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

Texas Doctors, Hospital Exec, Shell Out $1.1 Million to Settle Lab Test False Billing Charges

Case: Seven doctors and a hospital executive accused of FCA, Anti-Kickback, and Stark Law violations have agreed to pay $1,106,449 to settle the case. The feds charged the doctors with taking thousands of dollars in bribes, disguised as investment returns, from eight management service organizations (MSOs) in exchange for orders of lab tests subsequently billed to Medicare. Significance: The hospital exec allegedly coordinated with the labs to pay volume-based commissions to independent contractor recruiters, who used the MSOs to make payments to the doctors. In addition to a $50,000 fine, he has accepted an exclusion from participating in federal health care programs for three years.

General Magazine Ad Description Doesn’t Bar Qui Tam Suit for Fraudulent Rewards Program Discounts

Case: A former account manager filed a qui tam lawsuit against an optician for using its rewards program to pay kickbacks to ordering providers. Knowing that Medicare based reimbursement for lenses on the invoice price, the optician offered providers discounts and invoiced them for the full price, in effect shifting the costs of the discounts to the government. The California federal court said that the allegations were “substantially similar” to promotional articles the optician published on its website and in industry publications and dismissed the claim under the False Claims Act “public disclosure bar.” Significance: The U.S. Court of Appeals for the Ninth Circuit reversed. The articles merely discussed the optician’s rewards programs and how they make lenses more affordable. They didn’t specifically describe how the billing worked. And the court disagreed with the lower court’s finding that “[t]he only available conclusion” from the materials was that the rewards program discounts came at the government and not the optician’s expense. Courts shouldn’t allow generalized description of a program that could give rise to fraud in public documents to prevent the pursuit of legitimate fraud,” it concluded. [Mark v. Shamir United States, 2022 U.S. App. LEXIS 3090, 2022 WL 327475].

Lab Company Owners Indicted for False Billing of Medically Unnecessary Tests

Case: A north Texas federal grand jury indicted 10 people for a $300 million Medicare fraud scheme, including two physicians and the founders of three lab companies, including Unified Laboratory Services, Spectrum Diagnostic Laboratory, and Reliable Labs LLC. The indictment accuses the defendants of paying kickbacks to physicians in exchange for orders of medically unnecessary tests which they subsequently billed to Medicare. If convicted, the defendants face 55 or more years in prison. Significance: The government claims the lab owners disguised the kickbacks as legitimate business transactions by using marketing firms to pay the doctors fees for medical advisory services that were never performed, as well as portions of the doctors’ staff salaries and office lease rentals, both of which were contingent on the number of lab tests referred each month. They even made direct payments to the spouse of one of the doctors, the indictment alleges. To generate even more kickback traffic, they converted one of the labs into a physician-owned lab and offered the doctors ownership interests, but only if they referred an adequate number of tests.

Researcher Loses Reprisal Dismissal Claim

Case: A lab research scientist at Ohio State claimed he was targeted for retaliation after reporting alleged misuse of federally regulated infectious agents and viruses to campus police. Among other things, he contended that his superiors thwarted his attempts to apply for outside employment, made negative comments in annual performance reviews and threatened to terminate him. The Ohio federal court dismissed his First Amendment and discrimination complaints against the university. Significance: The U.S. Court of Appeals for the Sixth Circuit rejected the researcher’s appeal. As a public employee, the researcher had to prove that: i., he spoke on a matter of public concern; ii., his speech interest outweighed the interests of the state; and iii., he spoke as a private citizen and not an employee pursuant to his official duties. The researcher was speaking as an employee, the court concluded, noting that he worked in a virus research lab and was charged with handling infectious materials. The national origin and religious discrimination claims failed because the statute of limitations had run out. [Khatri v. Ohio State Univ., 2022 U.S. App. LEXIS 2170].