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

WV Hospital & Marketing Consultant Sued for Elaborate Kickback Scheme

Case: A new DOJ lawsuit accuses a West Virginia non-profit hospital and its business consultant of seeking to dominate the Ohio Valley market by bribing physicians for referrals. The scheme began in 2005, according to the complaint, when Wheeling Hospital hired R&V Associates to turn around its sagging financial fortunes. The plan: Enter into contracts providing beyond market value compensation to the region’s leading OB/GYN, radiology oncologists, cardiologists and pain management physicians for referring patients to the Hospital. As a result of these deliberate Antikickback Statute and Stark Law violations, the Hospital went from $50 million in losses to massive profits.

Significance: The complaint, which arose from a 2017 whistleblower lawsuit, details the contractual arrangements with the physicians who eagerly accepted the millions of dollars’ worth of overpayments even though they knew it was illegal, and how R&V and the Hospital carefully tracked individual physician referral records and adjusted their compensation accordingly. Meanwhile, the Hospital has filed a breach of fiduciary lawsuit against its former executive VP, who’s charged with carrying out the scheme with R&V.

Urgent Care Centers Settle E/M Upcoding Charges for $2 Million

Case: The owners/operators of CareWell urgent care centers in Massachusetts and Rhode Island have agreed to shell out $2 million for improper coding of Evaluation and Management services. CPT code selection for E/M services is based on the number of body systems a provider must evaluate to diagnose a patient and who does the examination, e.g., nurse practitioner or physician. CareWell is accused of falsely inflating the level of E/M services performed and failing to properly identify who provided them. The whistleblower who brought the initial claim will get 17% of the recovery.

Significance: The part of this case that’s relevant to labs are the alleged methods CareWell used to carry out the upcoding scheme, which are analagous to things labs have been charged of doing to inflate coding for testing services, including:

• Requiring medical staff to examine and document at least 13 body systems during medical inquiries and 9 systems during physical exams regardless of patients’ actual complaints;
• Uploading encounter plan templates onto electronic medical records software asking “yes/no” questions about particular body systems that medical personnel had to ask each patient regardless of whether those questions were medically necessary; and
• Programming the template to list “no” as the default answer to any question that wasn’t asked to make it look like the particular body system to which the question related was examined.

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 of 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:

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.