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

Kickback Settlement Costs Pennsylvania Hospital $13.1 Million

Case: The most expensive kickback settlement of 2018 to date features Post Acute Medical, LLC (PAM) in the starring role. The case which began as a whistleblower lawsuit, claims the Pennsylvania-based rehab hospital paid physicians and other providers to generate millions of dollars in referrals for medical services which it then falsely billed to Medicare and Texas and Louisiana Medicaid. For his part in initiating the case, the whistleblower will pocket a tidy $2,345,670 share of the recovery.

Significance: The key to the case are the details of the scheme, which the feds contend began when PAM first acquired the facilities in 2006. The complaint cites two kinds of financially suspect arrangements to induce referrals:

• Bribes disguised as medical director and other administrative fees paid under physician-services contracts; and
• "Reciprocal referral arrangements" under which PAM promised to refer patients to unaffiliated home health agencies and other providers on the understanding that the provider would refer its other patients to PAM facilities.

Michigan Hospital System Settles False Billing of Kickback-Induced Services for $84.5 Million

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.

Shareholders Sue Missouri Hospitals for Alleged Lab Billing Ripoff

Case: A new shareholder lawsuit targets the CEO and other individuals at a Missouri 10-hospital group called HMC Hospitals for allegedly running a $90 million lab billing fraud scheme out of the facilities. The suit claims that HMC hospitals submitted claims for lab work ostensibly performed for pain and detoxification clinics but that was actually done at other labs. By leveraging the hospitals' status as Medicare and Medicaid critical access rural hospitals, the schemers were able to command higher rates than the labs that actually performed the tests. Those other labs were then paid a portion of the reimbursement as a kickback.

Significance: This case is the most recent example of the growing role the private sector in targeting lab fraud. Of course, whistleblowers have long represented the private arm of the enforcement. But this is lawsuit is driven by corporate rather than regulatory concerns. The plaintiffs aren't whistleblowers acting as private attorneys general but as shareholders of the entity that owns the 10 HMC hospitals suing on behalf of themselves and the other shareholders.

California Lab, Owner Excluded 5 Years for Medicare Screening Test Billings

Case: Billing Medicare for screening exams is illegal. The latest providers to learn that lesson the hard way is Orange, California, independent diagnostic testing facility CHJ Diagnostics, which along with its owner, agreed to a five-year exclusion after OIG investigators discovered it submitted claims for nerve conduction studies considered to be screening exams under Medicare coverage rules.

Significance: Although it is not clear exactly what tests were involved, lab billing for Nuclear Stress Tests has become a more frequent target of federal investigators over the past two years. For more details, see "Using Nuclear Stress Tests as Screening Procedure = Medical Necessity Violation," (NIR, Dec. 12, 2017).

Researchers Claim Genomics Giants Stole Their 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…