Labs in Court: A Full Circle

The U.S. Department of Justice (DOJ) has announced both resolved and newly filed cases in the fourth quarter alleging many of the same compliance violations seen earlier in 2024. These issues include lack of medical necessity and kickbacks to telemedicine companies, medical providers, and independent marketers. While there has been significant focus on individual accountability, the DOJ is also targeting labs’ proactive methods to ensure compliance and their role in confirming medical necessity. Based on recent cases, the message from the DOJ is clear: labs must proactively monitor, audit, and understand the medical necessity of the testing they bill for, and carefully oversee the activities of their sales and marketing forces to ensure compliance.

Telemarketer Sentenced to 15 Years in Prison for Conspiracy Involving Medically Unnecessary Genetic Tests

On December 6, 2024, the DOJ announced that an employee of a call center was sentenced to 15 years in prison for his role in a conspiracy to defraud Medicare by billing over $67 million for medically unnecessary genetic testing. A federal jury had found the telemarketer guilty of conspiracy to commit wire fraud and conspiracy to commit money laundering in October 2023. The individual managed the “doctor-chase” division of the call center, which convinced primary care physicians of targeted Medicare beneficiaries to order medically unnecessary genetic tests based on fraudulent medical paperwork the call center created. Oftentimes, the results of the genetic tests were not sent to the primary care physicians and were not used in the Medicare beneficiaries’ treatment. Nine other individuals were previously sentenced for their roles in the conspiracy, with sentences ranging from two to more than 16 years in prison.¹

Lab Owner Indicted for Alleged $79 Million Testing Scheme

On November 20, 2024, the DOJ indicted the owner and operator of a Texas laboratory for his alleged role in causing a laboratory to submit claims for respiratory pathogen panel (RPP) tests that were not provided and were not medically necessary. The DOJ alleges that he used the personal identifying information of a physician without the physician’s knowledge or consent to create test orders for patients with whom the physician had no physician-patient relationship. In addition, this testing was carried out through a variety of reference laboratory arrangements, the DOJ alleges. The owner/operator is charged with three counts of healthcare fraud, conspiracy to engage in money laundering, and three counts of money laundering.²

Toxicology Lab Admits Performing Unnecessary Testing, Using Blanket Orders, and Performing Non-Ordered Tests

On November 8, 2024, the DOJ announced a settlement of $6.5 million with a toxicology laboratory to resolve false claims-related allegations. The laboratory admitted that it performed both presumptive and quantitative toxicology tests regardless of the results of presumptive tests. Also, the laboratory submitted claims according to “blanket orders” for the same testing panel regardless of each patient’s individualized medical need. Along with these issues, the laboratory admitted that it billed for its proprietary test for chronic pain without an ordering provider’s individualized determination of medical necessity. Sometimes the lab billed for this test without a provider’s knowledge and often tested at higher frequencies than medically necessary. In addition to the settlement agreement, the laboratory entered into a Corporate Integrity Agreement for five years that requires the appointment of a compliance officer and medical director, as well as monthly monitoring of testing.³

Lab Owner and Marketing Company Owner Found Guilty of Genetic Testing Scheme

On October 31, 2024, a federal jury in Nashville found the owner of now-defunct Crestar Labs and the owner of a healthcare marketing company guilty of conspiracy to violate and violations of the Anti-Kickback Statute. During the seven-week trial, the DOJ presented evidence that the defendants entered into sham contracts and paid illegal kickbacks in exchange for genetic test orders. The lab paid the marketing company to obtain buccal swabs from seniors at health fairs and through door-to-door marketing in low-income housing and other locations. The tests were then approved by telemedicine doctors who were paid kickbacks in exchange for signing orders for genetic tests. At trial, the government contended that the lab billed Medicare and Medicaid over $100 million for lab tests procured through this scheme.⁴

Other participants in the scheme had previously pleaded guilty before trial, including the lab’s vice president (VP) of sales and its director of client services and VP of operations, as well as owners of various marketing companies and a telemedicine company. A physician was previously found guilty after a two-week trial for conspiracy to violate the federal Anti-Kickback Statute, based on his receipt of payments for signing orders for genetic testing.⁵

Mobile Phlebotomy Lab and Owners Settle Allegations of False Claims for Blood Testing Services and Travel Mileage

On October 22, 2024, the DOJ announced the settlement of a qui tam False Claims Act case that alleged false claims for mobile phlebotomy services and associated travel mileage. The settlement also resolves allegations of paying kickbacks to a third-party marketer of these services, in violation of the Anti-Kickback Statute. According to the DOJ, the lab allegedly submitted false claims for venipuncture procedures that it did not actually perform during homebound patient visits, and for travel mileage associated with these visits that were not reimbursable by Medicare. It further alleged that the company paid a percentage of company revenue to a marketing company to market the phlebotomy lab’s venipuncture services, in violation of the Anti-Kickback Statute.⁶ Under the settlement, the company will pay the US $100,000 and 50 percent of the net proceeds of any future sale of company property, and the owners will pay $35,000.⁷ The settlement was based on the defendants’ ability to pay.

Urine Drug Testing Lab and Owner Resolve Allegations of Medically Unnecessary Testing and Kickbacks

On October 11, 2024, the DOJ announced a settlement in which a North Carolina toxicology laboratory and its owner will pay $235,000 to resolve allegations that they submitted false claims to Medicaid for urine drug testing. The DOJ alleged the claims were false because they were the result of kickbacks by the lab to an independent contractor. That contractor was paid a percentage of revenue or profit from the Medicaid reimbursement for the tests referred as the result of the contractor’s efforts, the DOJ alleged. According to the DOJ and the state of North Carolina, the tests were allegedly medically unnecessary because the test orders were not patient-specific and did not reflect a qualified medical provider’s determination of patients’ need for testing.⁸

Takeaways

These cases highlight the importance of laboratories being especially vigilant when it comes to ensuring medical necessity for the test orders they receive, as well as carefully monitoring their sales and marketing staff for non-compliant activities.

References:

1. https://www.justice.gov/opa/pr/telemarketer-sentenced-67m-health-care-fraud-and-money-laundering-scheme
2. https://www.justice.gov/opa/pr/laboratory-owner-charged-79m-fraud-scheme
3. https://www.justice.gov/usao-ma/pr/ethos-laboratories-agrees-pay-65-million-resolve-allegations-fraudulent-billing
4. https://www.justice.gov/usao-mdtn/pr/lab-owner-and-marketing-company-owner-both-found-guilty-multi-million-dollar-medicare
5. https://www.justice.gov/usao-mdtn/pr/physician-convicted-95-million-health-care-fraud-conspiracy-accept-kickbacks
6. https://www.justice.gov/opa/pr/california-mobile-phlebotomy-lab-and-its-owners-pay-135000-resolve-allegedly-false-claims
7. https://www.justice.gov/opa/media/1374271/dl
8. https://www.justice.gov/usao-wdnc/pr/urine-drug-testing-laboratory-and-owner-agree-resolve-false-claims-act-allegations