Laboratory referral kickbacks at heart of $24.5 million settlement and Indian TV sting op


US lab kickback settlement

Alabama-based Infirmary Health System (IHS), Infirmary Medical Clinics (IMC), Diagnostic Physicians Group P.C. (DPG) and two clinics run by IMC have agreed to pay $24.5 million to settle allegations they violated the Stark Law and Anti-Kickback Statute by engaging in a scheme to compensate physicians for laboratory and radiology referrals.

Dr. Christian Heesch, a physician formerly employed by DPG, filed the whistleblower suit in 2011, and the federal government elected to intervene in July 2013.

The government alleged IHS, through its subsidiaries and clinics, paid physician-owned DPG “a percentage of collections on items and services performed or referred by DPG physicians” to IHS-affiliated clinics that performed clinical laboratory and diagnostic imaging tests from 2005 to 2011.  DPG then compensated individual physicians for their referrals.

The government stated IHS did this so as to:

…keep DPG and its physicians affiliated with [IHS], to prevent them from affiliating with competitors, and to induce DPG physicians to refer federal health care business to IHS subsidiaries…in violation of the Anti-Kickback Statute and the FCA.

According to a 2013 article from, it was also alleged federal health programs paid at least $521.6 million in false claims between 2004 and 2010, and physicians at DPG received more than $18.6 million in bonuses during the same time frame.

DPG deliberated its compliance with the Stark Law beginning as early as 2002, and again in 2007 and 2008, according to court records.  In June 2010, a meeting took place in which DPG’s attorney told both DPG executives and IMC employees their arrangement likely violated the Stark Law, but despite this, no changes were made.

Dr. Heesch will receive $4.41 million of the settlement.

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HHS seeks to dismiss suit filed by California Clinical Laboratory Association

The Department of Health and Human Services (HHS) is seeking to dismiss the lawsuit brought against it by the California Clinical Laboratory Association (CCLA) back in April 2014 for lack of jurisdiction. I went into more detail about CCLA's allegations in an article back in early May.  Basically, the CCLA and a Jane Doe co-plaintiff allege: Congress has unlawfully delegated regulatory power to Medicare Administrative Contractors (MACs), and therefore the local coverage … [Continue reading]

Pathology Blawg News Roundup for July 18, 2014

ARUP Labs opposes release of draft FDA regulations for laboratory-developed tests Last week I talked about the letter five US senators wrote to the White House asking it to compel the Office of Management and Budget (OMB) to release draft guidance prepared by the Food and Drug Administration (FDA) on the regulation of laboratory-developed tests (LDTs). In that article I discussed how Dr. Edward Ashwood, president and CEO of ARUP Laboratories, indicated his opposition to FDA regulation of … [Continue reading]

OIG identifies questionable clinical laboratory billing in new study

The Office of the Inspector General for the Department of Health and Human Services (OIG) issued a report last week that found over 1,000 clinical laboratories in the United States "had unusually high billing for five or more measures of questionable billing for Medicare lab services."  As a result, OIG made three recommendations on how to deal with this issue, and the Centers for Medicare and Medicaid Services (CMS) accepted all three. Why OIG performed this study The OIG highlights the … [Continue reading]

CMS releases 2015 Proposed Physician Fee and Clinical Laboratory Fee Schedules

LCD summary table

The Centers for Medicare and Medicaid Services (CMS) recently released the Proposed Rules for the 2015 Physician Fee Schedule (PFS) and Clinical Laboratory Fee Schedule (CLFS) and the news is actually pretty good for pathology. I will not get into too much depth here.  Those interested in more detail can refer to the Proposed Rules themselves, or the very nice summary put together by the American Society for Clinical Pathology (ASCP). Prostate biopsy codes Just last year CMS introduced … [Continue reading]

Pathology Blawg News Roundup for July 11, 2014

Aurora Diagnostics completes two acquisitions On July 1st, Aurora Diagnostics announced it has completed two previously-announced acquisitions: Mid-Atlantic Pathology Services Inc. of Sterling, Virginia, and Hallmark Pathology of Medford, Massachusetts. House Oversight Committee has concerns about FTC action against LabMD The House Committee on Oversight and Government Reform has written a letter to the acting Inspector General of the Federal Trade Commission (FTC) stating it has concerns … [Continue reading]

Senators push White House to release FDA laboratory-developed test regulations

Five US Senators have written a letter to the acting director of the White House Office of Management and Budget, asking it to release draft guidance from the Food and Drug Administration (FDA) on the regulation of laboratory-developed tests (LDTs). The letter discusses how LDTs have historically escaped FDA regulation because they were simple, well understood tests for low risk or rare diseases that were performed only on patients who were being seen at the same facility at which the … [Continue reading]

Franey Medical Laboratories not guilty of Medicaid fraud and kickbacks

Franey Medical Laboratories (FML), a Massachusetts drug testing lab, and its vice president, Kathleen Franey-Lopes, have been found not guilty of providing kickbacks for Medicaid and private insurance patients, and of filing a false Medicaid claim. Charges were originally filed against FML, Ms. Franey-Lopes and the office manager of drug testing laboratory Caritas Medical Laboratory (CML), Renee Andrews, back in March 2013.  Ms. Andrews was charged with accepting Medicaid and private … [Continue reading]

LabCorp and UnitedHealthcare to introduce BeaconLBS in Florida


On October 1, 2014, UnitedHealthcare (UHC) will roll out its Laboratory Benefit Management Program in Florida, which will be administered by Beacon Laboratory Benefit Services, Inc. (BeaconLBS), a wholly-owned subsidiary of LabCorp. According to the "About" page of the BeaconLBS website: BeaconLBS® is a laboratory benefit solutions company that enables health plans, physicians and network labs to connect and deliver high-quality, cost-effective care to patients. BeaconLBS® is … [Continue reading]

OIG Issues Special Fraud Alert on Specimen Processing and Registry Arrangements

The Office of the Inspector General (OIG) for the Department of Health and Human Services (HHS) issued a Special Fraud Alert on June 25th that discusses how specimen collection and registry arrangements between laboratories and referring physicians may violate the Anti-Kickback Statute (AKS). Once again, Mr. Lee Dilworth, Chief Legal and Administrative Officer of American Pathology Partners, offered to explain just what this means for laboratories. Many, many thanks to Mr. Dilworth … [Continue reading]

LabCorp wrests upstate NY VA contract away from Quest Diagnostics

A federal judge has sided with LabCorp in its post-award bid protest of an upstate New York Veteran's Administration (VA) contract that had been awarded to Quest Diagnostics. I originally wrote about this case on June 11th, right after the judge had ruled on whether two declarations from LabCorp experts were admissible.  The judge filed this final decision under seal a few days later, but it only became available to the public on June 23rd. Briefly, the VA recently awarded a contract … [Continue reading]

Health Care Development Services report on projected pathologist shortage

Health Care Development Services, Inc. (HCDS), a hospital laboratory and pathology management consulting firm run by Mr. Barry Portugal, has released a Client Alert on the shortage of pathologists the US is projected to experience in the coming years and decades. The following is an introduction provided by Mr. Portugal about the Alert: The audience for the Alert was primarily executive leaders at our hospital, healthcare system, academic medical center, and pathology group clients. … [Continue reading]

AACC highlights significant concerns with CLFS reimbursement plan

The American Association for Clinical Chemistry (AACC) is voicing significant concerns about the impact the Protecting Access to Medicare Act of 2014 (PAMA), may have on the Clinical Laboratory Fee Schedule (CLFS). Background Readers will recall the House and Senate passed PAMA in late March, and among other things, it contained a Sustainable Growth Rate patch, a one year delay in the implementation of ICD-10, and a complete overhaul of how tests on the CLFS will be reimbursed beginning in … [Continue reading]

Jury orders Millennium Laboratories to pay Ameritox $14.8 million

A federal jury in Tampa Florida has found Millennium Laboratories (ML) violated the Stark Law and Anti-Kickback Statute (AKS) and ordered it to pay its competitor Ameritox $2.755 million in actual damages and $12 million in punitive damages. Background Ameritox filed this suit in April 2011 and accused ML of violating the Lanham Act (false advertising), the Stark Law and the AKS, and engaging in unfair competition and tortious interference in multiple states by providing physicians with free … [Continue reading]

Update on American Medical Association Code of Ethics changes

A couple of weeks ago I wrote about my concerns regarding the draft changes the Council on Ethical and Judicial Affairs (CEJA) of the American Medical Association (AMA) had proposed to its Code of Ethics. The AMA held its national meeting last week, and I just wanted to give readers a brief update as to where the process stands. "Serious concerns" raised On Monday, June 2nd, CEJA held an open forum to discuss the Code.  I did not go to the AMA meeting, but I have spoken with a few people … [Continue reading]