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

Jury Socks Natera with $44.9 Million False Advertising Verdict

Case: CareDx has prevailed in its long-running dispute with Natera over false advertising of blood tests assessing the risk of patient rejection of a transplanted kidney. CareDx claimed that Natera and its executives deliberately and recklessly overstated the benefits of its Prospera cfDNA test by likening it to CareDx’s AlloSure. After a bitter trial, a Delaware federal jury agreed with CareDx and awarded it $23.7 million in punitive and $21.2 million in compensatory damages. [CareDx, Inc. v. Natera, Inc., C.A. No. 19-cv-662-CFC-CJB]. Significance: CareDx didn’t exactly emerge unscathed, either. The jury also concluded that CareDx engaged in its own false advertising by issuing a press release falsely claiming that an independent study found AlloSure faster and more accurate than a competing product and again by falsely representing a study about AlloSure as being an independent study.

Drug Test Lab Pays $4.8 Million for Charging Medicaid Above ‘Most Favored Nations’ Rate

Case: The U.S. Attorney accused a California-based toxicology lab of overcharging the Connecticut Medicaid program for urine drug testing services performed on substance abuse patients. At issue was Connecticut’s so-called Most Favored Nation (MFN) regulation banning labs from billing Medicaid for services at prices above the lowest price the lab charges third parties for the same or similar services. According to the government, the lab took payments from Medicaid of $38 per tests for urine drug tests that it performed for other payors at $2 to $10.50 per pop. Rather than risk a trial, the lab has agreed to shell out $4.8 million to settle the charges. Significance: Ironically, at least 20 states ban MFN provisions in private health contracts because they stifle competition. But MFN requirements may still be found in Medicaid and private contracts in the other 30 states. So, check your existing lab contracts to determine whether they include MFN clauses. If so, be sure to bill the payor for tests at the MFN price, i.e., the lowest rate you charge any third party for the same or similar test.

Thermo Fisher Draws First Blood in Lawsuit Over Defective COVID-19 PCR Tests

Case: At the start of the pandemic, a New Jersey lab signed a contract to purchase COVID-19 PCR testing materials and software from Thermo Fisher. Almost immediately, the lab started experiencing significant problems with the tests, including inconclusive results, invalid tests, and testing failures. After initially insisting that the tests were reliable, TF recalled the products in September. The lab sued TF and two related entities for breach of contract and express warranty. TF claimed that the lab’s legal claims were defective. The New Jersey federal court agreed and dismissed the claims. Significance: The decision to dismiss was based not on the substantive validity of the claims but how they were stated. Specifically, the lab failed to stipulate: i., exactly what the contract and warranty promised about the products; ii., how the product didn’t meet those promises; nor iii., which one or combination of the three companies named as defendants signed the contract or made the expressed warranty. But rather than kill the case, the judge gave the lab 30 days to submit an amended complaint. [Gene Tox Worldwide, LLC v. Thermo Fisher Sci., Inc., 2022 U.S. Dist. LEXIS 38246, 2022 WL 599489].

Ohio Lab Company Settles Inpatient Double Billing Claims for $142.7K  

Case: Cincinnati-based American Health Associates, Inc. (AHA) has agreed to pay $142,718 to settle charges of falsely billing lab tests. The government claims that between 2015 and 2019, AHA billed Medicare for lab tests performed by its MedLab services company on inpatients at Access Hospital Dayton. Significance: Medicare reimbursement for inpatient stays already covers lab tests performed on the patient during the stay. As a result, knowingly billing for those tests separately violates the False Claims Act. In Nov. 2021, Access Hospital Dayton settled charges for its role in the matter for $374,780, bringing the federal government’s total recoveries for the case to $517,498.