulatory outlook for diagnostics. He’ll be joined by panelists from the FDA, Sanofi, AdvaMedDx, the American Clinical Laboratory Association, and Goldbug Strategies.
The CRUSH initiative is aimed at reducing Medicare fraud, says Carey, leveraging AI and advanced analytics to identify suspicious ordering and billing patterns and thereby curb scams. The RFI includes a specific provision on laboratory tests including genetic tests and molecular diagnostic tests, and targets providers who bill for tests never performed or labs that don’t even exist, as well as newly established labs with an unusually high testing volume, individual physicians who order more or different combinations of tests than their peers, and facilities that practice upcoding to maximize reimbursement.
In its RFI, he continues, CMS “asks specifically about the MolDx program and whether any of the coding and billing strategies that MolDx has come up with [to reduce fraud] could be generally applicable throughout the Medicare program or the Medicare Advantage program in a way to save money. These fraud programs are primarily focused on objectively fraudulent behavior ... but there’s a concern that it could go further down the food chain and look at some of the more high-complexity, higher cost laboratory tests ... [that] will lead to more audits, more scrutiny and more denials on claims, even if those claims were appropriately ordered and appropriately submitted.”
Fraud is a heightened concern, particularly when it comes to genetic testing, based on reports issued by both the Department of Justice and the Office of Inspector General (OIG), Carey says. The OIG posts publicly whenever it enters a settlement of fraud, and those involving a genetic testing lab are happening at least once a month.
Most of these cases are the “low-hanging fruit,” exemplified by two guys fraudulently billing the government for millions of dollars for tests that were never performed, he adds.
CMS could possibly announce some sort of pilot project later in the year where it starts to employ data analytic tools to identify and limit fraudulent payments for laboratory tests, says Carey. At launch, the CRUSH initiative more broadly emphasized durable medical equipment, prosthetics, orthotics, and supplies while seeking input on expanding the scope to include laboratory tests.
Carey has specialized in diagnostics regulations for more than two decades now and has been extensively involved in most of the major regulatory developments in the industry over the past 15 years. One of the big ongoing issues is PAMA reporting requirements, he says. Congress updated the law in January, mandating reporting May 1 through July 31 of 2026 for rates that go into effect next year.
CMS historically priced laboratory tests on a clinical lab fee schedule and, excepting updates for inflation based on changes in the consumer price index, the figures generally didn’t budge despite any changes in the technology or the competitive landscape. PAMA-related rate changes began in 2019 tying fee updates to private payer payment rates, as reported to CMS by labs, based on the median of those payment amounts.
The reporting requirement has been delayed multiple times since 2019, says Carey, primarily to address flaws in the reporting methodology. Some labs and providers have been vocal in their opposition to the reporting process as burdensome and unfair.
PAMA requires laboratories to use the CPT codes of the American Medical Association (AMA) in reporting payment rates, Carey says. The AMA developed proprietary laboratory analyses (PLA) codes that specifically identify and price unique FDA-cleared tests or LDTs under the PAMA framework.
Separately, the AMA has been actively debating the role of AI in laboratory tests and whether and how to code for autonomous AI services, he adds. The debate goes public during a public meeting in June.
The AMA has already incorporated AI directly into the CPT 2026 code set, which is heavily focused on AI-augmented services, digital health, and remote patient monitoring. These are generally “software as a medical device” products that have been FDA-cleared.
Last year, the FDA granted de novo authorization to a multimodal AI software tool from Artera that analyzes digital images from prostate cancer biopsies to predict long-term patient outcomes. It was among the first approved AI-powered digital pathology tools of its kind.
Overall, happenings at the FDA are low-key relative to other federal-level happenings from the perspective of clinical labs, says Carey. Many test developers continue to opt for FDA clearance or approval for the marketing advantages. Many tests, such as cancer screening tests, continue to pursue FDA approval.
The big news is that CMS will soon be paying for FDA-approved, blood-based multi-cancer early detection (MCED) tests, he adds. Legislation that passed in February creates a dedicated statutory benefit category for the tests, enabling Medicare to cover them starting in 2029.
The program only pays for what’s defined in the Social Security Act, which was previously amended to expand Medicare coverage for preventive screening tests such as mammograms, colonoscopies, and PSA tests. The addition of MCED tests to the Medicare program was monumental for cancer patients, Carey says.
One big looming issue is the tension between federal-level interests in innovation and cost-cutting, he says. Healthcare is generally viewed as inflationary, and the perception is that AI is going to lower costs despite the reality that companies developing these advanced technologies will need to secure reimbursement for the technologies to be available to patients and providers.