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November 2023 Labs in Court

by Glenn S. Demby | Oct 20, 2023 | Essential, Lab Compliance Advisor, Laboratory Industry Report, Labs in Court, National Lab Reporter

This month’s roundup of cases includes Walgreens’ settlement with Theranos customers, kickbacks, and age discrimination.

Walgreens Settles Theranos Customers’ Fraud Claims for $44 Million

Case: Theranos is gone but the legal fallout from the scandal continues. The latest civil case involves Walgreens, the national drug retail chain that fell hard for Elizabeth Holmes and Theranos’s supposedly revolutionary finger prick blood testing technology. In 2013, the companies partnered on a plan to open thousands of Theranos Wellness Centers at Walgreens stores across the country.¹ Walgreens terminated the deal and closed the existing centers in 2016 after the fraud was exposed.² But the damage was done. In addition to the $140 million Walgreens paid Theranos under the partnership agreement, it had to reckon with the customers that relied on flawed test results based on the discredited Theranos Edison technology.³ A group of victims filed a class action fraud and medical battery lawsuit against Walgreens. Now, after nearly seven years of litigation, it’s been widely reported that Walgreens has agreed to settle those claims for $44 million.

Significance: With Theranos dissolved and its principals—Holmes and Ramesh “Sunny” Balwani—in federal prison, Walgreens was left as the deepest pocket that could be held legally accountable to patients. Even though the company insists that it was also a victim of the scam, Walgreens Boots Alliance will now have to pay class members double the costs of their Theranos tests, minus refunds already received, plus an additional $10 base payment. And that’s just for the fraud claims. Class members with claims for medical battery will also receive payments ranging between $700 and $1,000. The settlement deal must still be approved by an Arizona federal court judge. The plaintiffs also reached a settlement deal with Balwani. But the consumer fraud case against Holmes remains unresolved.⁴

Missouri Practices Pay $653,796 to Settle Claims of Using MSOs to Disguise Lab Referral Kickbacks

Case: The U.S. Department of Justice (DOJ) accused a pair of Missouri pain management practices and their physician owners of referring Medicare patients to labs in Florida, Texas, and California in exchange for kickbacks in violation of the Anti-Kickback Statute.⁵ According to the government, the practices disguised the kickbacks for urine toxicology test referrals as investment returns from sham management services organizations (MSOs). Rather than go to trial, the defendants agreed to settle the claims for $653,796.⁶

Significance: Using MSOs to disguise payments to physicians in exchange for lab test referrals has become a fairly common pattern. There were actually two different settlements in this case:⁶

- Gregory Stynowick, MD, and his practice, Pain Management Medical Center LLC, paid $257,436 to resolve claims of soliciting and receiving thousands of dollars in payments from a pair of sham MSOs for ordering toxicology tests from clinical labs in Dallas (InHealth Diagnostic LLC), Houston (Landmark Diagnostics), Santa Ana, California (Sprint Diagnostics), and Orlando (Genesis Reference Laboratories LLC); and

Chad Shelton, MD, and Michael Boedefeld, MD, and their pain management practice, Pro Pain LLC in St. Louis, agreed to pay $396,360 to resolve allegations of receiving payments from the same MSOs for ordering lab tests from Genesis, InHealth, and Denton, Texas clinical lab American Institute of Toxicology Inc. (AIT).

According to the DOJ, the US has recovered more than $34 million in cases involving MSO kickbacks, including False Claims Act (FCA) settlements with nearly 40 physicians.⁶

DOJ Cuts Texas Lab’s Travel Allowance Settlement from $30.5 Million to $5.7 Million

Case: An FCA case that began as a qui tam whistleblower lawsuit by a former employee climaxed in April 2018 when a Texas federal court ordered BestCare Laboratory Services LLC and its founder Karim Maghareh to pay treble damages of nearly $30.6 million for falsely billing Medicare for $10.1 million in travel allowances. BestCare and its owner were accused of grossly inflating the mileage traveled by lab technicians to collect specimens from nursing home residents. In addition to failing to prorate miles, BestCare, under Maghareh’s direction, shipped batches of specimens by air freight to Houston at a cost of approximately $100 per batch and then billed Medicare for the round-trip distance between the nursing home and the lab located in Webster, Texas.⁷ But BestCare went out of business and the government has only been able to collect $789,652 of the original judgment. So, the DOJ invoked its ability-to-pay policy and entered into a new settlement requiring the defendants to pay at least $5.7 million to resolve the judgment, an amount that could increase based on Maghareh’s future earnings.⁸

Significance: Individuals and entities convicted or accused of healthcare fraud and other wrongdoing may not have enough money to pay what the government believes to be an appropriate amount to resolve the actual or alleged violation. In these circumstances, the DOJ’s policy is to get the highest payment amount possible that won’t impose an “undue financial hardship” on the defendant. First articulated in 2020, the ability-to-pay policy lays out the factors the DOJ considers in assessing how much of a penalty a defendant claiming lack of money can afford, including:⁹

- the defendant’s current financial condition,

- the defendant’s access to capital or ability to borrow money,

- how much the defendant can afford immediately and over the next three to five years,

- whether the defendant can take tax deductions on the payments,

- collateral consequences—such as the settlement’s financial impact on employees—and

whether there are additional third parties that may also be liable for the violation.

New York Court Dismisses Fired Lab Assistant’s Age Discrimination Lawsuit

Case: A biomedical research lab fired its animal care administrator after 29 years of service. The administrator claimed she was terminated because of her age and sued the lab for violating the Age Discrimination in Employment Act (ADEA) and other federal and state discrimination laws. The lab contended that the administrator didn’t have a valid legal case and asked the New York federal court to dismiss it without a trial. The court granted the motion.

Significance: The evidence supported the lab’s argument that the administrator was terminated for legitimate, nondiscriminatory reasons having nothing to do with her age, namely, the lack of a suitable animal care position she could perform:

- the administrator’s background was in caring for larger animals and the lab was in the process of transitioning to a small-animal-only medical research model;

- she had no experience with transgenic, genetically modified mice; and

the lab lacked the grant funding needed to keep her on as a research assistant with non-animal-related responsibilities.

By contrast, there was no evidence to suggest that age factored into the decision to terminate the administrator [Puleo v. Masonic Med. Rsch. Inst., 2023 U.S. Dist. LEXIS 173404].