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

Texas Lab and Owner Get 15-Year Exclusion for Medicare Mileage Swindle
Case: What would you do if your bill for a $43 blood test included a $1,500 travel fee? The patient who actually received such a bill from Texas lab BestCare complained to the government. The subsequent investigation found evidence that BestCare billed Medicare for over $10 million in false mileage for miles not traveled by a technician. After refusing to toss the case without a trial, the court found the lab guilty of False Claims Act violations and fined it $30.5 million. And on Aug. 17, an Administrative Law Judge upheld the OIG's decision to exclude BestCare and its owner from all federal health programs for 15 years.

Significance: Under Medicare rules, labs can charge $1 per mile for transporting a specimen as long as a technician travels along. The lab committed two offenses:

• Billing travel mileage for specimens shipped on commercial airlines during flights in which no technician was present;
• Imposing a separate $1 per mile travel fee for each specimen transported collectively rather than prorating mileage among the individual specimens..

Aetna Sues Manager of Oklahoma Rural Hospital for Lab Test Ripoff
Case: People's Choice, a management firm specializing in turning around financially strapped hospitals, is being sued by Aetna for using an Oklahoma rural hospital client to carry out an elaborate lab billing fraud. In a bid to keep Newman Memorial Hospital afloat, People's Choice sent blood and urine samples to other labs and falsely claimed that Newman processed the tests, the suit contends. Aetna says that over a 16-month period, it lost $21.6 million on over 10,000 lab tests, in some cases paying $2,250 for tests it thought were done at Newman rather than the $120 it would have paid a larger lab to do the test. People's Choice denies the allegations and has already settled with Newman.

Significance: False billing of lab tests has been a perennial lightning rod for litigation. What's changing, however, is not the defendant but the plaintiff. What we're seeing is the plateau-ing of federal and state enforcement against labs accompanied by a steadily growing percentage of civil lawsuits by private parties, especially insurance companies. Because they charge premium rates, rural outreach hospitals are often at the center of these cases. Thus, the Aetna suit is the second major case pitting a private insurer against a hospital management company for alleged lab fraud we reported this month.

Pennsylvania Hospital Settles Kickback Claims for $13.1 Million
Case: The year's most expensive kickback settlement to date began as a whistleblower lawsuit against Post Acute Medical, LLC (PAM) for falsely billing Medicare and Texas and Louisiana Medicaid for millions of dollars in medical services allegedly generated as a result of referrals from physicians and other providers on the Pennsylvania rehab hospital's dole. 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 is 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.

Florida Lab Owners Convicted for Role in Notorious Drug Distribution Scheme
Case: The two brothers who own a Palm Beach lab pleaded guilty to health care fraud for their role in the illegal drug distribution conspiracy carried out by notorious sober home operator Kenny Chatman. The brothers, who face up to 10 years in prison, paid kickbacks to rehab centers operated by Chapman for urine samples used to perform medically unnecessary drug tests that were subsequently billed to insurance companies at high rates. Their lab, Smart Lab, also faces charges carrying potential fines of up to $500K.

Significance: If you've never heard of him, Kenny Chatman has been described by Florida prosecutors as not the biggest illegal drug treatment provider in the state, only the most dangerous. Chatman locked up drug addicts that came to his sober home for help, taking their food stamps, and even forcing them into prostitution. Addicts with insurance were forced to produce three urine samples per week for testing. Several died of overdoses in the homes. And Chatman made millions in the process. Now that the kingpin is in jail for 27 years for health fraud, money laundering and sex trafficking, prosecutors have begun targeting his lieutenants.

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.