Recent Lab Cases Spotlight Continuing Enforcement Trends: Individual Responsibility, Medical Necessity, Kickbacks

Laboratories saw aggressive enforcement by federal agencies in 2015 and can expect continued scrutiny in 2016. Some recent settlements between federal agencies and laboratories and laboratory owners occurred as 2015 closed and 2016 began that demonstrate continuing themes in enforcement efforts affecting labs.

Individual Responsibility. The increased focus on individual responsibility, highlighted by last year’s release of the Yates Memo, is borne out by a recent Department of Justice (DOJ) settlement with the former owner of a Virginia-based laboratory. Dr. David G. Bostwick, founder, owner and chief executive officer of Bostwick Laboratories between 1999 and 2011, agreed to settle allegations that his laboratory violated the False Claims Act by billing Medicare and Medicaid for medically unnecessary cancer detection tests and provided incentives to physicians in exchange for Medicare and Medicaid referrals.

“This case shows that the Department will not hesitate to hold accountable both the companies and the individuals who order or perform excessive, non-patient specific tests and provide inducements to physicians that lead to unnecessary costs being imposed upon our nation’s health care programs,” said Benjamin C. Mizer, principal deputy assistant attorney general for the Civil Division of the DOJ, in a statement announcing the settlement.

The settlement arrangement includes an agreed payment of $2.6 million plus additional payments up to $1.125 million to be paid “if certain financial contingencies occur within the next five years,” according to the DOJ announcement. The laboratory itself previously settled allegations in the case for $6.5 million.

Whistleblowers. As with several other cases G2 Intelligence has reported on recently, the Bostwick case developed from a whistleblower’s allegations. That whistleblower will receive more than $2.5 million from the settlements with Dr. Bostwick and Bostwick Laboratories, the DOJ said.

Pathway Genomics ended 2015 by settling a whistleblower suit with the federal government for $4.03 million. The San Diego-based Pathway and the U.S. Attorney’s Office announced the settlement on Dec. 30. It involves not only the federal government, but 29 states and the District of Columbia. The case arose from a whistleblower claim brought by former Pathway employee Monique Gipson, the government said. She filed a qui tam suit against the company in April 2014. Pathway issued a statement denying wrongdoing: “Pathway admits no wrongdoing as part of the settlement and is neither an admission of liability or wrongdoing by the Company, nor a concession by the United States that its claims are not well founded. Pathway has fully cooperated with the inquiry and was not required to enter into a corporate integrity agreement. We now consider this matter closed.”

The Pathway and Bostwick settlements were the third and fourth involving a laboratory entangled in a whistleblower suit since late November. On Nov. 30, the government announced Piedmont Pathology Associates, Inc. and Piedmont Pathology PC in Hickory, N.C., agreed to pay $500,000 to settle false claims charges. A former Piedmont salesperson had sued, claiming the organization had exchanged medical software licenses for patient referrals. On Dec. 1, it was announced that Wisconsin-based Pharmasan Laboratories and a corporate affiliate agreed to pay $8.5 million to settle allegations that it had submitted claims for ineligible food sensitivity tests to Medicare—using CPT codes for fluorescent antibody assays and other tests that are covered by the program. Pharmasan Labs, Inc. and the affiliated NeuroScience, Inc. in Osceola, Wis., and the owners of the two companies, Gottfried and Mieke Kellermann, agreed to pay $8.5 million to settle False Claims Act allegations. That included $2.85 million seized by federal agents in March of last year, and another $5.66 million the businesses and the Kellermanns will pay directly. The case began as a qui tam action, brought by an insurance billing manager.

Kickbacks. Both the Bostwick and Pathway cases included allegations that incentives were provided to referral sources. In the Bostwick case, the government alleged that Bostwick violated the Anti-Kickback Statute by offering discounts and billing arrangements to treating physicians to encourage referrals of federally reimbursed services.

The Pathway Genomics agreement settled allegations that Pathway violated federal anti-kickback laws by paying physicians as much as $20 for each saliva sample of a patient it remitted for genetic testing pertaining to medication sensitivity. Pathway no longer pays any fees for physicians to submit tests. “[This] settlement should make it abundantly clear that the FBI and our law enforcement partners will not allow kickbacks and bribes to influence patient care decisions,” said Eric S. Birnbaum, the FBI agent in charge of the Pathway Genomics investigation, in a statement.

Medical Necessity. A familiar issue for laboratories, medical necessity, was at issue in the Bostwick case. The government claimed that, during 2006-2011, Bostwick caused the laboratory to bill Medicare and Medicaid for Fluorescent In Situ Hybridization (FISH) tests and other tests not medically necessary, without a treating physician’s consent or order.

Sister publication, G2 Compliance Advisor (GCA), surveyed counsel for laboratories about the top compliance issues to be concerned about in 2016 and medical necessity was the top issue named. Those surveyed also indicated it may not be just the government that laboratories need to be worried about but that private payers may also raise medical necessity challenges as well. To learn more about top compliance issues for laboratories in 2016, see the January issue of GCA which highlights the top 10 issues identified by those surveyed, including the 60-day deadline for repayment of overpayments, and aggressive sales and marketing tactics—which can give rise to kickback allegations like those in several of the cases highlighted above.

Takeaway: Recent settlements indicate aggressive enforcement of false claims cases continues and key issues are medical necessity of test orders, incentives to referral sources and identifying the individuals responsible for decisionmaking related to the challenged activities.