A roundup of recent cases and enforcement actions involving the diagnostics industry

Referral Arrangement Violates Kickback Laws Even If Even Only Purpose Is to Generate Illegal Referrals

Case: The U.S. Attorney accused a Kentucky physician of taking a $105 per beneficiary payment from a lab company in exchange for ordering its pharmacogenetic tests in violation of the Anti-Kickback Statute (AKS). And since the company billed Medicare for the tests, the physician “caused” a fraudulent claim to be submitted in violation of the False Claims Act (FCA). The physician asked the court to dismiss the charge because the government didn’t allege that he entered into the fee arrangement for the “sole purpose” of generating illegal referrals. And if the underlying AKS violation wasn’t an actual violation, the subsequent billing by the lab for the tests wasn’t an FCA violation either, he reasoned. But the Kentucky federal district court disagreed and allowed the FCA claim to go forward.

Significance: The physician claimed that his motives were mixed at best since he ordered the tests before entering into the fee referral agreement with the lab company. But the volume of referrals increased dramatically once the arrangement was in place and then decreased when the lab company cut the referral fee. More importantly, the court reasoned that an arrangement runs afoul of the AKS if even one of its purposes is to generate illegal referrals even if it’s not the sole motivation [United States v. Vora, 2020 U.S. Dist. LEXIS 173000].

BioReference Labs Shells Out $11.5 Million to Settle Kickback and False Billing Charges

Case: The feds claimed that from 2009 to 2012, BioReference Laboratories billed Medicare TRICARE for hospital inpatient tests listed on the Part B Clinical Lab Fee Schedule even though those tests were covered by the hospital’s Part A inpatient prospective bundled payment and thus should have been billed to the hospital. Consequently, the government ended up paying for those tests twice. Rather than risk a trial, BioReference agreed to settle the charges for $11.5 million.

Significance: In addition to the $1.4 million covering the improper billing, the settlement includes $10.1 million covering allegations that BioReference donated the cost of electronic medical records software to physicians’ practices “based solely on the volume of business” those practices generated. The settlement agreement requires BioReference to admit to paying for EMR software to 69 practices based on whether the revenues generated by the particular office would equal three times the software’s value.

OSHA Fines New Jersey Hospital for Coronavirus Respiratory Protection Violations

Case: OSHA is proposing to fine the hospital $9,639 for two serious violations: i. Failure to fit test tight-fitting respirators face piece respirators on employees required to use them; and ii. Not training employees on proper respirator use and ensuring employees understood when they must wear a respirator.

Significance: Although the total penalty amount is fairly minor by OSHA standards, the thing lab managers should take away from this case is that OSHA inspectors are out in the field doing targeted inspections to determine if health care facilities are complying with their COVID-19-related responsibilities. Thus, a week after the New Jersey case, OSHA fined a Massachusetts dental practice $9,500 for lack of fit-testing and five other serious violations of respiratory protection, bloodborne pathogen and hazcom requirements.

Liability Insurer Doesn’t Have to Defend Lab in Malpractice Suit

Case: A blood and urine drug testing lab had to wage malpractice litigation on two fronts: one against the rehab clinic who claimed that the lab’s false reporting of drug tests harmed its reputation and business; and the other against a patient who claimed that false testing results caused social services to take her child out of her custody. To make matters worse, the lab’s liability insurer claimed it had no obligation to indemnify or defend the lab from the charges because of the “professional services” exclusion of the policy. The federal court agreed and issued a declaration to that effect.

Significance: Because coverage exclusions undermine the fundamental protective purpose of insurance, courts interpret them strictly construed against the insurer. However, the court found that the professional services exclusion in this policy was “clear and unequivocal,” particularly the language excluding “claims alleging negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by an insured. . . . [involving] the rendering or failure to render of any professional service.” The accusations against the lab all involved wrongdoing in sample taking and results reporting that fit squarely within the scope of the exclusion, concluded the court [State Farm Fire & Cas. Co. v. Compliance Advantage, 2020 U.S. Dist. LEXIS 118778, 2020 WL 3800517].