The HDL Saga Continues with $114 Million Verdict against Lab’s CEO and Marketing Principles

Health Diagnostics Laboratory, Inc. (HDL) has been gone for years but prosecution efforts targeting the massive kickback scandal it authored lives on. Naturally, the initial wave of actions targeted the lab and its partner in crime, Singulex. But as soon as those cases wound up, attention shifted to others involved in the scheme, including BlueWave Healthcare Consultants (BlueWave), HDL and Singulex’s marketing firm, and then to the downstream physicians to whom the labs directed their kickbacks. But now HDL itself is back in the spotlight, not the lab but the individual principles who were in charge when the scam unfolded. The most recent enforcement event of note occurred on Feb. 22, 2021, when the U.S. Court of Appeals for the Fourth Circuit upheld a massive $114.1 million jury verdict against a former blood lab chief executive officer and two sales consultants in a whistleblower case. Here’s what happened and what it portends. The HDL Scandal The U.S. Anti-Kickback Statute (AKS) makes it illegal to offer, pay, solicit or receive remuneration to induce referrals of lab tests or other items or services covered by federally funded programs. The point of the AKS, and its physician referral cousin the Stark Law, is to ensure that physicians make medical treatment decisions based on the best interests of the patient without being influenced by bribes and improper financial incentives. The HDL/Singulex scandal has become the poster child of kickoff abuse, at least within the labs sector. For sheer dollars involved, it’s the biggest AKS prosecution ever undertaken against a lab. Some have even described it as the mother of all clinical lab frauds. For those of you unfamiliar with it, the case began as a qui tam lawsuit accusing HDL, Singulex and one other lab (the now defunct Berkeley Heart Lab) of conspiring with BlueWave to generate blood testing referrals, including medically unnecessary large multi-assay panels, by paying physicians sham specimen processing and handling fees of between $10 to $17 per referral and routinely waiving copayments and deductibles. Then, by billing Medicare, Medicaid and TRICARE for tests provided under the arrangement, the labs also violated the False Claims Act (FCA). In April 2015, HDL paid $47 million to settle the charges against it; Singulex settled for $1.5 million. Both labs also entered into corporate integrity agreements with the government. The settlement forced HDL into Chapter 11 bankruptcy, but the embattled lab giant’s legal woes continued. In addition to its creditors, HDL was sued by Cigna for $84 million in damages the private payer allegedly suffered as a result of the scheme. Adding insult to injury, BlueWave also sued its former partner for millions in unpaid consulting fees. The $114.1 Million Verdict against the HDL Principles But the federal HDL crackdown was just heating up. The 2015 settlement covered just the labs themselves. And it is U.S. Justice Department policy (known as the Yates Memo after the author who codified it) to target corporate principles and hold them personally accountable for an organization’s wrongdoing. In this case, the principles were HDL’s former CEO and a pair of individuals involved in marketing HDL and Singulex tests. Unlike the labs they led, the individual defendants decided to fight it out in court. It turned out to be an unwise decision. In May 2018, after a two-week trial, a South Carolina U.S. District Court jury found the three defendants liable for AKS and FCA violations. In May 2018, the U.S. obtained a judgment against three individuals for paying kickbacks for lab referrals and making claims for medically unnecessary tests. The dimensions of the scheme were staggering. Consider these numbers:

• 35,074: The number of false claims by HDL the defendants were responsible for submitting to Medicare and TRICARE;
• $16,601,591: The total value of those claims;
• 3,813: The number of false claims by Singulex the two marketing defendants were responsible for submitting to Medicare and TRICARE; and
• $467,953: The value of those claims.

Having established liability, the court then had to decide on a damage award. As the FCA allows, the court trebled the damage amounts, offset settlement payments received from HDL and Singulex for the same claims, and awarded $63.8 million in penalties requested by the U.S. Total judgment amount: $114,148,661.86. The Appeal The defendants cried foul, claiming that the government didn’t prove that they “knowingly and willfully” violated the AKS. All we did was pay salespeople commissions, they insisted. But on Feb. 22, the U.S. Court of Appeals for the Fourth Circuit rejected the appeal and upheld the verdict—all $114.1 million of it. So, now the defendants face the task of coming up with the money. Making their situation even more precarious is that their liability is “joint and several.” In other words, the government can collect some, all or any amount of the judgment from any one or combination of the defendants. That basically means they can go after whoever has the deepest pockets. Takeaway The HDL case is still not over. There are still other principles to prosecute. In addition, in the past couple of years, the DOJ has collected over $1 million in settlements from physicians who allegedly accepted the bogus specimen collection fees and other kickbacks from HDL and Singulex.