Labs in Court: Two EKRA-Related Cases and Some Usual Suspects

Addiction Treatment Facility Operator Convicted of EKRA Violations

Case: On September 13, a federal jury convicted Casey Mahoney of paying illegal kickbacks in exchange for patient referrals to his addiction treatment facilities in California. Based on the allegations, Mahoney paid almost $2.9 million in kickbacks to “body brokers” who referred patients to Healing Path Detox LLC and Get Real Recovery Inc. In turn, the body brokers paid thousands in cash to patients—which some used to purchase drugs—to induce those patients to receive treatment at one of Mahoney’s facilities. Mahoney concealed this scheme by entering sham contracts with the body brokers that appeared to require fixed payments and prohibited payments based on volume or value of referrals.

However, in practice, Mahoney based his payments to the body brokers on the patients’ insurance reimbursements and the number of days Mahoney could bill for treatment. Mahoney also laundered the proceeds through one of the body brokers, which Mahoney classified as consulting fees. Mahoney’s convictions arose out of violating the Eliminating Kickbacks in Recovery Act (EKRA). He was convicted of one count of conspiracy to solicit, receive, pay, or offer illegal remunerations for patient referrals (carrying a maximum five-year sentence), seven counts of illegal remunerations for patient referrals (carrying a maximum 10-year sentence for each count), and three counts of money laundering (carrying a maximum 20-year sentence for each count).¹

Significance: Although not lab specific, this case is worth mentioning as it demonstrates that the U.S. Department of Justice (DOJ) is increasingly using EKRA, a federal law enacted in 2018, to prosecute kickback cases in the commercial payer setting. EKRA applies to addiction treatment providers, sober living homes, and clinical laboratories. This case highlights the DOJ’s ongoing commitment to punishing providers who engage in kickbacks and bribes beyond Medicare, Medicaid, and other federal healthcare programs. Clinical laboratories (and addiction treatment facilities) should evaluate their sales team compensation models in light of EKRA and bolster their compliance efforts to ensure adequate training and appropriate compliance checks to help them quickly identify any inappropriate behavior by sales team members.

More Than $26M in False Claims Act Judgments Obtained Against Laboratory Companies and Their Owner

Case: On July 18, after defendant Patrick Britton-Harr and several laboratory companies he owned failed to defend against allegations of False Claims Act violations, a Maryland U.S. District Court entered default judgments of more than $26 million. Britton-Harr owned Provista Health, LLC and other corporate entities that had, according to the complaint, wrongfully taken advantage of the COVID-19 pandemic to bill Medicare for medically unnecessary respiratory pathogen panel (RPP) tests. The United States alleged that the tests were medically unnecessary given the beneficiaries had no symptoms of respiratory illness and the tests were evaluating uncommon respiratory pathogens. In addition, the defendants allegedly submitted claims for RPP tests that were not ordered by physicians or were never performed. One example is that 300 claims reflected a nasal swab collection date that occurred after the beneficiary died.²

Significance: Despite years of efforts to combat fraud in the clinical laboratory space, cases like this—where the allegations are obvious and egregious—suggest that clinical laboratories are not likely to be out of the enforcement limelight anytime soon. Such cases underscore to the DOJ and U.S. Department of Health and Human Services Office of Inspector General (OIG) that their focus on combating fraud in the clinical laboratory space is warranted and they will continue to hold individuals and entities accountable for taking advantage of the COVID-19 pandemic to defraud taxpayers. In December 2022, the OIG issued a report summarizing its investigation of fraudulent schemes involving laboratories with questionably high billing for other tests, such as RPP tests, that were billed with COVID-19 tests (commonly referred to as “add-on” tests).³ Excess billing of add-on tests like RPPs will continue to trigger scrutiny from the DOJ.

Seven Lab Owners Charged in $40 Million Fraudulent Genetic Testing Scheme

Case: On September 24, a federal grand jury indicted seven people on charges related to defrauding Medicare and Colorado Medicaid in relation to genetic testing. According to the indictment, the defendants own Tesis Labs, LLC, a company that owned and operated genetic testing labs, such as Claro Scientific Laboratories, Inc. and 303 Diagnostics LLC. Allegedly, the defendants conspired to pay kickbacks to purported marketing companies for fraudulent and medically unnecessary genetic testing referrals. Through call centers, marketers would solicit patients, including elderly Medicare beneficiaries, to participate in medically unnecessary genetic testing and obtain doctors’ signatures on the order forms. In total, these referrals allegedly led to more than $40 million in fraudulent claims paid by Medicare, Colorado Medicaid, and private health insurance plans. The indictment specifically alleges that the lab owners violated EKRA under 18 U.S.C. § 220(a)(2)(A).⁴

Significance: For lab tests to be reimbursed, Medicare, Medicaid, and other health plans require the practitioners who order lab tests to have a treating relationship with patients. In addition to the payments to marketing intermediaries, in this enforcement action, the lab owners allegedly circumvented the “treating physician” rule. Laboratories should strive to ensure that ordered tests billed to federal healthcare programs are from legitimate patient-provider relationships that are free from conflicts of interest and financial incentives. Furthermore, this indictment is another example of the DOJ’s use of EKRA to prosecute problematic relationships that impact private health plan business.

Doctor Defrauded Medicare in Medically Unnecessary Urine Drug Testing Scheme

Case: On September 18, Michael Dole was indicted in connection with a toxicology testing arrangement that allegedly defrauded Medicare. Dole owned and operated a pain management practice with an in-house drug testing laboratory that submitted claims for urine drug testing. From 2010 to 2023, Dole allegedly submitted claims for definitive or quantitative drug testing of more than 22 classes of drugs for almost all patients without any documentation supporting medical necessity or suspicion of drug use. Medicare reimbursed Dole more than $11.7 million for the allegedly unnecessary urine drug tests. The grand jury charged Dole with one count of conspiracy to commit healthcare fraud and five counts of healthcare fraud—each carrying a penalty of up to 10 years in prison.⁵

Significance: This enforcement action demonstrates the DOJ’s continued focus on toxicology testing, particularly overuse of definitive drug testing. Physician office labs in the substance abuse and pain management space should have policies and procedures in place to ensure that their practitioners are tailoring toxicology testing, particularly definitive or quantitative testing, to the patient. Given the routine nature of urine tests, these tests are particularly vulnerable to abusive schemes and are therefore subject to additional scrutiny.

ACLA and AMP Seek to Block FDA’s Authority to Regulate LDTs

Case: On May 29, the American Clinical Laboratory Association (ACLA) filed a lawsuit challenging the U.S. Food and Drug Administration’s (FDA’s) final rule to initiate oversight of laboratory-developed tests (LDTs),^6,7 citing that Congress has never given the FDA authority to regulate the professional testing services that laboratories provide. In contrast, as laid out in the final rule, the FDA claims that the increasingly complex nature of LDTs calls for regulation by the FDA. ACLA fears that forcing laboratory testing services into a rigid regulatory framework designed for medical devices will undermine the patient-centered nature of laboratory services. Similarly, on August 19, the Association for Molecular Pathology (AMP) also filed suit to vacate the final rule. Upon the FDA’s request and according to a motion filed on September 9, the two lawsuits have been consolidated and the parties have agreed to a briefing schedule that suggests the court is not likely to weigh in until late 2024 or early 2025 at the earliest.

Significance: The outcome of this case will have a profound effect on the entire laboratory industry. Not only will it impact every single laboratory operating today, but this case may also be the first real test of agency authority in a post-Chevron era. As a reminder, the US Supreme Court overturned the historic Chevron⁸ deference previously provided to federal agencies in Loper Bright Enterprises v. Raimondo.⁹ If the final rule is upheld, laboratories will need to move quickly to meet the FDA’s initial requirements that go into effect in May 2025.

References:

1. https://www.justice.gov/opa/pr/california-addiction-treatment-facility-operator-convicted-paying-nearly-29m-illegal
2. https://www.justice.gov/opa/pr/united-states-obtains-26m-false-claims-act-judgments-against-laboratory-companies-and-their
3. https://oig.hhs.gov/oei/reports/OEI-09-20-00510.pdf
4. https://www.justice.gov/usao-co/pr/seven-people-charged-over-40-million-medicare-and-medicaid-fraud
5. https://www.justice.gov/opa/pr/doctor-charged-327m-medicare-fraud-scheme
6. https://www.govinfo.gov/content/pkg/FR-2024-05-06/pdf/2024-08935.pdf
7. https://www.bassberry.com/news/fda-finalizes-ldt-rule-but-grandfathers-many-existing-ldts/
8. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
9. Loper Bright Enterprises v. Raimondo, 603 U.S. __ (2024).