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

Free Testing Supplies to Physicians Costs Massachusetts Lab $1.374 Million

Case: A federal court ordered Calloway Laboratories, Inc. to pay $1,374,058 to settle claims of falsely billing Medicare and TRICARE for urine drug tests over a six-month period in 2014. As part of the settlement, the now defunct Woburn,Mass.,-based lab admitted to offering free testing supplies to physicians in exchange for testing referrals. What would have been simply a kickback offense became a False Claims Act when Calloway subsequently billed Medicare and TRICARE for those tests.

Significance: The Medicare and TRICARE civil judgment is the latest chapter for a lab involved in what the Mass. Attorney general described as "one of the most egregious Medicaid abuses our offices has handled." In 2013-14, Calloway's chief operating officer and three other individuals were convicted of using straw companies to funnel money bribes to employees of sober houses to generate urine drug testing referrals for patients covered by the MassHealth Medicaid program.

Texas Lab, 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.

Jail for Urine Drug Testing Kickback Co-Conspirators

Case: Urine samples produced by patients of a Maryland-based pain clinic were a billables gold mine for a Jersey City testing lab, well worth the $1.37 million in kickbacks it ultimately paid to secure them. The lab CEO was sentenced to a year and a day in jail, ordered to forfeit $241,600 and fined $5,000. His marketing consultant and co-conspirator got three months' supervised release in home detention, a $23,400 forfeit order and a $4,000 fine.

Significance: The defendants seem to have gotten a pretty good plea deal considering the scheme. According to the court documents, the parties agreed to split the profits 50/50, with the marketer getting a 5% cut for putting the deal together. Among the three clinic defendants, one was just sentenced to eight years in jail (the extra sentence reflecting the extra crimes of tax evasion and fraudulent billing of anesthesia), one died and the other is a fugitive.

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.

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.