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

Kentucky Lab Pays $125K to Settle Self-Disclosed SVT False Billing Charges
Case: VerraLab JA, LLC, has agreed to pay $125,983 after self-disclosing that it billed Medicare for specimen validity tests (SVT) performed to authenticate urine samples for drug testing. Unlike the underlying urine drug test which is actually used to manage treatment, SVT is not considered medically necessary by Medicare where its sole purpose is to validate the specimen, i.e., verify that it hasn't been adulterated.

Significance: In February 2018, the OIG issued a report saying that Medicare made $66.3 million in improper SVT payments to nearly 4,500 labs and physician offices. CMS has ordered Medicare contractors to recover those payments. Meanwhile, labs are proactively coming forward to self-disclose. VerraLab is the fourth settlement involving SVT payments that OIG has reported in the first quarter of 2019. The other three also involve providers from the Ohio Valley area:

Self-Disclosed SVT Payment Settlements (January thru March 2019)

Federal Jury Finds Trio Guilty of $3.5 Million Lab Kickback Conspiracy
Case: Three men from the Chicago area were convicted of taking bribes for sending blood, urine and saliva samples to St. Louis lab AMS Medical Laboratory, Inc. for testing subsequently billed to Medicare and Medicaid. Under the elaborate scheme which generated $3.5 million in false test billings, the defendants sent AMS samples collected at health fairs held at churches and businesses in Illinois and Indiana under the names of doctors who didn't order the tests or even know the patients; in exchange, they received a cut of 50% of the profits—up to $200 per sample—from AMS' managing partner.

Significance: The Chicago three are among 10 defendants in the case, including the managing partner who pled guilty last year and a physician convicted by a jury last October for pocketing kickbacks in connection with the scheme. They'll be sentenced in July.

Co-Owner of Kentucky Lab Pleads Guilty to Reference Lab Conspiracy
Case: This story is about a medical billing firm T. Monroe Medical Billing and its toxicology lab client Compliance Advantage LLC (CAL) that were partially owned by the same gentleman. The problems began in 2016 when Medicaid, Aetna and Humana accused the lab of improper billings and cut payments to the facility. Aetna also demanded that CAL repay $750K. To get around the ban and generate revenue, the co-owners cut a reference lab agreement with a third lab (not named in the court papers) enabling Monroe and CAL to bill the payors for tests that were actually performed by CAL in the name of the third lab. The cut: 60/40 with the third lab taking the 40%. The reference lab agreement was backdated to further the deception.

Significance: One of the co-owners pled guilty to one count of conspiracy and now faces up to five years' in prison when he's sentenced in June. The other co-owner who had a partial ownership interest in both CAL and Monroe will answer to a higher authority, having died in 2017.

Healthcare 'Trial of the Century' Ends in Guilty Verdict against Esformes
Case: After a seven-week trial, a federal court convicted Florida healthcare executive Philip Esformes of 20 charges in carrying out a $1.3 billion Medicare fraud scheme, the biggest in history. In addition to paying doctors to refer patients to his elaborate nursing homes, labs and home health agency network from 2009 to 2016, Esformes paid a regulatory official thousands of dollars to sound the warning when government inspectors were planning to inspect the facilities.

Significance: Although not strictly about labs, the Esformes case has been called the healthcare trial of the century due to the sheer size of the scheme. And it's not over. Esformes' attorneys say they plan to appeal the verdict.

Lab Technician Gets 56 Months' Jail for Role in Texas Toxicology Scheme
Case: A former toxicology testing company account rep pled guilty to conspiring with a medical clinic lab technician to steal patient identities and urine specimens from the clinic and send them to the testing company without a physician order or patient consent so they could pocket commissions and collection fees. Along the way, they forged patient consent signatures, falsified medical records and created registration forms and other fictitious documents to make it look like the unapproved toxicology screens were properly ordered. As a result of the scheme, Medicare was billed $836,788 between May and December 2015.

Significance: The account rep was sentenced to 56 months followed by three years of supervised release. In exchange prosecutors dropped the remaining 17 charges against him and the lab technician, who'll be sentenced on April 17. Each defendant will also pay $166,866 in restitution.

Texas Scammer Gets 20 Years for Role in $50 Million Lab Test Ripoff
Case: The plot unfolded 10 years ago when a then 26-year-old woman and three co-conspirators set up 24 phony diagnostic testing centers in Houston. Offices were rented in 28 locations even though none of them actually saw any patients. To complete the charade, the offices were staffed with "seat warmers," i.e., young women whose only job was to answer the phones and keep auditors out. These employees just sat around and watched streamed movies all day. Meanwhile, fake diagnostic testing technicians, nurses and doctors were employed to act as a "rubber stamp" so that $50 million in tests could be billed to Medicare, Medicaid and private insurers. Fake technicians even visited supposedly homebound patients to carry out sham tests billed to home health care programs.

Significance: Three of the four co-conspirators (charges were dropped against the fourth after he was found mentally incompetent to stand trial) were convicted on not only health fraud but also money laundering charges in connection with efforts to hide the true owners of the test clinics. The ringleader was sentenced to 20 years in jail and three years of supervised release and ordered to repay almost $15.3 million as restitution. The other two defendants are awaiting sentence.

Maryland Hospital Fined $457.2K for Free Support Services Kickbacks
Case: Union Hospital of Cecil County, Inc. has agreed to pay $457,213 for a pair of self-disclosed kickback violations, namely, paying remuneration to:

• Physicians in the form of free support services provided by a trio of physician assistants; and
• Cardiologists via free support services provided by a nurse practitioner.

Significance: The OIG didn't disclose any of the details of the arrangements, other than to say that the hospital self-disclosed them, which presumably resulted in a lighter penalty. Free or discounted support services from referral sources to physicians are, of course, a common form of illegal remuneration banned by the anti-kickback and Stark laws.