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

Feds Salvage $2.5 Million from $90 Million Genetic Testing Scam
Case: The feds accused Nevada Heart & Vascular Center (NHVC) of taking kickbacks from a pair of now defunct genetic testing companies Natural Molecular Testing Corp. and Iverson Genetic Diagnostics, Inc., in exchange for referrals of Medicare patients over a roughly two-year period starting in September 2012. Rather than risk trial, NHVC shelled out $2.5 million to settle the case.

Significance: The $2.5 million recovered from NHVC is chump change compared to the $90 million in fraudulent payments ($71 million to Natural Molecular and $19 million to Iverson) allegedly made to the labs that declared bankruptcy before CMS could get any of that money back. Genetic test labs going bankrupt after being busted for Medicare fraud has become a pattern with other notable examples including Texas-based Companion Dx and Pharmacogenetics Diagnostic Laboratory LLC in Louisville.

Florida Marketer Convicted of Genetic Testing Kickbacks
Case: Speaking of genetic testing fraud, a federal jury found the owner of a Tampa medical marketing firm guilty of taking part in a $2.2 million scam involving payment of cash bribes to medical clinics in exchange for referral of DNA swabs collected from Medicare patients. The owner allegedly instructed the clinics to collect DNA from all patients regardless of medical necessity.

Significance: In addition to the fact that it went to trial, the other notable thing about this case is the financial dimension. What began as a series of direct cash payments evolved in the course of one year to a sophisticated arrangement involving shell companies. During the trial, the prosecution contended that the defendant went from ATM to ATM across south Florida to make separate withdrawals of thousands of dollars in an effort to conceal the scam and stay under the $10,000 deposit threshold for filing federal currency transaction reports to the US Treasury Dept.

Lab Owner Gets 30 Months, $3 Million Fine for Masterminding Kickback Scheme
Case: The 62-year-old Illinois man paid "marketers" $150 to $200 (50% of the profits) per urine and saliva sample for referrals of Medicare and Medicaid patients to his labs operating in Missouri and other states under the name of AMS Medical Laboratory Inc. Some test orders listed doctors who never saw the patient and had no idea their names were being used for the scam.

Significance: In April, a federal jury in St. Louis convicted three of the marketers who were on the receiving end of the 50% profit payments. Altogether, 10 defendants have been charged in the case, including a doctor found guilty of conspiracy and four counts of health care fraud at trial last October.

IBM Shells Out $14.8 Million to Settle Claims of Overhyping ACA Software
Case: The DOJ contends that IBM and Cúram Software, the company it acquired in 2011, misrepresented the capabilities of its products to win a subcontract to develop an Affordable Care Act health insurance exchange website and information technology platform for the Maryland Health Benefit Exchange in February 2012. The alleged claims were made during a product presentation one month earlier demonstrating the software's capability to calculate tax credits and integrate with another subcontractor's health plan shopping software. The claims proved unfounded and, after a series of mishaps with the product, the Maryland Health Benefit Exchange terminated the contract in October 2013.

Significance: The Maryland health insurance exchange rollout proved a disaster and IBM, as the provider of the technology, is being blamed for the problems. Of course, several other states experienced significant health insurance exchange website failures, but the Maryland case was particularly high profile due in part to the parties involved including not only IBM but also then Governor Martin O'Malley and Lt. Governor Anthony Brown, who were running for President and Governor, respectively. Each man would go on to lose his election bid due in part to the negative publicity from the exchange fiasco.

CMS Finds Lab Safety Violations at Texas Hospital
Case: CMS has found the University of Texas MD Anderson Cancer Center out of compliance with Medicare conditions of participation with regard to lab services. The inquiry began in December 2018 after MD Anderson reported an adverse event related to a blood transfusion to the FDA, which then referred the case to CMS for a separate investigation. Although the details haven't yet been made public, CMS has apparently required the lab to submit a plan for remedying the problems by June 18.

Significance: Although the lab deficiencies were the only ones requiring a corrective action plan, CMS reportedly uncovered other conditions of participation violations involving MD Anderson's governing body, quality assessment and performance improvement program and patient rights. CMS hasn't threatened to revoke its Medicare status but MD Anderson will be subject to Texas health department investigation to ensure it complies with the conditions.