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

HDL's Former CEO Pays $10 Million to Settle Bankruptcy Claims
Case: Health Diagnostic Laboratory co-founder and former CEO Tonya Mallory has agreed to pay $10 million to settle claims brought by the bankruptcy trustee responsible for liquidating HDL's assets. The trustee's case against Mallory is part of its larger $600 million suit targeting more than 100 HDL executives, directors, contractors and other defendants associated with the testing firm driven to bankruptcy by a massive kickback scheme involving bribes to physicians in exchange for orders of blood tests.

Significance: The newly approved bankruptcy settlement, which also covers Ms. Mallory's husband and former HDL shareholder, Scott, is far from the end of her legal problems. Last May, a federal court in South Carolina ordered Mallory and two principles of HDL's former contract sales organization, BlueWave Healthcare Consultants, to shell out $114.1 million after a jury found the three defendants liable for Medicare fraud for their part in the HDL scam. (See GCA, June 21, 2018, Case of the Month.) The defendants are appealing the verdict.

Michigan Hospital System Pays $84.5 Million for Alleged Billing of Kickback-Induced Services
Case: William Beaumont Hospital has agreed to cough up $84.5 million to settle False Claims Act charges. The case, which began as a qui tam whistleblower lawsuit, contends that the Detroit-based regional hospital system provided free or below-market office and employment assistance to eight physicians in exchange for referrals of lab and other services between 2004 and 2012.

Significance: Paying kickbacks to referring physicians was the primary offense (although the feds also claim that Beaumont misrepresented that its CT radiology center qualified as an outpatient department in its billings). So, it may seem odd that was this an FCA rather than an Anti-Kickback case. The explanation is simple: Beaumont brought the FCA—and its more punitive provisions—into play by subsequently billing the services generated by the allegedly ill-gotten referrals to Medicare, Medicaid and TRICARE.

Genomics Giants Accused of Misappropriating Sequencing Technology
Case: A trio of medical researchers are accusing Illumina, Thermo Fisher Scientific and Affymetrix of stealing the zip code sequencing technology they developed. The trade secret theft and fraud lawsuit claims, among other things, that the peer reviewer of the grant proposal the researchers submitted to the National Cancer Institute for their technology obstructed the grant and tried to get Affymetrix, the firm for which he was chief technology officer, to re-patent the idea. The suit also contends that the founders of Illumina misappropriated and submitted patent claims for the technology and incorporated it into the firm's own SNP genotyping array and AmpliSeq reagents.

Significance: This story has a lot of tentacles. Many of the same zip code sequencing technology patents at the center of this case were also involved in the recently settled infringement lawsuit brought by Thermo Fisher Scientific against Illumina. So, stay tuned…

Former Patients Sue Theranos Over Faulty Test Diagnoses
Case: Nine ex-patients filed a class-action lawsuit against Theranos and its erstwhile retail partner Walgreens seeking damages for the harms they allegedly suffered as a result of inaccurate tests performed using Theranos diagnostic technology. The Arizona federal court dismissed seven of the claims but allowed the remaining 13 to proceed in a class action, which is currently in the evidence discovery phase.

Significance: Up to now, the Theranos case has been mostly about money and the financial losses suffered by consumers, investors and business associates as a result of the firm's overhyped bloodless finger prick technology. But the patient class action is a poignant reminder of the human and patient safety dimensions of the story. The alleged victims' accounts set out in the court papers document harrowing tales of mental suffering and unnecessary testing and treatment as a result of false positives for disorders like the autoimmune disease, Sjörgen's syndrome and the thyroid condition known as Hashimoto's disease, not to mention the patient removed from blood thinner medication warfarin on the base of flawed Theranos test results. At its peak, Theranos operated 40 consumer test centers within Walgreen's in the metro Phoenix area, performing over 1.5 million blood tests for nearly 176,000 consumers.

Florida Lab Settles Claims of Bioterrorism Law Violation for $100K
Case: The OIG accused a Florida lab of violating Federal Select Agent regulations by transferring a select toxin to an entity not registered to possess, use or transfer it and failing to get Centers for Disease Control and Prevention (CDCP) for the transfer. Staring down the barrel of an administrative proceeding, the lab has decided to pay $100,000 settle the cas.

Significance: Jointly comprised of the CDCP/Division of Select Agents and Toxins and the Animal and Plant Health Inspection Service/Agriculture Select Agent Services, the Federal Select Agent Program regulates possession, use and transfer of biological select agents and toxins that pose a threat to public, animal or plant health and products established in the aftermath of the 9/11 terrorist attacks to head off threats of bioterrorism. Charges against labs under the law have been relatively rare.