A roundup of recent cases and enforcement actions involving the diagnostics industry

Florida Lab Owner Gets 82-Month Jail Sentence for Telemedicine Genetic Test Ripoff

Case: The Florida owner of multiple diagnostic labs will be spending 82 months in a federal prison after being convicted of generating kickbacks for genetic lab tests ordered via telehealth visits. The owner took advantage of temporary waivers put in place to ensure patients access to medical care during the public health emergency by paying off telehealth providers to order medically unnecessary cancer and cardiovascular genetic tests; in return, providers got access to personal information about the beneficiaries and the chance to bill for telehealth consultations, many of which never actually took place.

Significance: This case targeting the co-owners of Panda Conservation Group LLC is part of a larger COVID-19 Health Care Fraud coordinated enforcement action spanning seven judicial districts against 14 defendants for allegedly exploiting the temporary regulatory waivers to generate illegal referral for genetic lab tests ordered via telehealth consultations. The DOJ has announced a series of such actions since the start of the pandemic.

Company Must Prove Bona Fide Employment Relationship AKS Safe Harbor at Trial 

Case: According to the DOJ, physician-investors/employees of spinal implant distribution companies were paid a portion of company profits from sales of implant devices to Medicare patients. By then billing for spinal surgeries to implant the devices, the companies also submitted false claims. The companies insisted that its agreements with the physicians were perfectly legitimate under the Anti-Kickback Statute bona fide employment relationship safe harbor and asked the California federal court to dismiss the claims. The court refused.   

Significance: The safe harbor states that “any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered goods or services” doesn’t constitute “illegal remuneration” under the AKS. The evidence showed that the investor-doctors did sign an employment agreement and keep timesheets. But that wasn’t enough to justify dismissing the charge at this point. As a result, the case would have to go to trial where the companies would face the burden of proving they met all of the safe harbor requirements [United States v. Reliance Med. Sys., LLC, 2021 U.S. Dist. LEXIS 218111].

Texas MDs Pay $3.9 Million to Settle Claims of Falsely Billing Urine Drug Tests

Case: A pair of Texas physicians have agreed to pay $3.9 million to settle claims of billing Medicare, Medicaid and TRICARE for urine drug tests that they knew weren’t medically necessary out of their now defunct in-house pain clinic lab. The former lab employee who brought the whistleblower claim that got this case started will receive a share of $618,000.

Significance: The feds claim that the physicians drafted the testing protocols that resulted in the performance of unnecessary tests knowing that the clinic needed the revenue from the tests to remain profitable. Even without whistleblower intervention, there’s a pretty good chance that the excessive number of urine drug tests generated by the clinic would have been spotted by the enforcement establishment’s radar [United States ex rel. Nuessner, et al. v. Austin Pain Associates, LLC, et al., 5:16-CV-1125-FB (W.D. Tex.)].

Did Commission Agreement based on Lab Client Revenues Violate EKRA?

Case: When the new federal EKRA law extending kickback laws to private payors took effect in 2019, in-house counsel advised a urinalysis lab that it had to restructure its current marketing employee arrangements basing commission payments on the percentage of tests generated by their clients. One of the affected employees was a client accounts manager caught up in a pre-existing dispute over alleged misappropriation of the lab’s trade secrets, which prevented the sides from reaching agreement on a restructured compensation agreement. And since the current agreement didn’t comply with EKRA, the lab decided to withhold his entire compensation and pay him the money retroactively if and when he signed a new deal. The sides ended up in litigation with the Hawaii federal court ruling in the employee’s favor on the EKRA issue.

Significance: In a bit of a head scratcher, the court ruled that the employee’s compensation arrangement didn’t violate EKRA. True, basing commissions on test revenues generated by clients constituted remuneration under the law. However, the court continued, it didn’t “induce a referral of an individual to” the lab. The employee’s clients were the ordering physicians rather than the individuals tested. And the lab wasn’t paid by these clients but by the test subject’s payor. And because the compensation arrangement didn’t violate EKRA, the lab’s decision not to pay him violated both the contract and state labor standards law.