Cigna sues Health Diagnostic Laboratory for fee-forgiving fraud

HDL logo

Health insurance provider Cigna has filed suit against Health Diagnostic Laboratory (HDL), alleging HDL unlawfully obtained at least $84 million from it through a “fraudulent fee-forgiving scheme”.

Readers will recall HDL is one of the laboratories being investigated by the Office of the Inspector General (OIG) for the Department of Health and Human Services for possibly paying kickbacks to physicians in exchange for referrals. Not soon after that fact came to light, the HDL CEO, Tonya Mallory, resigned.


Cigna states one of its responsibilities is to control health care costs for its benefit plans.  It accomplishes this in part by offering incentives to its members to use providers that are in Cigna’s network, who generally charge lower rates than out-of-network providers.

If a member chooses to utilize an out-of-network provider, Cigna requires that member to pay a higher portion of the costs than it would if an in-network provider were used.

HDL, which is not in Cigna’s network, allegedly:

…lures patients from health plans that are administered or insured by Cigna by misrepresenting those patients’ responsibilities under the plans, by promising not to collect any co-payment, co-insurance or deductible obligation, and by further promising not to seek reimbursement for any other portion of its bill that the plan does not cover. HDL then misleadingly bills the plans themselves at exorbitant and unjustified “phantom” rates—rates that misrepresent what HDL actually intended to collect.

Cigna explains that because no member is paying anything for HDL’s services, its members have “no incentive to moderate their demand for HDL’s services or to consider the higher costs of any particular out-of-network service” and this leads to higher costs for the entire plan.

CignaNot only that, but Cigna states fee-forgiveness undermines the insurance industry as a whole, as members will preferentially use out-of-network providers, for whose services they are charged nothing, rather than in-network providers, whose services require the member to pay something.  This would lead fewer providers to join insurance networks, which would make health care more expensive overall.

Cigna argues the American Medical Association, the federal government and the courts have long recognized fee forgiveness as a form of medical billing fraud.

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 (the OIG investigation).

The complaint states HDL did not disclose its fee forgiveness program to Cigna, and that it only became aware of the existence of the program when it came across patient flyers and brochures that explain the program.  Cigna then began investigating HDL by sending questionnaires to Cigna members who utilized HDL.

The 27 responses it received confirmed Cigna members were not paying anything for HDL’s services.  In addition, Cigna claims the members relayed false information provided to them by their physicians and HDL about HDL’s billing practices and Cigna’s policy.

When Cigna confronted HDL about its billing practices, then-CEO Tonya Mallory assured Cigna that HDL will not engage in fee forgiveness as “a general practice” and that all claims forms submitted to Cigna will reflect “the actual charge for the services(s) provided.”

Causes of Action

  • Claim for Overpayments Under ERISA
  • Unjust Enrichment
  • Fraud
  • Negligent Misrepresentation
  • Tortious Interference with Contract
  • Claim for Unfair and Deceptive Business Practices Under Connecticut’s Unfair Trade Practices Act and Unfair Insurance Practices Act
  • Declaratory Relief

Jury Demand

Cigna is asking for a jury trial for all non-ERISA claims.

Prayer for Relief

  • A declaration that the products and services provided by HDL do not constitute covered services under the employee health and welfare benefit plans administered or insured by Cigna and that HDL is not entitled to receive any payments on the claims for reimbursement that it has submitted or may submit in the future as part of the fee-forgiving practices
  • Return of any all monies paid to HDL on claims for reimbursement submitted by HDL
  • Monetary, exemplary and punitive damages
  • Pre- and post-judgement interest
  • Court costs and attorney fees

The full complaint is here.

Mayo Clinic sues Dr. Franklin Cockerill, Chief Laboratory Officer of Quest Diagnostics


A couple of weeks ago, I briefly mentioned how Dr. Franklin Cockerill, former chairman of the Mayo Clinic Department of Laboratory Medicine and Pathology (DLMP) and chief of Mayo Medical Laboratories (MML), started his new job as vice president and Chief Laboratory Officer of Quest Diagnostics on October 1, 2014.  On October 14, 2014, the Mayo Clinic filed a civil lawsuit against Dr. Cockerill that alleges, among other things, misappropriation of trade secrets.


The complaint provides a synopsis of Dr. Cockerill’s “critical” role as chairman of the DLMP, which is acknowledged as “one of the most important departments” at the Mayo Clinic, and as the head of MML.  As a result, Dr. Cockerill gained:

…intimate first-hand knowledge of MML’s and DLMP’s most sensitive confidential information concerning short-term and long-term business, marketing, sales, pricing and data management strategies, as well as market assessments and analysis, competitive analysis, test development and launch plans, and related patent protection and litigation analysis.

Dr. Cockerill also:

…has detailed knowledge of tests that MML and DLMP have developed and abandoned and/or not developed, those that have good profit margins and those that don’t…


…confidential information about essentially every strategic decision that MML and DLMP has made for the past seven or more years and about every strategic decision facing MML and DLMP in the immediate future.

The complaint then goes on to highlight the Business Confidentiality Policy and Code of Conduct all Mayo Clinic employees are required to follow.  These documents contain a definition of, and a mandate to protect, Mayo’s Confidential Business Information. [Read more...]

Bostwick Laboratories settles whistleblower suit for $6.05 million


Bostwick Laboratories (BL) has settled the federal qui tam (whistleblower) lawsuit filed by Michael Daugherty of LabMD that alleged False Claims Act violations for $6.048 million.  This settlement does not resolve allegations against Dr. David Bostwick, who is a separate defendant in the case.

I first wrote about this case in January 2013, when Senior District Judge Arthur Spiegel denied BL’s motion to dismiss, and again in May 2014 to simply provide a quick update on where the case stood.

Briefly, Mr. Daugherty alleged BL and Dr. Bostwick (from my previous post):

  1. Routinely (not on a case by case basis) perform fluorescent in-situ hybridization (FISH) testing on atypical urine cytology cases regardless of whether the referring clinician requested FISH testing and then bills the government for the tests; and
  2. Perform other tests of dubious necessity without a physician order and also bills those to government payors; and
  3. Perform both the professional and technical components of FISH testing, but allow the referring physicians to bill for the professional component; and
  4. Charge referring physicians a reduced amount for the FISH technical component, which allows the referring physicians to mark up and bill Medicare for the full amount, and pocket the difference.

[Read more...]

Quest Diagnostics, LabCorp accused of duplicative testing, billing in recently unsealed suit


A former phlebotomist for Quest Diagnostics filed a qui tam (whistleblower) suit on July 27, 2012, alleging her former employer and LabCorp knowingly submitted “false and fraudulent claims to the United States and the State of California…for the same tests, performed on the same day, on the same patient” since at least 2002.  The suit was unsealed on October 6th, 2014 after a US District judge denied the federal government’s motion for a fifth extension of time to consider whether it would intervene in the suit.


According to the complaint, Elisa Martinez was hired by Quest to work as a phlebotomist at its patient service center (PSC) in Red Bluff California.  She was placed on leave under the Family and Medical Leave Act for undisclosed reasons in February 2011 and was terminated in June 2011.

Just before she advances her allegations, Ms. Martinez highlights the fact Quest paid $302 million in 2009 and Quest and LabCorp paid $241 million and $49.5 million, respectively, in 2011 to settle fraud allegations.

She then provides four examples in which Quest received orders from different physicians to perform the same tests on the same patient and instead of merely sending the results of one set of tests to the ordering physicians, allegedly performed duplicate blood and urine testing and billed Medicare twice.

In one case, Ms. Martinez says a phlebotomist poured urine from one specimen cup into a second cup so as to facilitate the duplicate testing.

[Read more...]

Owner of Bristol Laboratories indicted for healthcare fraud and kickbacks

Scales of Justice

Beth Palin, a non-practicing attorney and owner of Bristol Laboratories (BL) and Mountain Empire Medical Care (MEMC), has been indicted by a federal grand jury on charges of healthcare fraud, conspiracy to commit healthcare fraud and offering or paying a kickback.  Palin’s husband, Joseph Webb, was indicted on the same charges, and otolaryngologist Dr. Mary Curtiss was indicted on charges of healthcare fraud, conspiracy to commit healthcare fraud and receiving a kickback.


Dr. Curtiss, who has an ENT practice in a nearby town, was an employee of MEMC and “purported” to run a substance abuse treatment program there for which she was paid $1400 per day “regardless of the number of patients she saw or the amount of work she did.”

Although Dr. Curtiss was an employee of MEMC, she or her husband would pick up her paychecks at Bristol Laboratories.

Dr. Curtiss ran a cash-only enterprise at MEMC and charged patients up to $250 for an initial visit and up to $110 for each subsequent weekly visit.  In addition, MEMC and Dr. Curtiss performed a dip stick urine test on every patient every week, but whether any further testing was performed depended on the patient’s insurance status.

If the patient was insured, BL (which did accept private and government insurance) would also perform in-house qualitative testing and then send the sample to an unnamed lab in Denver for quantitative testing.  If the patient was uninsured, they would be asked to pay $10-25 for the dip stick urine drug test and no additional testing would be performed.

This algorithm was followed regardless of the treatment needs of individual patients.

BL would be reimbursed the following for each in-house drug screen:

  • Medicare-up to $321.76
  • Virginia Medicaid-up to $118.53
  • TennCare-up to $256.72
  • Private insurance-up to $1218.75

The Denver lab would be reimbursed the following for each quantitative test:

  • Medicare-up to $321.76
  • Virginia Medicaid-up to $112.59
  • TennCare-up to $209.74
  • Private insurance-up to $582.35

A BL employee was always present at MEMC, and would perform the functions of receptionist, office manager and urine collector.  This employee would actually order the “appropriate” drug testing based on the patient’s insurance status; Dr. Curtiss would merely pre-sign blank order forms.

The government alleges Palin and Webb required Dr. Curtiss to order “…excessive, medically unnecessary quantitative and qualitative urine drug screens from Bristol Labs”, the results of which were not used to “guide treatment of MEMC’s patients.”

The indictment also discusses the actions of a now-deceased anesthesiologist whose practice was set up in a similar fashion to Dr. Curtiss’ and also sent urine drug tests to BL.  In fact, Dr. Curtiss briefly worked for this anesthesiologist before becoming employed by MEMC.

Possible sentences

According to the Department of Justice, each defendant faces up to 25 years in prison and $750,000 in fines if convicted.

The full indictment is here.

UnitedHealthcare delays Lab Benefit Management Program; Forensic pathologist Dr. Norman Thiersch resigns


Back in July, I talked about UnitedHealthcare‘s (UHC) Laboratory Benefit Management Program (LBMP) that is to be administered by Beacon Laboratory Benefit Services, Inc. (BeaconLBS), a wholly-owned subsidiary of LabCorp.

Readers can refer to my previous post for more specific information, but basically, the LBMP appears to be very cumbersome and will require physicians to notify BeaconLBS before ordering certain laboratory tests, including anatomic pathology.  Participating laboratories must verify Beacon has been notified before performing any of the tests on the 82-test list, or else risk not being reimbursed for the test(s).

In addition, the LBMP:

…mandates essentially all malignant and pre-malignant diagnoses must have a second review in order for the claim to be paid, and in many instances it requires a sub-specialist to perform the second review.

Board-certified anatomic pathologists will no longer be permitted to sign out any malignant cytology or derm cases, or any lymphoma specimens (both nodal and extra nodal), without a second read by a pathologist who is board-certified or board-eligible in that sub-specialty.

In addition, any labs which sign out bone marrow studies must have sub-specialty certification in hematopathology.

[Read more...]

Abington Memorial Hospital laboratory accused of Medicare, Medicaid fraud

AMH logo

A former employee of Abington Memorial Hospital (AMH) in Pennsylvania has filed a federal lawsuit that alleges the hospital laboratory committed Medicare and Medicaid fraud and that she was retaliated against and wrongfully terminated after she informed hospital administration of the lab’s actions.


Ms. Joanne Cleighton was hired by AMH in February 1988 to work in the registration office.  Two years later she was promoted to supervisor and fourteen years after that she was promoted to manager. During the entire course of her employment at AMH, Ms. Cleighton claims her disciplinary record was “spotless”.

One of the responsibilities of the registrars at AMH was to enter patient insurance and billing information for outpatient tests, including laboratory tests, and generate an encounter number.  After doing this, the registrar would forward the physician’s orders for laboratory testing to the lab.  Lab employees would append the appropriate CPT code, which would then be used for billing claims.

If, however, the registrars received orders for routine blood work for a patient covered by Medicare Advantage (Part C) or Medicaid, the registrars did not generate an encounter number.  Instead, they were to simply highlight to which outside laboratory the specimens were required to be sent per the Medicare/Medicaid administrator.

Around May 2013, Ms. Cleighton overheard a lab employee state AMH lab employees were marking orders for routine blood work as STAT so that AMH could perform the testing instead of an outside lab. AMH was apparently permitted to perform STAT testing for Medicare/Medicaid patients so long as the physician ordered it STAT.

Ms. Cleighton informed the employee this was improper, and also informed the lab manager at the time.  A month or so later, a meeting attended by Ms. Cleighton, the lab manager and a hospital administrator was held, and AMH reportedly admitted there were some things being done incorrectly in the lab and that “changes would be made”.

[Read more...]

OIG investigating Health Diagnostic Laboratory for possible kickbacks

HDL logo

The Wall Street Journal is reporting the Office of the Inspector General for the Department of Health and Human Services is investigating Health Diagnostic Laboratory (HDL) for potentially paying illegal kickbacks to referring physicians.

HDL, which opened in late 2008, “offers the most comprehensive laboratory test menu of risk factors and biomarkers for cardiovascular and related diseases” according to the company’s website.  It generated $383 million in revenue in 2013, 41% of which was from Medicare.

At issue is the fact HDL, until late June 2014, was paying referring physicians $20 for each specimen sent to HDL.  HDL’s CEO, Ms. Tonya Mallory, claimed in an internal company memo that $17 of the fee is for “process and handling” and the remaining $3 is a CMS-allowable blood draw fee.  The memo lists all of the services HDL considers to be included in for specimen processing and handling.

The WSJ took a sample of HDL’s 2010 Medicare claims in order to identify the lab’s top referrers.  At the top of that 296-physician list is Charles Fillingane, DO, a family practitioner in Mississippi.  Dr. Fillingane, according to HDL documents, sent 1,179 specimens to HDL in just the first half of 2010, and could have “earned” up to $23,580 in payments from HDL.

Oh, and by the way, Dr. Fillingane also happens to be on HDL’s medical advisory board, which can pay up to $3,000 per month, and also gives paid lectures for HDL.  Nope, no potential conflict of interest there.

Another family physician, J. Frank Martin, MD of South Carolina, reportedly received up to $24,740 in fees during the same time period.

A former HDL employee who actually wrote the checks to referring physicians said some practices were paid more than $4,000 per week in “process and handling fees”.

Another interesting question raised by the WSJ piece is whether HDL performed medically unnecessary testing for Plavix sensitivity on stored samples.

Before opening HDL, Ms. Mallory was the senior lab operations manager for Berkeley HeartLab, another laboratory being investigated by the OIG.  Not long after Ms. Mallory’s departure, two Berkeley sales reps also left and formed a company which (conveniently?) became an independent sales and marketing contractor for HDL.

After losing referrals to HDL, Berkeley accused HDL of stealing its business and filed suit.  The case reportedly settled for approximately $7 million in 2010.

[Read more...]

Department of Labor sues AIT Laboratories founder Michael Evans for unjust enrichment

AIT Labs logoThe US Department of Labor (DOL) has filed a lawsuit against Michael Evans, PhD, founder of American Institute of Toxicology (AIT), alleging he unjustly enriched himself when he sold AIT to its employees for a vastly inflated price. The AIT Employee Stock Ownership Plan (ESOP) and its trustee, PBI Bank, Inc, are also named as defendants.

Dr. Evans founded AIT, which is now housed in 130,000 total sq ft of space, in 1990 with just five employees.  AIT is composed of three components:  AIT Holding and two subsidiaries, AIT Labs and AIT Bioscience. Of the two subsidiaries, only AIT Labs has any value, according to the DOL.

On June 30, 2009, Dr. Evans, who owned 88% of the company’s stock and was the CEO and sole member of the Board of Directors of AIT Holding, sold AIT Holding to its 300 employees.  Four other shareholders, each with a 3% piece of the company, also received proceeds from the sale.  Interestingly, one of those minority shareholders happens to be Dr. Evans’ wife.

According to the complaint, PBI Bank, which was hand-picked by Dr. Evans to be the trustee of AIT’s ESOP, enlisted accounting firm Moss Adams to provide a valuation of AIT Labs.  Moss Adams valued AIT Labs at $106.2 million on June 22, 2009 and again on June 30, 2009, the day the sale went through.

The final price the ESOP paid for AIT was $90 million, which was financed through a 30 year, $90 million loan from AIT.  Dr. Evans himself lent AIT $79 million of his own money for the purchase, and was to be paid back in quarterly installments over a ten year period.  The ESOP also received $11 million in cash from AIT, which AIT borrowed from a bank.

The Moss Adams valuation, according to the DOL, was unreliable for a number of reasons, all of which can be found on pages 10-12 of the complaint. For now, I want to focus on what I believe are the two most egregious reasons the valuation is alleged to be unreliable.

[Read more...]

Dr. Steven Hayne loses appeal in lawsuit against The Doctors Company

Dr. Steven Hayne (Hattiesburg American)

Dr. Steven Hayne (Hattiesburg American)

The Mississippi Supreme Court has upheld a lower court’s decision to throw out a lawsuit filed by pathologist Dr. Steven Hayne, who accused medical malpractice insurer The Doctors Company (TDC) of failing to honor the terms of his medical malpractice policy.


In 1992, Dr. Hayne performed an autopsy on the body of three year old Christina Jackson, who was raped and murdered.  Dr. Hayne testified at trial that he observed bite marks on the child’s body, and that there was no doubt the bite marks were made by Kennedy Brewer, the boyfriend of the child’s mother. This testimony was apparently the “centerpiece of the prosecution”.

Mr. Brewer was found guilty of capital murder and given the death sentence.  Brewer maintained his innocence, and years later, he was able to have DNA testing performed on semen that was found on the girl’s body.  The test determined the semen belonged to someone other than Mr. Brewer, and his conviction was overturned in 2002.

The state persisted in prosecuting him for rape and murder in part based on Dr. Hayne’s bite mark testimony.  Further DNA testing completely eliminated Mr. Brewer as the perpetrator, and the case against him was dropped in 2007.  All told, Mr. Brewer spent fifteen years in prison, seven of which were on death row.

Mr. Brewer filed suit against Dr. Hayne the following year for malicious prosecution, fraud, and negligent misrepresentation.  After being served with the suit, Dr. Hayne notified TDC, which had been his continuous medical malpractice carrier from July 1987 to July 2003.

TDC informed Dr. Hayne his policy did not cover the type of suit Mr. Brewer had filed against him, which led Dr. Hayne to file suit against TDC in 2011.

[Read more...]