April 2024 Labs in Court

LabTox Settles $10.4 Million False Claims Allegations; Lab Owner and Compliance Officer Face Prison Sentences

Case: On February 16, 2024, a toxicology laboratory, LabTox, LLC, its owner Ronald Coburn, and its compliance officer, Erica Baker, agreed to civil judgments totaling $10.4 million. The civil judgments come after Coburn and Baker were convicted of healthcare fraud and sentenced to 46 months and six months in prison, respectively, and excluded from federal healthcare programs.¹

Coburn admitted to knowingly billing Medicare and Kentucky Medicaid programs for court-ordered urine drug tests that were not medically necessary, and with Coburn’s knowledge and approval, Baker admitted to recruiting a company to make such referrals to LabTox. These admitted violations of the False Claims Act resulted in $1.8 million in fraudulent payments from federal healthcare programs, and the civil judgment of $5,593,287 reflects treble damages. Additionally, Baker acknowledged facilitating referrals, at Coburn’s direction, from substance abuse recovery programs that did not provide medical treatment, such as faith-based residential programs and homeless shelters. Among other things, Baker misled sober home directors and compensated facility staff based on the number of referred tests. This course of conduct led to a total liability of $4,865,646, which also reflects treble damages.

The civil judgments resolved a whistleblower case brought under the federal False Claims Act. The investigation was a collaborative effort involving various state and federal agencies, including the Federal Bureau of Investigation, the Office of Inspector General for the Department of Health and Human Services, the Internal Revenue Service, the U.S. Attorney’s Office, and the Kentucky and West Virginia Attorneys General.

Significance: This case highlights the government’s sustained focus on fraud in the toxicology testing industry and underscores its focus on pursuing individuals engaged in healthcare fraud, particularly those in positions of trust and authority. Healthcare executives—especially compliance officers—set the tone for adherence to legal and ethical requirements within healthcare organizations. The intentional conduct at issue likely led the government to take the admitted violations very seriously. One other notable fact about this case is that it did not include any claims under the Eliminating Kickbacks in Recovery Act, which specifically prohibits paying for toxicology testing referrals on a per-test basis.

Laboratory Co-owner Pleads Guilty in $3.8 Million Billing Scheme

Case: Carlos Himpler, a former healthcare company and laboratory owner, admitted to submitting over $3.8 million in fraudulent claims to Medicare, Medicaid, and commercial insurers. Himpler, along with co-defendant Dr. Franco Sicuro, established an in-house testing lab within Sicuro’s practice, Advanced Geriatric Management LLC (AGM). They also opened a clinical testing laboratory, Genotec DX (Genotec), in the same building, using the same machines as AGM’s lab, and agreed to split profits equally. To obtain certification to conduct laboratory testing under the Clinical Laboratory Improvement Amendments of 1988 (CLIA), they concealed important facts, such as their sharing of a part-time employee and equipment, and misrepresented testing hours. They also failed to disclose Sicuro’s co-ownership of Genotec from Medicare and other payers.

Sicuro, Himpler, and other AGM providers ordered toxicology testing from AGM and Genotec and then referred the testing to outside reference laboratories, in violation of Medicare, Medicaid, and commercial insurer requirements. When insurers began scrutinizing Genotec’s claims, Sicuro and Himpler created yet another company, Midwest Toxicology Group LLC, for purposes of billing insurers, without even obtaining a CLIA certificate or any equipment. Further, each lab submitted a claim for the same person on the same date of service using Genotec’s CLIA number.²

Himpler admitted to defrauding Medicare, Medicaid, and other commercial insurers with respect to the $3.8 million in claims. Sentencing is scheduled for May 15 for his role in the conspiracy. He could face up to five years in prison, a fine of up to $250,000, or both. Sicuro pleaded guilty in 2022 and was ordered to pay restitution, as well as forfeit $3.1 million in assets.

Significance: While Medicare, Medicaid, and commercial insurers have ramped up healthcare fraud prevention efforts through data analysis and other tactics, payers still rely heavily on the “pay-and-chase” method. The scheme orchestrated by Himpler and Sicuro was seemingly unsophisticated, but they nevertheless found ways to exploit gaps in the CLIA certification, Medicare enrollment, and claims submission processes to obtain fraudulent payments of over $3.8 million. The government likely recognized that Himpler and Sicuro compromised the integrity of laboratory testing services and endangered patients in the process.

Lab Owner Pleads Guilty and Pays a Civil Settlement to Resolve Healthcare Fraud Allegations

Case: Andrew Maloney, owner of Capstone Diagnostics (Capstone), pleaded guilty to conspiracy to pay kickbacks. Additionally, he and Capstone agreed to a $14.3 million settlement under the civil False Claims Act to resolve allegations that the laboratory paid volume-based commissions to independent sales representatives to incentivize them to promote medically unnecessary urine drug testing and respiratory pathogen panels (RPPs). Maloney has agreed to cooperate with the government’s investigation.³

Two different courses of conduct involving the promotion of medically unnecessary testing and kickbacks gave rise to the guilty plea and civil settlement.

First, Capstone paid kickbacks to an at-risk youth after-school program in exchange for the program’s referral of orders for urine drug testing required for participants of the program. Capstone billed Medicaid over $1 million for the medically unnecessary services and paid a percentage of collections back to the program. Four other individuals pleaded guilty in connection with this scheme, including a physician who served as the program’s “medical director” and who ordered the testing even though he had no doctor-patient relationship with the participants.

Second, Maloney and Capstone settled a qui tam action brought by the former laboratory manager under the federal False Claims Act for $14.3 million. The former laboratory manager alleged that Capstone incentivized sales representatives to recommend RPPs to senior communities interested only in COVID-19 testing.

In its announcement of the guilty plea and civil settlement, the U.S. Attorney for the Northern District of Georgia noted that “some clinical laboratories and their owners across the country engage in unscrupulous kickback and billing schemes that [have harmed] Medicare.”³

Significance: This case is an important reminder that payments made to independent sales representatives or organizations pose a high degree of risk under various federal laws. Here, the government presumably pursued Maloney in his individual capacity because Capstone not only paid compensation based on the volume of referrals, but also did so to incentivize inappropriate behavior. In addition, the government’s press release highlighted the establishment and work of the COVID-19 Fraud Enforcement Task Force, which presumably investigated and pursued Maloney’s and Capstone’s promotion of RPPs in conjunction with COVID-19 testing. While the public health emergency may have ended, the work of the COVID-19 Fraud Enforcement Task Force may just be beginning.³

References:

1. https://www.justice.gov/usao-edky/pr/lexington-lab-agrees-104-million-civil-judgments-resolve-false-claims-act-allegations
2. https://www.justice.gov/usao-edmo/pr/testing-laboratory-co-owner-admits-38-million-fraudulent-billing
3. https://www.justice.gov/opa/pr/georgia-laboratory-owner-pleads-guilty-felony-charge-and-pays-143-million-resolve-liability