Case of the Month: Facing 3 against 1, Texas Lab Settles EHR Consulting Kickback Charges

Question: What happens when multiple whistleblowers bring separate qui tam lawsuits against a lab for the same offense?

Answer: Under the False Claims Act (FCA), only the first whistleblower to file gets to bring the case.

However, this general principle, known as the first-to-file rule, is subject to exceptions. A Texas pathology lab recently learned this lesson the hard way.

The EHR Services Safe Harbor
Providing referring physicians free or discounted consulting services is a form of remuneration banned by the Anti-Kickback Statute (AKS) and Stark Law. But back in 2006, as part of an HHS effort to make it easier for physicians to switch from paper records to electronic health record (EHR) systems, a temporary AKS safe harbor and Stark exception was created letting non-physician providers pay up to 85% of physicians’ costs to help them transition through 2014.

The Inform Diagnostics Case
A number of lawsuits have been filed charging labs and other providers with taking advantage of those rules. The latest case targets Inform Diagnostics (which was then known as Miraca Life Sciences Inc.) for allegedly stretching things beyond the breaking point by offering physicians discounts on EHR consulting services in exchange for lab referrals. Three different whistleblowers, including the Miraca’s former Life Science Sr. Vice President of Commercial Operations and dermapathologists, as well as a company called LPF LLC, claimed that Inform/Miraca limited the discount deal to physicians it identified as potentially high-volume referral sources and basing individual discount amounts on the anticipated return on investment the particular physician’s referrals would generate.

Were the allegations true?

We may never know. That’s because Inform/Miraca has decided not to risk a trial and instead agreed to settle the claims for $63.5 million, which will be paid by its former parent, Japanese company Miraca Holdings Inc.

Why the First-to-File Rule Didn’t Apply
The case might have had a different outcome had Informa/Miraca been able to take advantage of the first-to-file rule to get two of the three cases dismissed. And it looked like that would be the case considering that all three lawsuits involved the same scheme. But the federal court in Tennessee allowed all three claims to proceed.

Reason: There’s an exception to the first-to-file rule allowing for separate suits involving the same scheme when each of the whistleblowers offers unique information about how the defendant carried out the scheme. And that’s what happened in this case, with each of the three whistleblowers shedding light on a different aspect of Informa/Miraca’s alleged kickback arrangement with referring physicians.

Takeaway: Settlements Are Often More About Leverage than Truth
Leaving aside the bad apples who get caught red handed, labs generally don’t settle claims because they’re true. More often than not, settlement is based not on the truth of the allegations but the business dynamics involved. Stated simply, settling a claim is much safer and, frequently, cheaper than waging a legal defense. The situation in this case is a classic example. As if three-on-one wasn’t tough enough, the fact that the DOJ had decided to intervene in each case decisively tipped the leverage equation in the whistleblowers’ favor and made it all but imperative for Informa/Miraca to settle the cases.

For More Information

In case you want to look them up, the three cases are called: United States ex rel. Dorsa v. Miraca Life Sciences, Inc., Case No. 13-cv-1025 (M.D. Tenn.); United States ex rel. LPF, LLC v. Miraca Life Sciences, Inc., et al., 3:16-cv-1355 (M.D. Tenn.); and United State ex rel. Heaphy, et al. v. Miraca Life Sciences, Inc., 3:18-cv-1027 (M.D. Tenn.).