Lessons Learned From Calloway Laboratories Settlement

Calloway Laboratories (Woburn, Mass.), which recently agreed to pay almost $4.7 million to settle fraud allegations, was already under a five-year corporate integrity agreement (CIA) when it discovered it was being investigated for a billing irregularity. Calloway immediately suspended the questionable billing practice and began cooperating with the government to resolve the matter. The CIA resulted from a settlement agreement signed in March 2012 by the former owners of the laboratory, two of which had pleaded guilty to kickback and bribery allegations. The suspect billing practice in this new investigation involved billing for urine drug screen testing. Calloway’s former owners had been billing for a pathology review service to the West Virginia Medicaid program and to Medicare with every drug screen it performed. The pathology review services were not necessary, according to the allegations in the case, and were not needed or knowingly ordered by the physicians ordering the drug screens (this case was reported in National Intelligence Report in the June 6 issue). As a result of the new allegations, Calloway Laboratories Inc. signed an amended and restated CIA as part of its record $4.675 million settlement with West Virginia Medicaid and the Medicare program. Had Calloway been found to have materially breached the existing CIA, it faced serious fines and possible exclusion from the Medicare and Medicaid programs. “This settlement ensures that the federal tax dollars that fund Medicare and Medicaid are restored in full to the programs and the people they were intended to serve,” said U.S. Attorney Booth Goodwin in announcing the settlement May 21. The settlement also covered the costs of investigating and prosecuting the case, according to Goodwin, as well as the cost of future monitoring of the CIA. Original CIA The original CIA covered a 2010 lawsuit that was settled in 2012 alleging kickbacks and the payment of bribes to the managers of group homes for recovering addicts in exchange for referrals to the laboratory. The new settlement concerns billing for services that were not necessary, and in many cases, not performed. It may be this difference in the two cases along with Calloway’s voluntary suspension of the suspect billing practices and cooperation in the government investigation that led to the amended CIA instead of a material breach of the existing agreement. This allowed the government to address the new allegations while keeping the majority of requirements from the existing CIA in place for an extended period. Calloway settled both cases with no admission of liability. Consequences of Material Breach of a CIA There are significant financial and administrative penalties for a provider under a CIA if they materially breach the terms of their CIA. The financial penalties include daily accruing penalties between $1,000 and $2,500 for a variety of breaches, which could occur simultaneously. These include failure to appoint a compliance officer or committee, failure to engage and use the services of an independent review organization, failure to submit any required reports, and a failure to comply with any of the provisions of the CIA as determined by the OIG, among others. The highest penalty, $50,000 per occurrence, is for false certification by Calloway, or any entity representing Calloway, of its compliance with any of the terms of the CIA. In addition to the financial penalties, Calloway could face exclusion from doing business with government-funded health care programs. The CIA also includes provisions that the laboratory may take to resolve alleged breaches of the CIA in any case where there is a dispute concerning the breach allegation by the government. Carryover From Existing CIA According to the amended CIA, Calloway is subject to certain of the terms of the old CIA only for its five-year term. For instance, arrangements involving the training provisions, tracking procedures, and review procedures outlined in the existing CIA will expire at the end of its five-year term, essentially March 5, 2017. Those provisions are specific to the allegations brought under the prior case and may not be relevant during the entire term of the new CIA. These include specific requirements that involve the Stark self-referral and anti-kickback laws or regulations and Calloway’s policies and procedures pertaining to them. Any new or renewed requirements under the amended CIA will be in effect for five years from the date of the final signature on the new CIA, May 15, 2014. That effectively extends the CIA for the majority of its requirements until May 15, 2019. Lessons Learned From This Case Calloway avoided a potential material breach of its existing CIA by immediately and voluntarily suspending the suspect billing once the management team became aware of the government investigation. While the financial penalties were substantial, they were nowhere near as devastating as they would have been had Calloway not taken voluntary measures to correct the problem and cooperated with the government investigation. Any other course could have led to significant consequences for the laboratory and its management team, including possible suspension from the Medicare and Medicaid programs. It is difficult to understand how this problem was overlooked when Calloway’s ownership changed shortly after the previous alleged violations and its settlement agreement in late 2012. Usually, a new owner will conduct a thorough due diligence audit of the previous owner’s billing practices and other compliance issues, especially in light of the existing CIA. That notwithstanding, it is important that a thorough billing audit and review be conducted any time the ownership of a laboratory changes, especially when there are previous allegations or disclosures of violations of any laws or regulations. Takeaway: Calloway avoided significant financial and administrative penalties because it is operating an effective compliance program that allowed it to detect and self-report a billing issue that could have resulted in a material breach of its existing CIA.