United States intervening in lawsuits against BlueWave Healthcare Consultants, Berkeley HeartLab


I received an email the other day from whistleblower law firm Phillips and Cohen which contained a press release about the $47 million settlement agreement Health Diagnostic Laboratory (HDL) entered into with the Department of Justice to settle allegations it paid kickbacks to physicians. The settlement covers allegations made against HDL in three whistleblower lawsuits, one of which had been filed by Phillips and Cohen.

The PR also notes clinical laboratory Singulex will pay $1.5 million to settle similar allegations, and that the US government decided to intervene against BlueWave Healthcare Consultants, the sales contractor for both HDL and Singulex, and Berkeley HeartLab (BHL).

Soon after I received the email, the Department of Justice put out its own press release on the matter which also included the fact the US government had elected to intervene against Floyd Calhoun (Cal) Dent and Robert Johnson, the owners of BlueWave, as well as Tonya Mallory, former CEO of HDL.

Now that settlements have been reached and decisions to intervene have been made, the original qui tam (whistleblower) complaints have been unsealed and are now publicly available.  Those three suits are:

All of the suits accuse the defendants of paying kickbacks in various forms to induce the referrals of expensive laboratory tests, many of which are medically unnecessary, and describe the ways in which financial inducements altered physicians’ behavior.  There are way, way too many allegations in the three complaints, so I will only mention what I feel are the most important and/or interesting tidbits within the individual suits.

Allegations in Lutz complaint

This suit is over 100 pages long, and uses the operations in the office of Lloyd Miller, MD, a South Carolina internist, as the way to tell its story of how the alleged kickback scheme worked, and how the scheme negatively impacted patient care.  The relators are the owner of the billing company Dr. Miller used and his nursing supervisor. [Read more…]

More thoughts on recent exclusive laboratory arrangement ruling from OIG

OIG HHSLast week I published a summary of Advisory Opinion 15-04 from the Office of the Inspector General (OIG) for the Department of Health and Human Services put together by Mr. Lee Dilworth, Chief Legal and Administrative Officer of American Pathology Partners.  In that Opinion, the OIG ruled a lab which chooses to not bill for laboratory services provided to out-of-network patients with a commercial insurance plan that requires the insured to exclusively use a different lab could be violating the federal Anti-Kickback Statute (AKS).

I found the ruling to be very interesting, and of course potentially problematic for some laboratories, so I reached out to Jane Pine Wood, a specialist in health law and member of McDonald Hopkins, and Mr. Mick Raich, founder and president of Vachette Pathology, for their views on the matter.  They were both more than happy to provide me with their opinions. In addition, Mr. Dilworth kindly expanded on his original comments.  With permission, their comments are below.

Jane Pine Wood

This is on the heels of significantly increased focus on waivers or reductions of out of network balances, particularly by private payors.  Both CIGNA and Aetna have sent letters to laboratory clients of mine refusing to make payment until the clients have presented evidence of collection of McDonald Hopkinsthe full out of network balance from the patient.  That’s a real game changer.  It’s one thing to assume the business risk of periodic reductions of patient balances or adopting an internal policy of less aggressive billing and collection efforts.  It’s quite different if the payor refuses to pay the laboratory a penny until it has been presented evidence of the collection of the full balance owed by the patient.

The rationale in the opinion is a bit surprising given that the OIG approved the implementation of a laboratory interface last year in OIG Advisory Opinion 14-03.  Obviously “intent” plays a key role in the OIG’s analysis, but the reference to the interface in the new opinion is unexpected.

Mick Raich

The rules are simple.  You must make an attempt to bill.  If not then things get real muddy.  The bottom line is that the OIG could make a huge statement by actually punishing more of these labs.

VachetteIs this problematic for small labs?  Yes of course.  I get calls all the time about this.  Everyone knows a lab that is doing this and that is suspect but the punishments are few and far between so…many labs do this and just wait it out hoping that no one will notice.

My advice—Always make an attempt to bill, if you write off a bill make sure you have a good reason for it, like a stated financial hardship.

[Read more…]

Quest Diagnostics subsidiary Celera to pay $23 million to settle securities laws violation allegations

Celera logo

Clinical laboratory Celera, a Quest Diagnostics subsidiary, will pay $23 million to settle allegations brought by the Washtenaw County (Michigan) Employees’ Retirement System in a class action lawsuit.  The county alleged Celera violated federal securities laws by making “materially false and misleading statements to investors regarding Celera’s business and financial results” between March 31, 2008 and March 28, 2009 (the class period) that caused its stock price to be artificially inflated.

Also named as defendants in the suit are Celera CEO Kathy Ordoñez, former CFOs Joel R. Jung and Ugo DeBlasi, Chief Business Officer of Berkeley Heart Lab (BHL) Christopher M. Hall and auditor PricewaterhouseCoopers.

Celera was founded in 1998 with the mission of “sequencing and assembling the human genome within three years.”  In October 2007, it purchased BHL for approximately $195 million, and was itself purchased by Quest for an undisclosed amount in May 2011.  Of note, the revenue generated by BHL accounted for about 60% of Celera’s total revenue during the class period.

The county claims Celera, through official financial statements filed with the Securities and Exchange Commission, press releases and investor conference calls, failed to disclose a large portion of its accounts receivable were essentially uncollectible.  Celera apparently made a partial disclosure of its bad debt in February 2009, but continued to conceal its magnitude.

Finally, on July 22, 2009, Celera announced its bad debt ($20.1 million) was larger than previously reported and that 2009 revenues were forecasted to be significantly lower than previous guidance suggested.  By market close the following day, Celera’s stick price had dropped about 25%.

Almost two years later, on March 18, 2011, Celera amended its financial results for the class period.  It admitted that $16.5 million of the $20.1 million in bad debt should have been reported during the class period, and that $27.7 million of its bad debt expense during the class period had been “misclassified”.

The county filed suit on June 14, 2010 and subsequently filed two amended complaints, the last of which alleged:

(1) violation of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 against all Defendants;

(2) violation of Section 20(a) of the 1934 Act against the Celera Defendants; and

(3) violation of Section 10(b) of the 1934 Act and SEC Rule 10b-5 against Defendant PricewaterhouseCoopers.

[Read more…]

OIG: Not charging a patient for laboratory testing could violate Anti-Kickback Statute


The Office of the Inspector General (OIG) for the Department of Health and Human Services recently released Advisory Opinion 15-04, which discusses whether a laboratory that provides free services to out-of-network patients is violating the federal Anti-Kickback Statute (AKS).  According to Mr. Lee Dilworth, Chief Legal and Administrative Officer of American Pathology Partners, “the factual situation is nothing new, but the OIG’s conclusion and its rationale may surprise many.”

Once again, many, many thanks to Mr. Dilworth for providing us with his excellent summary of the OIG’s Opinion.

Is Not Billing a Patient an Illegal Kickback?

Is Enabling Client Convenience and Efficiency?

Facts:  A multi-regional lab asked the OIG whether it could waive billings for tests performed for out-of-network patients whose commercial insurance requires that their insureds exclusively use a different lab (ie, exclusive plans).  The lab sought to accept all samples from referring physicians regardless of the patients’ health plan coverage.  For patients covered by exclusive plans, the lab would perform and report its services but not bill the exclusive plans (which don’t even pay out-of-network rates).  Nor would the lab bill the referring physician, the patient or any secondary coverage.   The lab would bill all other patients, whether privately insured or covered by a government payer program like Medicare.

Per the lab, the reason for all this is that many physicians prefer to use a single lab for ease of communication and consistency of results being reported, and the lab sought to accommodate these clients.  The lab would provide an electronic interface to a referring physician’s EMR system to facilitate all this work, but the lab certified that it would not provide any other items, services or financial benefits to any referring physicians.

OIG’s Findings:

  1. The arrangement could violate the federal anti-kickback statute (AKS) by generating prohibited “remuneration” to referring physicians in exchange for Medicare referrals.
  2. As such, depending on the parties’ actual intent, the lab is at risk for administrative sanctions and criminal liability since the AKS is a criminal statute.
  3. Additionally, the arrangement could result in the lab being excluded from the Medicare program for charging Medicare “substantially in excess” of the lab’s usual charges for the same services.  (Readers should consult the opinion for details on this finding.)

OIG’s AKS Rationale: [Read more…]

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.


[Read more…]

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 similar to one utilized by Veritas Laboratories, another urine drug toxicology lab I wrote about in November 2013.

ACS’ Allegations

Pinnacle arranges a contract between co-defendant third-party billing company Florida Medical Reimbursement Services (FMRS) and referring physicians in which FMRS bills non-governmental payors for the urine drug testing the physicians send to Pinnacle.  Once FMRS receives payment, it sends $100 to Pinnacle and remits the remainder to the referring physician. Pinnacle markets the arrangement with FMRS as a benefit to the physician.

Pinnacle designed the scheme so as to induce referring physicians to refer all government-reimbursed urine drug testing to Pinnacle.  Pinnacle has a “clear expectation” it will receive the “full price reimbursement” for all referrals involving patients with government insurance, which ACS refers to as the “quid pro quo part of [the] kickback scheme”.

Pinnacle logoBased on the amount of damages Pinnacle is seeking in another unrelated suit, ACS has determined Pinnacle makes about $300 profit per test on average.  ACS says it is “illogical and not commercially reasonable” for Pinnacle to lose out on $200 per test, unless that money is used for illegal payments to physicians in exchange for referrals.

ACS argues the “swapping” scheme, where discounts are offered for commercial insurance patients to secure referrals of government-insured patients, violates the federal Anti-Kickback Statute, Stark Law, and Criminal Health Care Fraud Statute, as well as multiple Florida statutes.

ACS also cites the Special Alert the Office of the Inspector General for Health and Human Services released on June 25, 2014, that said in part:

Arrangements in which laboratories provide free or below-market goods or services to physicians or make payments to physicians that are not commercially reasonable in the absence of Federal health care program referrals potentially raise four major concerns typically associated with kickbacks—corruption of medical judgment, overutilization, increased costs to the Federal health care programs and beneficiaries, and unfair competition.

[Read more…]

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

Fazlul Sarkar, PhD (Cancer Therapy)

Fazlul Sarkar, PhD (Cancer Therapy)

A Wayne County Michigan Circuit judge has determined, with one possible exception to potentially be decided today, the website PubPeer.com 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 background here.


Dr. Sarkar has been involved in pathology research for 35 years and was a tenured professor at Wayne State University.  According to his complaint, he has over 430 peer-reviewed journal articles, over 100 review articles and book chapters, has edited several books, sits on the editorial board of several journals, and had over $12.8 million in National Institutes of Health (NIH) funding.

In the fall of 2013, he pursued a position at the University of Mississippi, and was offered an employment contract which he signed on April 18, 2014. Tenure was conferred upon him on May 15, 2014.  He resigned from Wayne State on May 19th, put his house on the market and made an offer on a house in Mississippi.

On June 19th, Dr. Sarkar received word from an official at the University of Mississippi that, after reviewing “a series of emails forwarded anonymously from (sic?) PubPeer.com, containing several posts regarding papers from your lab”, his job offer had been rescinded.  Dr. Sarkar was successful in retaining employment at Wayne State, but his tenure was not reinstated.

The complaint highlights a number of comments posted anonymously on PubPeer between March and July 2014 that Dr. Sarkar claims violate PubPeer’s terms of services.  Some of these comments accuse Dr. Sarkar of research misconduct, an allegation he flatly denied.

On July 7th, Dr. Sarkar’s attorney contacted the anonymous owners of PubPeer.com and asked them to retract the defamatory comments from the site, retain records, and disclose the identities of the anonymous commenters.  PubPeer removed some of the comments from its site, but never responded to the letter.

[Read more…]

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 college I brought a 1961 Ford Falcon. I truly think it was one of the worst cars ever built. But it was all I could afford.

Not long after buying the car it developed an emission problem. Large amounts of smoke came out the tail pipe. Since I grew up in rural Montana and we had to fix a lot of our cars ourselves, I knew the car was doomed. There was probably a split in the manifold or some other very costly area of the innards. I checked with a mechanic who told me it would cost me more than the car was worth to fix it.

Since the car only smoked visibly when idling, I made it a practice of driving only at night and only on less heavily travelled streets.

One Saturday morning I absolutely had to drive to the pharmacy in daylight. So I took a potato from the kitchen commons and stuffed it in the tail pipe. Voila! No smoke from the tail pipe. I drove to the pharmacy but had to stop at a red light. Idling, black smoke started to come out from under the hood and the car coughed, sputtered, and died.

The Falcon was towed to the car mortuary where it was pronounced dead.

I am reminded of that story as I watch the CAP fail by trying to stuff really important issues into the tailpipe of our collective professional car.

I am one of many actively practicing community and academic pathologists (CAP members) who contributed to the Palmetto GBA LCD on special stains and immunohistochemistry (IHC).  Instead of working with the LCD, the College rejected the LCD outright and asked for it to be withdrawn.  By doing so, the College has squandered a wonderful opportunity to address serious issues facing our profession.  In essence, the College made a potato out of it and stuffed it in the tailpipe.

Across the country every day there are pathologists and other physicians who are abusing the system in a systematic fashion. They are ordering tests (special stains and IHCs) that are not medically needed, and are doing so for financial gain. Patients financially suffer, Medicare gets pillaged.  And the College turns a blind eye.

[Read more…]

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 atypical cells consistent with metastatic carcinoma.

Mr. Quintero’s slides were subsequently reviewed by pathologists at MD Anderson, who diagnosed Mr. Quintero with a poorly differentiated carcinoma.  Ophthalmologist Dr. Bita Esmaeli removed Mr. Quintero’s right eye and surrounding tissues; pathologic examination revealed no evidence of malignancy.

Mr. Quintero sued Drs. Chevez-Barrios and Schwartz for negligently diagnosing him with carcinoma, HMH for vicarious liability and for failing to maintain procedures to prevent slide contamination, and TMH Physician Organization, which Mr. Quintero claimed was liable for the acts of Drs. Chevez-Barrios and Schwartz.

Mr. Quintero enlisted Dr. William Manion to write an expert witness report in order to satisfy Section 74.351 of the Texas Civil Practice and Remedies Code.  Section 74.351 says:

In a health care liability claim, a claimant shall, not later than the 120th day after the date each defendant’s original answer is filed, serve on that party or the party’s attorney one or more expert reports, with a curriculum vitae of each expert listed in the report for each physician or health care provider against whom a liability claim is asserted.

[Read more…]

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, particularly with respect to payments made by the laboratories to the health care providers for the collection, handling and/or processing of laboratory specimens that will be referred by the health care providers to the laboratories.

Many thanks to Ms. Wood for making this available to us.


On June 25, 2014, the Office of Inspector General (OIG) issued a special fraud alert entitled “Laboratory Payments to Referring Physicians.” The alert deals specifically with laboratories paying compensation to physicians and group practices for blood specimen collection, processing, and packaging activities, as well as the submission of patient data to a database or registry.

The Medicare and Medicaid anti-kickback statute is implicated when remuneration is paid in order to induce or reward referrals for any items or services reimbursed by a federal healthcare program. The alert cautions against arrangements that improperly take into account the volume or value of referrals that may induce a physician or physician group to use a particular laboratory or cause overutilization of testing services. The OIG highlights in this special fraud alert that certain arrangements are particularly suspect under the anti-kickback statute, including specimen collection, processing and packaging arrangements, and registry payments.


The OIG explains the risks associated with arrangements where a physician or physician group is paid by a laboratory for the collection, processing, and/or packaging of specimens. Specimen collection is reimbursed by Medicare only in certain circumstances, including where it is customary practice in the region and for that particular physician to charge for specimen collection separately. There are also separate CPT codes for processing and packaging specimens for transport to a laboratory. Since the laboratory payments to a physician or physician group for these services are often per-specimen or per-patient, the anti-kickback statute is implicated and the OIG cautions laboratories entering into these arrangements to consider, for purposes of determining fair market value, whether or not the physician is already compensated for the activity either through a bundled payment or through payments for overhead expenses. Certain characteristics that the OIG finds to be evidence that the arrangement may be unlawful include if:

  • The payments exceed fair market value, is calculated on a per-specimen or per patient method, or is offered on the condition of a certain number of orders.
  • The physician is already paid for the services by a third party, such as Medicare.
  • The payments go directly to a physician rather than the group practice that actually bears the cost of the services or where the services are performed by someone placed in the office by the laboratory.

[Read more…]