Courts Dismiss Two Whistleblower Lawsuits

Ex-Owner of Defunct Toxicology Lab Sentenced for Urine Drug Testing Kickback Scam

Case: The co-owner of now defunct Northwest Physicians Laboratory (NWPL) became the latest defendant sentenced for his role in a kickback scheme that generated over $6.5 million in Medicare, Medicaid, and TRICARE payments for toxicology tests. According to the U.S. Department of Justice (DOJ), Richard Reid, 53, helped NWPL steer urine drug test specimens to two labs not owned by physicians that could bill the government for the tests in return for over $3.7 million in kickback payments disguised as marketing fees even though no marketing services were actually provided. Since it was physician-owned, NWPL couldn’t perform the tests itself. As time passed, the kickback money grew bigger and bigger, as did Reid’s share. By 2015, he was pocketing $50,000 per month.  

Significance: NWPL and three of its individual principles have pleaded guilty and are awaiting sentencing. All defendants are jointly and severally liable for the $8,114,417 restitution bill, meaning that the government can collect some or all of the amount from any one or combination of them in the event there are financial solvency issues. Meanwhile, the prosecution has asked that Reid get two years in prison, the same sentence as NWPL’s CEO, contending that he “hid the truth and kept the cover story in place by lying to his sales force, lying to providers, and sharing fraudulent opinion letters from attorneys.” The prosecution got its wish, with Reid receiving a two-year prison sentence on Jan. 10.¹

California Federal Court Nixes Whistleblower Lawsuit Based on Public Information

Case: Sales representatives from medical devices company Biotronik filed a qui tam lawsuit against their former employer, as well as Cedars-Sinai Medical Center and Dr. Jeffrey Goodman. According to the complaint, Biotronik paid Goodman to select its cardiac rhythm management (CRM) devices for the implant surgeries he performed at Cedars-Sinai. The hospital would then buy the device and send the bill to Medicare. The federal government decided not to intervene in the case. The defendants moved to have the case dismissed claiming, among other things, that the sales representatives/relators weren’t the original source of the allegations. The California federal court agreed and tossed the case.  

Significance: The so-called “public disclosure bar” of the False Claims Act (31 U.S.C. § 3730(e)(4)(A)) bans a relator from suing for “fraud that has already been publicly disclosed, unless the relator qualifies as an 'original source.'” The court found that the bar applied in this case because the details of the alleged scheme were published in news articles that came out before the lawsuit was filed, most notably in a May 31, 2011, New York Times article titled “Sales Tactics on Implants Raise Doubts.”² Nor did the relators produce any evidence to show that they were an “original source,” i.e., had independent knowledge of and provided the information to the government before filing the suit. [United States ex rel. Sam Jones Co. LLC v. Biotronik Inc., 2023 U.S. Dist. LEXIS 1457].   

Court Dismisses PGx Testing Kickback Charges Against Proove Biosciences and Its CEO 

Case: The past five years have been tough for California genetic testing company Proove Biosciences. In June 2021, Proove founder and CEO Brian Javaade Meshkin was indicted for paying pain management physicians up to $144,000 apiece to promote the company’s pharmacogenetic (PGx) tests purporting to assess a patient's risk of misusing opioids.³ But the DOJ backed off and in late December 2022, a California federal judge granted its motion to dismiss all charges against Meshkin and the other eight defendants named in the case “in the interest of justice.”⁴

Significance: The alleged kickback scheme was structured as a clinical trial in which pain management physicians were paid “research fees” of $100 to $150 for each Proove test they ordered. Witnesses claimed that most of the doctors who signed up did no actual work. But the government’s case began to unravel amid concerns over lack of credible evidence and prosecutorial misconduct. Nor was this the first legal victory for Proove. Before the most recent development, the court had dismissed two qui tam lawsuits against Meshkin and Proove filed by whistleblowers based on similar allegations. In a press release issued after the dismissal, Proove described the allegations as false and extremely harmful. “With this dismissal, the defendants are vindicated, and this flawed investigation has been thoroughly discredited.”⁴

Employee Claims She Got Fired for Complaining About Cell Phone Use in Lab

Case: Over the course of her less than one year on the job, a specimen processor made several complaints to her supervisor about what she perceived to be violations of internal policies banning use of cell phones in the lab. When she got her pink slip, she concluded that she was fired because of her complaints and sued the lab for retaliation. Applying state law, the Oklahoma federal court ruled that the processor didn’t have a valid legal claim for wrongful dismissal and dismissed the case.

Significance: As in most states, employment in Oklahoma is at-will, meaning that employers can terminate employees at any time for any reason or no reason at all. However, exceptions apply to employees who get fired “for refusing to act in violation of an established and well-defined public policy or for performing an act consistent with a clear and compelling public policy.” Preventing routine use of cell phones and other electronics in a hospital lab setting was a clear and compelling public policy, the processor contended. But the court was unimpressed, noting the processor’s failure to point to any existing constitutional, statutory, regulatory, or case law that articulated such a policy. The fact that the state health commissioner hadn’t issued any policies or rules banning cell phone use in labs was also evidence that it wasn’t a compelling public policy. [Paknahad v. Diagnostic Lab. of Okla., 2023 U.S. Dist. LEXIS 217, 2023 WL 27919]

References:

1. https://www.justice.gov/usao-wdwa/pr/former-co-owner-and-sales-manager-defunct-medical-testing-lab-sentenced-prison
2. https://www.nytimes.com/2011/06/01/health/01device.html
3. https:/www.ocregister.com/2021/07/21/founder-of-irvine-bioscience-company-indicted-in-alleged-3-5-million-kickback-scheme/
4. https://www.prnewswire.com/news-releases/in-the-interests-of-justice-brian-meshkin-and-proove-biosciences-cleared-of-all-charges-as-us-government-dismisses-case-301715998.html