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 determinations (LCDs) adopted by MACs are unconstitutional and “deprive Medicare beneficiaries throughout the country of critical clinical laboratory tests”
  • MACs are promulgating LCDs outside of the normal rule-making process as codified in the Administrative Procedure Act
  • MACs are using criteria to formulate LCDs that are not supposed to be considered
  • The Secretary of HHS is not ensuring nationwide consistency in the treatment of Medicare beneficiaries, as is required by Congress
  • HHS has made it so that laboratories are not allowed to appeal these LCDs by suspending the necessary portion of the administrative appeal process

HHS filed its memorandum in support of its motion to dismiss (MTD) on July 2, 2014 which states the suit should be dismissed because the court lacks proper jurisdiction over Jane Doe’s claims, the CCLA lacks standing to bring suit and the court lacks jurisdiction under the mandamus statute.

Jane Doe’s claims

According to the complaint, Jane Doe’s physician ordered pharmacogenomic testing for her that was sent to a laboratory in Virginia, but Medicare would not pay for such testing because of an LCD issued by Palmetto GBA.  Jane Doe claims “this non-coverage policy jeopardizes her and similarly situated Part B enrollees’ access to medically necessary laboratory services” which led her to become a plaintiff in this suit filed in federal court.

HHS argues Medicare beneficiaries may ordinarily only seek judicial review of MAC claim payment refusals in federal court after they have exhausted the administrative appeals process.  This consists of an appeal to the MAC that denied the claim, an appeal to another MAC, an appeal to an administrative law judge, and lastly, an appeal to the Medicare Appeals Council of the Departmental Appeals Board.

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Franey Medical Laboratories not guilty of Medicaid fraud and kickbacks

Franey Medical Laboratories (Capewide Enterprises)

Franey Medical Laboratories (Capewide Enterprises)

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 insurance kickbacks and filing false Medicaid claims.

As best I can tell from available sources, internist Dr. Richard Ng, who was charged with multiple counts of illegal prescribing, Medicaid false claims and Medicaid excess charges at the same time as the others, owned a drug abuse clinic as well as CML.

According to the Cape Cod Times:

In March 2007, Franey Medical Lab began doing urine drug screen tests for the Caritas Medical Lab in Brighton, where Andrews was the manager, according to court records filed by the state. At that time, Franey Medical Lab hired and began to pay three full-time employees who worked at Caritas and processed drug-screen tests for Franey, according to court records.

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OIG Issues Special Fraud Alert on Specimen Processing and Registry Arrangements

OIG HHSThe 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 for taking the time to do this.

It’s a rare day when the OIG issues a “Special Fraud Alert” specific to the lab industry, but it did so on June 25th.  The OIG is the Office of Inspector General at the Department of Health and Human Services.  It investigates healthcare fraud, most frequently under the Federal anti-kickback statute (AKS).   It’s a crime under the AKS to knowingly and willfully offer, pay, solicit or receive any remuneration to induce, or in return for, referrals of items or services paid for by any Federal health care program.  Violators commit a felony punishable by fines, imprisonment, and exclusion from Medicare.

The OIG has now highlighted two types of arrangements between labs and physicians that it considers “suspect” under the AKS:

  • Specimen Processing Arrangements — payments by a lab to referring physicians for collecting, processing and packaging specimens sent to the lab; and
  • Registry Arrangements — payments by a lab to referring physicians for submitting patient data to a registry or database, for instance, as part of the lab’s R&D program.

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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 to provide laboratory services at five upstate New York VA Hospitals to Quest Diagnostics.  LabCorp, the incumbent contractor, protested, alleging the contract was improperly awarded, as the VA did not evaluate pricing “rationally”.

QuestAfter considering all 2,365 pages of the administrative record as well as all arguments, the judge stated he “has great difficulty accepting the VA’s method of conducting” the award process.

The judge then went on to illustrate six VA actions that were “arbitrary and capricious and lacking a rational basis”:

1)  The VA mainly evaluated bidders on the number of tests they offered in their proposals, but never told the bidders the number of tests they offered would be evaluated at all.

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Jury orders Millennium Laboratories to pay Ameritox $14.8 million

AmeritoxA 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.


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 point-of-care urine testing (POCT) cups in exchange for referrals.

I wrote about this case just last month as well as multiple times before (April 2014January 2013August 2012March 2012) because I believe it provides very helpful information for those in the laboratory medicine industry as to what is and is not permitted under Stark and the AKS.

In May 2014, the judge ruled ML violated the Stark Law and AKS when it provided free POCT cups to physicians who then bill for chemical analysis, but left it to the jury to decide whether ML violated the Stark Law and the AKS by:

  • Providing free POCT cups to physicians who could have billed for POCT but agreed not to
  • Negotiating below fair market pricing for analyzers or supplies from third party vendors in exchange for referrals
  • Providing billing, coding and reimbursement advice in exchange for referrals.

In addition, the jury also heard Ameritox’s state law claims as well as ML’s counterclaims.

Ameritox’s claims

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Quest Diagnostics succeeds in cutting whistleblower suit down




Dr. James Judd, a family practitioner at Hatboro Medical Associates (HMA) in Hatboro, Pennsylvania, filed a qui tam (whistleblower) lawsuit against Quest Diagnostics in 2010, accusing the lab giant of providing kickbacks to HMA and other providers in exchange for referral of lab testing since 2005.  Quest filed a motion to dismiss the entire suit, and a US District judge recently granted Quest’s motion for the vast majority of Dr. Judd’s claims.


Dr. Judd claimed Quest induced HMA and medical practitioners in numerous other states to refer work to Quest by providing laboratory collection supplies including non-safety phlebotomy needles as well as “test kits for in-office testing and other medical and office supplies at no charge and agree[ing] to perform substance abuse testing at discounted rates”.

He also alleged Quest “locks in referral by giving Providers free access to its patient database for purposes of ordering tests and reporting test results.”

Dr. Judd stated HMA and other practitioners did in fact refer lab work to Quest because of the inducements, and as a result, submitted false claims to Medicare for blood collection and in-office testing due to the fact free supplies provided from Quest were used to perform the services.

HMA submitted approximately 4,950 false claims for venipuncture (reimbursed $3.00 per), 320 claims for hemoccult tests (reimbursed $4.66 per), and 18 claims for in-office Strep tests (reimbursed $15.77 per).

He also went on to allege HMA entered into an agreement with Quest to provide 80 tests at a discounted rate for HMA’s managed care patients, and gave two examples: 1) Quest charged HMA $14 for a lipid panel that Medicare reimburses $18.72, and 2) Quest charged HMA $9 for an HDL test that Medicare reimburses $11.96.

Dr. Judd also alleged HMA entered into a similar arrangement with Quest for substances of abuse testing, and that Quest provided HMA with free office supplies, including “computer equipment, printers, a fax machine and computer software” as well as subsequent “printer supplies, such as paper and toner.”

Quest’s motion to dismiss

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Palmetto GBA defining pathology Medicare fraud with new standards


Palmetto GBA, the Medicare Administrative Contractor (MAC) for Jursidiction 11 (the Carolinas and Virginias), is taking the rather extraordinary step of defining, using an evidence-based approach, the standards by which certain specimens should be pathologically evaluated.  By doing this, Palmetto is placing itself at the forefront of combating Medicare fraud by pathologists and in-office laboratory owners.

Gastric Biopsies

The most recent example of this endeavor came on May 30th with the release of “Special Stains and Immunohistochemistry (IHC) Indications for Gastric Pathology (M00097)”.

To begin with, Palmetto assigns responsibility for the ordering of special stains and IHC to the pathologist, which is completely correct.

It then goes on to say that, in most cases, it is not “reasonable or necessary” to perform special stains to look for intestinal metaplasia, or to order a special stain or IHC to look for Helicobacter species.

It further states it is also not reasonable or necessary to order special stains and/or IHC up front (standing order) before examining the H&E slide.

Using recent literature articles (which are cited), Palmetto states special stains and IHC only need to be performed on 20% or fewer gastric biopsies, and provides a few examples of when ancillary stains are appropriate.

Palmetto recommends pathologists perform a self-assessment to ensure ancillary stains (88312, 88313, G0461 and G0462) are ordered on no more than 20% of gastric biopsies (88305).

The article ends with the following:  “Providers that exceed the 20 percent criteria may be subject to additional action.”


On May 5th, Palmetto released Immunohistochemistry (IHC) Indications for Breast Pathology (M00094)” which states it will only pay for ER, PR and Her-2/neu IHC stains on breast specimens and specimens which contain breast cancer metastases.

While it states it will no longer reimburse for other biomarkers such as Ki-67, PI3K and gene expression assays, it did not define a utilization ceiling.

It’s about time

I applaud Palmetto for its efforts on this, as this type of abuse has been going on for years.

As proof of this, I came across an excellent article written by Dr. Keith Kaplan, a GI pathologist who also writes the Digital Pathology Blog, about overutilization of “automatic” ancillary stains on GI biopsies way back on July 9, 2008.

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Calloway Laboratories settlement; Carolina Liquid Chemistries raided; 24,000 drug tests for 145 patients


(Winston-Salem Journal)

(Winston-Salem Journal)

Calloway Laboratories has agreed to pay over $4.675 million to settle allegations it fraudulently billed Medicare and West Virginia Medicaid. Carolina Liquid Chemistries (CLC), a North Carolina company which makes and refurbishes chemistry analyzers, was recently raided by federal investigators as part of an investigation into potentially $135 million worth of wire and health care fraud.  Reuters has a nice article which, using 2012 Medicare data, highlights how just three physicians billed Medicare for 24,000 drug tests on only 145 patients.

Calloway Laboratories settlement

An investigation by West Virginia Medicaid and the Department of Health and Human Services uncovered that Calloway Labs, a Massachusetts-based urine drug toxicology laboratory, had repeatedly billed Medicare and WV Medicaid for “pathology services” it did not provide between 2009-April 2013.

Unfortunately, the press release does not go into a tremendous amount of detail about the coding specifics, but basically, Calloway allegedly performed a type of “medical review” with its urine drug testing that was not reimbursable.  It then coded for a “pathology service” that was not necessary and was not ordered by referring physicians, but was reimbursable.

Calloway Labs was acquired by Ampersand Capital Partners in late 2012, and importantly, the issues uncovered in this investigation began under Calloway’s previous management.

On its website, the company states the matter was simply “a disagreement about services ordered and performed, but not covered” and it agreed to settle “without an admission of liability.”

This is the second settlement in the last two years for Calloway.  In early 2012, it paid $20 million to settle charges it defrauded Massachusetts Medicaid.

Carolina Liquid Chemistries

The FBI alleges CLC claimed to physicians its bench top analyzers and reagents were capable of providing quantitative urine drug screen results when in fact they could only provide qualitative results.

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Malpractice suit against pathologist Dr. Margaret Brandwein-Gensler dismissed on procedural grounds


The New York Supreme Court in Suffolk County has dismissed a malpractice lawsuit against Dr. Margaret Brandwein-Gensler, a head and neck pathologist formerly at Mount Sinai University, on the basis of a somewhat strict procedural technicality.


The suit was filed on August 4, 2008 by a patient whose story begins back around September 2002, when a CT scan of the chest during a hospitalization for pneumonia showed a nodule in his right lung.  A pulmonologist who was also named in the suit recommended interval CT scans to follow the nodule.

The following year, after complaining of frequent sore throats, difficulty clearing his throat and trouble swallowing, an internist who is also named in the suit felt a “bulge” in the patient’s throat.

An ultrasound-guided biopsy of the orange-sized left thyroid nodule was reportedly benign, and a partial thyroidectomy was performed on November 26, 2003.  Dr. Brandwein-Gensler was the attending pathologist who examined the thyroidectomy specimen.

Ten histologic slides (7 from the thyroid, 2 from a “paratracheal mass” and one to rule out parathyroid) were examined.  According to court records, at the time Dr. Brandwein-Gensler felt the slides showed:

…benign multinodular goiter with a diffuse Hurthle cell change and micro follicular features, meaning it was very solid, not vacant, an unusual growth pattern for malignancy, and did not indicate either benign or malignant.

After signing out the report, Dr. Brandwein-Gensler took no further part in the patient’s care (this becomes important later on) and left Mount Sinai in August 2004.

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