Health Diagnostic Laboratory to pay $47 million to settle kickback allegations

HDL logo

Mr. John Carreyrou at the Wall Street Journal is reporting Health Diagnostic Laboratory (HDL) has reached a tentative deal with the government to pay $47 million to settle allegations it paid kickbacks to physicians in exchange for test referrals.


In September 2014, the WSJ published an article that stated the Office of the Inspector General for the Department of Health and Human Services was investigating the $20 per specimen payment HDL remitted to referring physicians as a possible illegal kickback.  According to an internal memo written by then-CEO Tonya Mallory, $17 of the fee was for “process and handling” and the remaining $3 was a CMS-allowable blood draw fee.

Two physicians the WSJ identified as prolific referrers to HDL were potentially paid close to $50,000 per year in P&H fees, and some practices were apparently paid more than $4,000 per week.  In total, HDL reportedly paid $17 million in P&H fees to physicians in 2013 alone.  While that sounds like a lot, it represents only 4.4% of HDL’s 2013 revenue.

HDL stopped the P&H payments after the OIG released a Special Fraud Alert in June 2014 that stated the agency was scrutinizing these P&H fees. Ms. Mallory resigned as HDL’s CEO soon after the WSJ article appeared.

P&H fees not the only legal iron in the fire for HDL


Cigna filed a lawsuit against HDL in October 2014 that alleges HDL engaged in “fee-forgiveness fraud” that cost the insurer $84 million.  Cigna claims HDL, which is not in its network of lab providers, foregoes charging Cigna members any co-payment, co-insurance or deductible, and then jacks up the rates it charges Cigna for its services.  Because Cigna members do not have to share any of the costs, they have “no incentive to moderate their demand for HDL’s services or to consider the higher costs of any particular out-of-network service”, according to the suit.

In addition, Cigna also accuses HDL of encouraging physicians to order “a litany of medical tests, regardless of whether the provider believes such tests are needed to diagnose or treat the patient”, and also of paying kickbacks to physicians in exchange for referrals.

HDL filed a motion to dismiss Cigna’s suit in December 2014, but to my knowledge, the case is still ongoing.

Boston Heart Diagnostics

Also in December 2014, HDL filed a lawsuit against Boston Heart Diagnostics that alleges Boston Heart is infringing on patent #8,119,358, “Diabetes-Related Biomarkers and Methods of Use Thereof” that is currently assigned to HDL.


[Continue reading]

American Clinical Solutions accuses Pinnacle Laboratory Services of paying kickbacks to docs

ACS logo

American Clinical Solutions (ACS), a urine drug testing laboratory in Florida, has filed a lawsuit against one of its competitors, Pinnacle Laboratory Services, that alleges Pinnacle engages in an illegal kickback scheme that "promises to provide physicians with hundreds of thousands of dollars annually." I only recently learned of the existence of the suit, which was filed in July 2014 and is still in the discovery phase, but it is interesting nonetheless because the alleged scheme is very … [Continue reading]

JAMA study casts doubt on pathologists’ ability to diagnose breast biopsies

  The results of a study that found participating pathologists were only able to "correctly" diagnose breast biopsies about 75% of the time was published last week in the Journal of the American Medical Association (JAMA).  While I am in no way dismissing the entirety of the study, I believe it required pathologists to practice in an artificial manner and its results are therefore not a true reflection of most pathologists' ability. Study Design The study authors randomly selected … [Continue reading]

Judge quashes pathology researcher’s subpoena to unmask anonymous PubPeer commenters

A Wayne County Michigan Circuit judge has determined, with one possible exception to potentially be decided today, the website will not be compelled to turn over the identities of anonymous commenters that pathology researcher Fazlul Sarkar, PhD alleges defamed him and led to the loss of a job offer at the University of Mississippi and loss of tenure at Wayne State University. I wrote about this case back in November 2014, and I will rely heavily on that post to provide … [Continue reading]

Contributor to Palmetto GBA ancillary stain local coverage determination speaks out

I received this comment from a (frustrated) member of the College of American Pathologists (CAP) House of Delegates who helped write the ancillary stain local coverage determination (LCD) policy for Medicare Administrative Contractor Palmetto GBA. With the member's permission, I am posting the comment in its entirety. Hopefully there will be a good discussion on this topic at the House of Delegates meeting that begins March 21st, because it is a very important issue. When I was in … [Continue reading]

Leading urologist still denying urology was caught with its hand in the self-referral cookie jar

Patrick McKenna, MD (

Urologist Dr. Philip Hanno, an editorial consultant for Urology Times, recently interviewed Dr. Patrick McKenna, former chairman of the Judicial and Ethics Committee for the American Urological Association (AUA).  One of the major subjects of the interview was urologist self-referral, and Dr. McKenna did a masterful job of attempting to show urologists who engage in self-referral of anatomic pathology and intensity-modulated radiation therapy (IMRT) for prostate cancer are in no way abusing … [Continue reading]

Compliant Client Billing Arrangements: Strategies for Health Care Counsel

Yussuf Abdel-aleem (L), Jacob Slowik (R)

I received an email yesterday from Mr. Jacob Slowik, a partner at Joseph, Aleem and Slowik who represents clinical laboratories.  He and one of his partners who also represents a number of clinical labs, Mr. Yussuf Abdel-aleem, recently wrote an article for attorneys who represent health care providers and/or clinical laboratories about legal considerations involving client billing arrangements. I told Mr. Slowik that as a pathologist who works in a state where client billing is still … [Continue reading]

Patient claims contamination of pathology slides led to removal of his eye

A Texas appellate court has upheld the dismissal on procedural grounds of a medical malpractice lawsuit filed by Mr. Leonardo Quintero, who claimed contamination of his pathology slides led to a misdiagnosis of cancer and the unnecessary enucleation of his right eye. In May 2011, tissue around Mr. Quintero's right eye was biopsied at Houston Methodist Hospital (HMH).  Pathologists Dr. Patricia Chevez-Barrios and Dr. Mary Schwartz reviewed the slides and stated one of the slides showed … [Continue reading]

Pathology Blawg News Roundup for March 6, 2015

UnitedHealthcare/BeaconLBS claims impact to begin in Florida on April 15th UnitedHealthcare (UHC) recently released its March 2015 Network Bulletin and the first thing the bulletin addresses is that UHC is "now ready to implement claims impact" for the Laboratory Benefit Management Program (LBMP) in Florida effective April 15, 2015.  Implementing claim impact of course means UHC will begin denying claims for laboratory tests for which no prior notification was provided/received. Readers … [Continue reading]

Will laboratories face additional legal liability with FDA regulation of laboratory-developed tests?

A new article in The National Law Review briefly discusses how the regulation of laboratory-developed tests (LDTs) as medical devices by the Food and Drug Administration (FDA) could potentially cause laboratories to be exposed to state product liability lawsuits in addition to negligence lawsuits. Readers will recall the FDA announced in July 2014 it was going to start regulating LDTs.  It stated it has always had the power to regulate LDTs (which it considers medical devices) under the … [Continue reading]

Negligence suit against Quest Diagnostics thrown out due to procedural technicality

A New Jersey appellate court has ruled a plaintiff who sued Quest Diagnostics after he had his finger amputated for squamous cell carcinoma in situ that was originally diagnosed as a common wart failed to file the suit in a timely fashion and threw the suit out. Background In April 2005, dermatologist Dr. Steven Hubert biopsied a lesion on F. Lee Forrester's middle finger and sent it to Quest Diagnostics; dermatopathologist Dr. James Davie reported the lesion represented a verruca vulgaris … [Continue reading]

McDonald Hopkins: Collection and handling payments under scrutiny

McDonald Hopkins

Jane Pine Wood, a specialist in health law and member of McDonald Hopkins, recently sent me the following Healthcare Alert that serves as a reminder the federal government is closely scrutinizing financial arrangements between laboratories and referring physicians. Her email stated McDonald Hopkins put the alert together because: [W]e are increasingly encountering situations where the laboratories and the health care providers may run afoul of federal and state fraud and abuse guidelines, … [Continue reading]

LabCorp and BioReference Laboratories sued for missing endometrial cancer

Ms. Jacquelyn Graulty has filed a lawsuit in Louisiana against LabCorp and BioReference Laboratories in which she alleges the laboratories were negligent in "preparing, testing, reading, reviewing, analyzing, categorizing, reporting, and storing" her Pap smear and histologic slides, and this led to a delay in the diagnosis and treatment of her endometrial cancer.  Ms. Graulty's former gynecologist and medical practice are also named as defendants. Factual Allegations Ms. Graulty originally … [Continue reading]

House Oversight Committee questions credibility of witness against uropathology laboratory LabMD

House Oversight Committee logo

  The House Oversight Committee has significant concerns about the credibility of data security company Tiversa as a witness for the Federal Trade Commision (FTC) in its action against uropathology laboratory LabMD.  The Committee shared its concerns, and the reasons it developed them, in a December 2014 letter to FTC chairwoman Edith Rodriguez that was made public on February 13th. Background The FTC filed an administrative action against LabMD on August 29, 2013 after an … [Continue reading]

Laboratory supervisor’s retaliation and wrongful discharge claims against hospital survive motion to dismiss

Cindy Flick, former Laboratory Section Supervisor at Lourdes Hospital in Paducah, Kentucky, filed a lawsuit against her former employer that alleged, among other things, the hospital solicited kickbacks from Agendia, and retaliated and wrongfully discharged her after she made her concerns known to her superiors. A US District Court in Kentucky recently considered Lourdes' motion to dismiss and allowed Ms. Flick's claims that she was retaliated against, wrongfully discharged, and discouraged … [Continue reading]