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

Theranos Redux? Feds Target New Silicon Valley Diagnostics Start-Up Investment Scam Case: Federal prosecutors have filed criminal charges against the co-founders of a San Francisco biotechnology start-up firm with defrauding investors by making bloated claims about a revolutionary diagnostics product. No, it’s not Theranos, but uBiome Inc, a business created in 2012 to develop and commercialize tests to detect microbiomes in the gut and other parts of the body. uBiome’s Gut Explorer, Smart Gut and SmartJane were sold in mail order kits that patients could use to collect samples from home, complete surveys and get results online in a few weeks. According to prosecutors, uBiome’s co-founders Zachary Apte and Jessica Richman were able to raise over $76 million in a pair of fundraising rounds by misleading investors about the firm’s revenue growth and ability to secure coverage from payors even though many tests weren’t clinically validated or medically necessary. uBiome filed for bankruptcy in 2019. Significance: Acting U.S. Attorney Stephanie Hinds is in charge of the criminal prosecution. If the name sounds familiar, it may be because Ms. Hinds’ office is also prosecuting Elizabeth Holmes and Theranos. “The innovation that emerges from our Bay Area companies is unparalleled,” noted Ms. Hinds, “but all innovation must exist within the boundaries of the law.” In addition to the criminal charges, Apte and Richman have been hit with civil charges of stock fraud from the Securities Exchange Commission (SEC). Florida Court Upholds Conviction of Physician at Center of Massive Drug Test Scam Case: In February 2019, the physician/medical director of a pair of sober home clinics in clinics was sentenced to 11 years in prison and ordered to pay $1 million in restitution for his role in a massive fraud scheme involving billings for millions of dollars of unnecessary urine drug tests on recovering addicts. I was just a patsy in the 20-member conspiracy, the physician had claimed. But after an 8-day trial, the Florida federal jury found him guilty of conspiracy to commit health care fraud and distribute controlled substances, as well as seven counts of unlawfully dispensing controlled substances. The owner of the clinics who served as ringleader of the scheme is also serving a 27-year sentence after being convicted of multiple charges. Significance: The U.S. Court of Appeals for the 11^th Circuit ruled that there was more than enough evidence to support the verdict and sentence and tossed the appeal. The physician played a central role in the scam. It wasn’t just that he ordered all of the tests but also the way he ordered them. For one lab, he issued a standing order authorizing as medically necessary 2 to 3 scheduled and up to 2 random tests on a single patient per week. For the second lab, he pre-signed blank requisition forms for drug tests leaving the patient information blank so that others could enter it later. In each case, staff photocopied the documents and used them to maximum advantage, often ordering tests and providing their own urine samples for patients who didn’t show up for appointments [U.S. v. Abovyan, 2021 U.S. App. LEXIS 5030, 988 F.3d 1288, 28 Fla. L. Weekly Fed. C 2452]. Michigan Cardiologist Shells Out $2 Million to Settle False Billing Charges Case: The feds claim that over an 11-year period the physician and his metropolitan Detroit area practice and lab sites violated the False Claims Act by billing Medicare, Medicaid and TRICARE for tests that were either not medically necessary or not performed at all, including Ankle Brachial Index and Toe Brachial Index (ABI/TBIs) tests. The ABI compares blood pressure in the ankle to blood pressure in the arm to evaluate blood flow; the TBI is an addition test to assess blood pressure readings at the toes. The investigators also found that the physician routinely ordered unnecessary Nuclear Stress Tests, a high-priced diagnostic procedure in which a small amount of radioactive tracer is injected into a vein to enable a special camera to produce images evaluating blood flow to the heart. Significance: The cardiologist was also one of the eight physicians involved in the alleged Beaumont Health system kickbacks scheme which was settled for $84.5 million in 2018. So, it’s not surprising that as part of the settlement, the cardiologist agreed to enter into a 3-year Integrity Agreement. Both cases began as whistleblower lawsuits. Simply Ordering Tests Doesn’t Make Departing Physician Liable for Failure to Diagnose and Treat Case: A Wisconsin inmate sued the prison’s medical staff for failing to diagnose and treat his hepatitis C infection. Among the defendants was the physician who ordered the lab tests revealing the extremely high level of liver enzymes in the inmate’s blood. So, the fact that the physician didn’t tell the inmate that he had hepatitis C and get him some treatment was negligence, the lawsuit alleged. But the physician had a legitimate explanation for not following up: He had left the prison and taken another job by the time the test results came back. While not satisfying the inmate, the physician’s explanation satisfied the Wisconsin federal court which tossed the claim against him without a trial. Significance: As the court explained, the mere fact that the physician ordered tests ordered tests isn’t enough to prove that he disregarded the inmate’s serious medical needs or acted negligently. The silver lining for the inmate was that dismissal of the case against the ordering physician didn’t get the treating physician who subsequently took over the case off the hook [Jackson v. Lorenz, 2021 U.S. Dist. LEXIS 36289, 2021 WL 765022]. EHR Technology Vendor Settles Kickback Charges for $18.25 Million Case: Athenahealth Inc., a Massachusetts-based EHR software vendor has agreed to fork over $18.25 million to settle charges of paying kickbacks to generate sales. The DOJ complaint cites three marketing programs that allegedly crossed the line:

• A “Concierge Events” program offering customers and prospects free tickets and trips to high-profile sporting events like the Kentucky Derby;
• A “Lead Generation” program paying existing customers $3,000 for each new client they signed up regardless of how much time and effort they spent in the effort; and
• Deals paying competing EHR vendors who were closing shop fees and other remuneration for converting their clients into Athenahealth Inc. clients based on the value and volume of converted practices.

Significance: Even though Athenahealth Inc. is an EHR vendor rather than a lab, the marketing arrangements involved in the case raise kickbacks red flags regardless of the types of providers involved. Accordingly, be sure that the marketing efforts of your own lab don’t involve any of these problematic activities.