Labs In Court: A roundup of recent cases and enforcement actions involving the diagnostics industry

Standing Orders Not Enough to Justify Urine Specimen Validity Testing
Case: A Vermont lab has agreed to pay $815K to settle false claims charges. Over a five-year period, the lab routinely billed Medicare and Medicaid for urine specimen validity testing even when not specifically ordered by referring physicians.

Significance: The lab's big mistake was relying on standing orders executed by physicians to perform specimen validity tests automatically. The case is the latest example of how seemingly standard ordering practices like standing orders and reflex testing leave labs vulnerable to charges of failing to comply with medical necessity criteria for each individual test ordered.

Retired Indiana M.D.s in Hot Water for Drug Test Billing Abuses
Case: A husband-and-wife physician team has been charged with falsely billing the Indiana Medicaid program for over $1.1 million in urine drug tests. The government contends that from 2011 to 2013, the now retired physicians routinely required patients seeking opioid prescriptions to furnish a urine specimen to be tested for nine different classes of drugs using a multiplex screening kit costing no more than $5 per day. They then billed and were paid $171.22 per patient, getting around the $20.83 per patient limit allowed under Indiana Medicaid billing rules by falsely certifying that they had collected and tested nine separate samples.

Significance: As the opioid crackdown continues, physicians need to be extra scrupulous in documenting the medical necessity of the drug tests they order for patients prescribed legal opioid and painkillers.

Heart Center Busted for Taking Illegal Consulting Fees from Lab Company
Case: A cardiovascular clinic in Philadelphia will pony up $50,000 for allegedly accepting kickbacks from a lab company in the form of:

• Blood collection processing, handling and collection fees; and

• Consulting fees.

Significance: Self-disclosure is often a wise course of action. Questionable consulting and processing fee arrangements are often a recipe for 6- and 7-figure penalties, especially when charges of both are levelled. But the relatively low penalty meted out in this case is likely attributable to the fact that the provider self-disclosed the conduct to OIG.

Owners of NYC Testing Clinics Charged in $44 Million Fraud Scheme
Case: Kickbacks were just the tip of the iceberg. According to the indictment, the three co-owners of diagnostics clinics in Brooklyn not only solicited and received roughly $19 million in bribes for test referrals but compounded their sins by misrepresenting which clinic actually did the tests and using shell companies to conceal payments in violation of money laundering and tax laws.

Significance: Not surprisingly given the involvement of the IRS and scale of alleged inactivity, i.e., $44+ million in fraudulent claims, the Medicare Fraud Strike Force spearheaded this case.

Free Test Cups Yield Astronomical Liability Costs
Case: Accepting free point of care testing cups from Millennium Labs came back to bite a group of addiction centers (aka, AMC) right in the posterior. Something that seemed so inconsequential as a bunch of paper cups was valuable enough in the eyes of the OIG to constitute remuneration creating an improper financial relationship and turn AMC's subsequent referrals to Millennium into illegal kickbacks. While AMC doubtlessly disagreed with the OIG's theory, it opted to pay $79,880.50 to settle the case.

Significance: AMC is not the first provider busted for accepting free test cups from Millennium Labs. The exact same forbidden fruit was the damnation of Parallax Center, a New York City drug addiction treatment center earlier this fall. The settlement bill: $64,203. Neither case is all that big a surprise when you consider that over the years, the OIG has gone out of its way to remind labs (and other providers) that compensation need not be elaborate to establish an illegal relationship between the lab and referral source. And if the referrals are tainted, billing for the resulting claims amounts to submitting a false claim under the False Claims Act.

Processing & Handling Fees Cross Kickback Line
Case: Speaking of kickbacks, a North Carolina medical clinic and its physician owner have agreed to pay $60K to settle charges of accepting illegal remuneration from labs to which it referred patients in the form of "process and handling fees."

Significance: Unfortunately, it is almost impossible to figure out what the physician did wrong since the OIG did not release the details of the case. But in general, paying fees to referring physicians for processing, handling and other services is an anti-kickback violation unless it qualifies for the so called "bona fide employee" exception:

• The services covered by the fee are clearly identified;

• The fee reflects fair market value for the provided services; and

• Volume or value of federal program referrals by the physician are not a factor in determining the fee amount.

Methadone Clinic & CEO Settle Improper Urine Testing Charges for $884K
Case: A substance abuse clinic and its CEO settled claims of incorporating on-site testing of patients into the bundled weekly rate it charged the Connecticut Medicaid Program for all services rendered. The problem is that it was referring those tests to an independent lab in Massachusetts, meaning Medicaid was paying twice for those tests. The settlement bill: $883,859.

Significance: If you have been following these urine test cases throughout the year, you may notice that the settlement amount seems a bit high. And there's a good reason for that. The Connecticut Dept. of Services detected the "bundling" issue during an audit two years earlier. Continued non-compliance with the weekly rate payment rule would result in penalties later, the audit report warned. But the clinic apparently ignored the warning and ended up having to settle at above the usual going rate for these cases.