Health Diagnostic Laboratory asks court to dismiss $84 million fraud suit filed by Cigna

HDL logo

Health Diagnostic Laboratory (HDL) has filed a motion to dismiss the $84 million fee-forgiving fraud suit filed by Cigna, arguing the insurer’s use of the amended Employment Retirement Security Act of 1974 (ERISA) is fatally flawed.

Allegations

Very briefly, Cigna, in its suit filed in October 2014claims HDL:

…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.

HDL’s memo of law in support of its motion to dismiss

The bulk of HDL’s argument centers around Cigna’s use of ERISA as the basis for its claims and offers six reasons why the suit should be dismissed:

  1. Cigna lacks standing as a fiduciary under ERISA
  2. Cigna failed to comply with ERISA’s administrative process for adverse benefit determinations
  3. Cigna failed to identify any ERISA provisions that were violated and resulted in harm
  4. Cigna failed to allege damages that can be compensated under ERISA
  5. Cigna’s state law claims are preempted by ERISA
  6. Cigna failed to “allege fraud with particularity”

What follows is a summary of HDL’s arguments in its Memorandum of Law in Support of Motion to Dismiss.

Cigna lacks standing under ERISA

Under ERISA, only “participants, beneficiaries, and fiduciaries” may seek relief.  ERISA further states a fiduciary may only recover funds for the plan(s) it administers, and not for the fiduciary itself.

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Affiliated Genetics speaks out about Lovelace and DuBois laboratory kickback allegations

Affiliated Genetics logo

Mr. Michael Gennett, a partner at Akerman and the attorney representing Affiliated Genetics, was kind enough to provide me with a comment about the allegations contained in the criminal complaint against David Brock Lovelace and Dale DuBois I discussed last week.  In addition, Mr. Gennett drew my attention to an error I made that I have since corrected.

Readers will recall Mr. Lovelace and Ms. DuBois were arrested and charged in November 2014 with conspiracy to defraud Medicare and paying illegal kickbacks for clinical laboratory testing referrals; the affidavit within the criminal complaint mentioned Affiliated Genetics by name.  Please see this article for more information.

Mr. Gennett first notes Dr. Ward, the founder of Affiliated Genetics to whom I sent an email asking for comment before I published my article, did not receive the email I sent.  I explained to Mr. Gennett that I did not receive an automated message saying the address was invalid, so I simply presumed Dr. Ward did not want to comment at that time.

Mr. Gennett also points out the manner with which I discussed Affiliated Genetics in the context of Mr. Lovelace’s May 2014 indictment was not correct. Briefly, I made it sound as though Affiliated Genetics was somehow involved in the matters which led to Mr. Lovelace being indicted in May 2014. In truth, it was not.

I made this error because the lead-up to the discussion of Affiliated Genetics in the complaint states, “Prior to Lovelace’s arrest in his pending criminal case, Lovelace had been procuring biological test samples…” and then it goes on to discuss Affiliated Genetics in the same paragraph.

I mistakenly assumed this meant the May 2014 indictment included allegations involving clinical laboratory samples, but that is not the case.  I regret my error, and have corrected my earlier article.

Many thanks to Mr. Gennett for taking the time to provide me with his client’s perspective on this matter, and for alerting me to the mistake I made.

Mr. Gennett’s full comment is below.


To The Pathology Blawg:

This firm represents Affiliated Genetics, Inc. (“AGI” or the “Company”). Your article entitled “More details available about Florida clinical laboratory kickback arrests” has been brought to our attention. Contrary to the statement in your article, our client never received any request for comment from the blog prior to publishing of this article.  This communication constitutes AGI’s comment.

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More details available about Florida clinical laboratory kickback arrests

DOJ

Back in mid November, I wrote a brief article about David Brock Lovelace and Dale DuBois, who were arrested in Florida on November 14, 2014 and charged with conspiracy to defraud Medicare and paying illegal kickbacks for clinical laboratory testing referrals. At the time, all I had was the Department of Justice’s press release, but I now have a copy of the criminal complaint, so I thought I would provide more information about the case.

The complaint consists solely of an affidavit written by Isaac Bledsoe, a Special Agent with the Office of the Inspector General (OIG) for the Department of Health and Human Services.  Agent Bledsoe also led a separate investigation into Mr. Lovelace that led to his indictment in May 2014 on health care fraud and money laundering charges.  Because some aspects of that case pertain to the current case, Agent Bledsoe discusses the previous case a bit in his affidavit.

Mid 2014 Indictment*

The OIG alleges Mr. Lovelace and his co-conspirators billed Medicare for over $12 million in false and fraudulent claims, for which they received over $2.8 million.  Two of the five defendants in that case have already pled guilty and admitted the claims resulted from kickback arrangements which included cash payments to clinic owners in exchange for patients.

The complaint contains 14 claims that were allegedly submitted to Medicare for services performed on patients who were dead on the date of service.  The most egregious example on the list is for a service performed on September 6, 2012 on a patient who died on March 31, 1989.

The two defendants who pled guilty apparently also admitted claims were indeed submitted on dead patients.

Lovelace BMW

2010 BMW 535i (MHTwheels.com)

When Mr. Lovelace was arrested, the government seized his black 2010 BMW 535i sedan, but later learned he owed so much on it that it could not justify paying to keep it in storage.  So, the government gave it back to him.  This is important because Mr. Lovelace is alleged to have later committed a crime out of this BMW.

Mr. Lovelace was released on bond, and was prohibited from 1) committing any local, state or federal crimes (aren’t we all?), and 2) working in any occupation related to health care or the financial service industry until the case was resolved.

Current Indictment

Mr. Lovelace, Ms. DuBois and an unnamed cooperating witness referred to as “cooperating witness 1 (CW1)”, (which of course implies there is more than one cooperating witness), are alleged to have paid cash kickbacks to clinics in the Miami-Dade area in exchange for “completed DNA test samples” and the corresponding patient information.

The complaint states Mr. Lovelace, prior to his arrest in May 2014, allegedly had been procuring samples from Medicare patients and then sending the samples to “one or more” laboratories, which would then run tests and bill Medicare.

One lab, Affiliated Genetics (AG) in Salt Lake City Utah, is alleged to have paid Mr. Lovelace $555,191 from September 2013 to May 2014 for samples.

AG was founded by Kenneth Ward, MD, an OB-GYN who is also board certified in Clinical and Molecular Genetics.  I sent an email to the address I believe belongs to Dr. Ward and asked if he would like to comment, but I never heard back.

Around November 2013, an AG representative reportedly emailed Mr. Lovelace and informed him of some issues the lab was having with one of his samples.  Specifically, AG received a sample from a physician’s office on July 16, 2013 that was collected on May 14, 2013.  AG tested the sample, but the test failed, so it requested a second sample.  The physician’s office sent AG a second sample on October 2, 2013.

AG repeated its testing and billed Medicare, but Medicare refused to pay, citing the fact the patient was actually dead on the date of collection of the second specimen.  This intrigued the AG rep, who Googled the patient and found he had indeed died on June 21, 2013.

Mr. Lovelace never responded to AG’s query about the dead patient, despite being contacted two more times over the next 45 days or so.

Lovelace, DuBois and CW1 met in South Florida on a weekly or bi-weekly basis since late summer 2014 to deliver the kickback payments. CW1 was apparently responsible for paying the kickbacks to the clinics and delivering the DNA samples to Mr. Lovelace and Ms. DuBois.

The complaint describes in detail one such meeting that occurred outside a coffee shop in Miami on October 29, 2014 in which CW1 gave 58 samples from four clinics to Mr. Lovelace (who was driving the same BMW that had earlier been confiscated) and in turn received $4600 in $100 bills and a $1200 check from Ms. DuBois.  The check represented CW1’s weekly salary.

Five minutes after the meeting ended, CW1 was detained by federal agents and immediately began cooperating.

CW1 told the agents three of the clinics were to be paid $70 per sample and one was to be paid $100 per sample.  The following day, audio and video recording captured CW1 giving the cash to the four clinics.

It is important to note none of the four clinics which submitted (or sold, as it were) samples to CW1 had a Medicare provider number, meaning they could not directly submit claims for payment to Medicare.

The complaint goes on to explain Mr. Lovelace deposited an additional $120,000 from AG into a bank account on approximately July 2, 2014, and over the course of the next three weeks, withdrew all of the money.  This was accomplished mainly by 16 cash withdrawals, all of which were under $10,000. Apparently cash withdrawals more than $10,000 must be reported by the bank.

According to the court docket, Ms. DuBois waived a preliminary hearing that was scheduled for November 25, 2014.  Mr. Lovelace was also scheduled to appear for a preliminary hearing on that day, but it was cancelled.

The criminal complaint is here.


*The attorney representing Affiliated Genetics contacted me on December 9, 2014 and informed me of an error I made in this article.  I regret the error, and have made the necessary corrections.  Please see this post for more information.

Health Diagnostic Laboratory sues Boston Heart Diagnostics for patent infringement

HDL logo

Health Diagnostic Laboratory (HDL), the clinical laboratory currently facing an OIG investigation into possible kickbacks and an $84 million lawsuit by Cigna for health insurance fraud, has filed a patent infringement lawsuit against competitor Boston Heart Diagnostics (BHD).

At the heart of the suit is patent #8,119,358 (‘358), “Diabetes-Related Biomarkers and Methods of Use Thereof” that is currently assigned to HDL. For those interested, the full 236-page patent with images, tables and figures can be found here.

The patent covers:

…methods of using the biomarkers to determine the risk that an individual will develop Diabetes, and methods of screening a population to identify persons at risk for developing Diabetes and other pre-diabetic conditions.

First a little background.

Michael Urdea, Michael McKenna, and Patrick Arensdorf of Tethys Bioscience, a start-up that received over $100 million in venture capital funding, originally filed for the patent on April 18, 2008.  It was awarded on February 21, 2012.

In January 2009, Tethys began marketing the PreDx test, which, according to a 2013 press release:

…measures seven biomarkers implicated in the development of type 2 diabetes – glucose, hemoglobin A1C, insulin, adiponectin, C-Reactive Protein, Ferrtin [sic] and Interleukin 2-Reactive alpha – and applies a proprietary algorithm that combines biomarker results with patient age and gender to generate a “personalized” numerical score on a scale of 1 to 10, that corresponds to an individual’s 5-year risk of developing type 2 diabetes, with a higher score indicating a higher 5-year risk of progression.

But when one goes to the Tethys Bioscience website now, a message appears that says the PreDx test is no longer being offered.  This is because HDL purchased Tethys and its assets in November 2013.  Tethys closed its doors reportedly because it failed “to win approval for Medicaid reimbursements for its diabetes tests”.

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Dr. Franklin Cockerill claims he felt intimidated by the Mayo Clinic

Dr. Franklin Cockerill (Mayo Medical Labs)

Dr. Franklin Cockerill (Mayo Medical Labs)

Dr. Franklin Cockerill, Chief Laboratory Officer of Quest Diagnostics, responded to the lawsuit filed against him by the Mayo Clinic and claimed he felt intimidated by CEO Dr. John Noseworthy and feared Mayo would retaliate against him and his family.

Readers will recall Dr. Cockerill, who was chairman of the Mayo Clinic Department of Laboratory Medicine and Pathology and chief of Mayo Medical Laboratories (MML) until September 30, 2014, left Mayo to work for Quest. Soon after, Mayo sued Dr. Cockerill and alleged, among other things, he misappropriated and shared Mayo’s trade secrets with Quest.  Please see this post for more details on the lawsuit.

Mayo requested, and was granted, a temporary restraining order that prevented Dr. Cockerill from starting his new position with Quest.  In response, Dr. Cockerill filed a motion with the court that requested he be allowed to begin his new job, and an affidavit that presented his version of the events that transpired during his last few months at Mayo.

For reasons that are not yet clear, Dr. Cockerill withdrew both the motion and the affidavit the day after they were filed.  This all transpired more than a week ago, but I have not written about it until now because I was trying to get a copy of the court filings so I could have a better understanding of Dr. Cockerill’s perspective.

The Rochester Post-Bulletin has a copy of the affidavit, and I asked the reporter who wrote about it for a copy, but he never responded.  So unfortunately, all I have to go on is what is in his article.

The affidavit reportedly called the restraining order “draconian” and inappropriate, and argued the restrictions placed on Dr. Cockerill are against Minnesota law.

Dr. Cockerill claimed Mayo approached him about taking early retirement, but a Mayo spokesperson told the Post-Tribune that claim is “completely false”.

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Florida laboratory kickback scheme results in two arrests

DOJ

David Brock Lovelace, Vice President of Cornerstone Health Specialists, and Dale DuBois, managing member of Healthcare Marketing Florida LLC, were arrested last week and charged with conspiracy to defraud Medicare and paying illegal kickbacks for clinical laboratory testing referrals.

Unfortunately, I do not know much more than what is available in this short Department of Justice press release, as the case is so new the complaint is not yet publicly available.  I will try to find out more information when it becomes available.

Mr. Lovelace, 44, and Ms. DuBois*, 61, are accused of paying cash kickbacks to medical clinics in Miami Florida in exchange for DNA samples and patient information.  They would then sell these to unnamed clinical laboratories, which would bill Medicare for clinical laboratory services.  In the last 14 months, Mr. Lovelace reportedly received $675,000 from just one clinical laboratory.

The press release does not say whether the labs actually performed any testing on the samples or simply just billed Medicare as if they had, nor does it say whether the labs are also targets in the investigation.

This is not Mr. Lovelace’s first tango with the feds.  Just six moths ago, a federal grand jury indicted him on charges of health care fraud and money laundering.  As part of his bond agreement, he was ordered “not to commit crimes or engage in any occupation relating to the health care services industry”.

Mr. Lovelace is scheduled to appear before US District Judge Thomas McCoun III in Tampa at 11 am today.

I can’t find much out about Ms. DuBois, other than the Florida Department of State website shows she formed Healthcare Marketing Florida LLC in June 2014 under the name “Dale H. DuBois”.  According to the press release, however, the person arrested is named “Dale B. DuBois”.

At this point it is not clear which name is correct.

*- I originally assumed Dale DuBois was male, but page 12 of the criminal complaint refers to Dale DuBois as a female.  This article has been corrected.

$125,000 settlement reached against forensic pathologist Dr. Norman Thiersch

Dr. Norman Thiersch (Herald of Everett Washington)

Dr. Norman Thiersch (Herald of Everett Washington)

Snohomish County death investigator Deborah Hollis has reached a $125,000 settlement with county authorities in a lawsuit that accused Snohomish County Washington Medical Examiner Dr. Norman Thiersch of sexual discrimination, failure to accommodate her diabetes, retaliation, and splashing her with blood during autopsies.  In addition to the financial award, Ms. Hollis will keep her job at the Medical Examiner’s office and will be sent to Texas for “forensics training”.

Ms. Hollis filed her lawsuit, which initially demanded $750,000 in damages, in December 2013, but it did not come to public light (at least that I saw) until late September 2014, when Dr. Thiersch’s resignation was announced.

Overall, Dr. Thiersch reportedly enjoyed a good reputation with law enforcement and prosecuting attorneys during his 16 year tenure in Snohomish County, but there were several issues in recent years that called his leadership into question.

One such issue was the 2012 death of a 7 year old developmentally disabled boy, the investigation of which was “hampered” by Dr. Thiersch’s office, according to law enforcement.

Despite multiple requests from law enforcement for an autopsy, Dr. Thiersch’s office refused.  Post-mortem toxicology later showed the child died of a salicylate overdose, but by then the body had already been cremated.

The boy’s parents initially told police they had not given their son any medications the night before he died, but police later learned the mother told a friend she had indeed given her son aspirin.

In September 2013, a lawsuit filed by former death investigator Shannon Impett that alleged retaliation, sexual harassment, a hostile work environment, gender discrimination, and failing to accommodate her disability was settled for $495,000.

After Ms. Hollis filed her suit in December 2013, the county stripped Dr. Thiersch of his day-to-day administrative responsibilities and is now looking to divide the administrative and scientific components of the job permanently.

Pathology researcher sues anonymous PubPeer.com commenters for defamatory comments

Fazlul Sarkar, PhD (Cancer Therapy)

Fazlul Sarkar, PhD (Cancer Therapy)

Fazlul Sarkar, PhD, has filed a lawsuit against anonymous commenters on the website PubPeer.com (the owners/webmasters of which are also anonymous), alleging comments submitted to the site about his research were false and defamatory and led to the loss of a job offer at the University of Mississippi and loss of tenure at Wayne State University.

Facts/Allegations

The complaint starts with a description of Dr. Sarkar’s 35 year career as a pathology researcher, which, from all outward appearances, has been a very productive one:

  • Over 430 peer-reviewed journal article publications
  • Over 100 review articles and book chapters
  • Editor of several books
  • Sits on editorial board of several journals
  • Tenured professor at Wayne State University
  • $12.8 million in National Institutes of Health (NIH) funding (according to Retraction Watch)

For undisclosed reasons, Dr. Sarkar endeavored to get a job at the University of Mississippi and was offered an employment contract on March 11, 2014 that included academic appointments in two departments, tenure, $350,000 salary, $15,000 in relocation expenses, two labs, two offices, a research team, a start-up package of $750,000, and a couple of other things.

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Laboratory whistleblower Chris Riedel sued by different laboratory whistleblowers

gavel

A US district judge in New Jersey recently denied a motion to dismiss filed by laboratory whistleblower Chris Riedel of Hunter Laboratories in a lawsuit brought against him by laboratory whistleblowers Fair Laboratory Practices Associates (FLPA) and NPT Associates (NPT).

I only just now came across the suit, which was originally filed in April 2014, but it is still interesting nonetheless and far from being resolved.

The Parties

FLPA and NPT are separate general partnerships formed in Delaware solely for the purpose of bringing qui tam (whistleblower) actions.

FLPA

FLPA is composed of general partners Andrew Baker, Richard Michaelson, and Mark Bibi, the former CEO, CFO and general counsel, respectively, of Unilab, a clinical laboratory that was purchased by Quest Diagnostics in 2003.

FLPA filed a qui tam against Quest and Unilab in 2005, alleging they engaged in a “pull-through” scheme where they charged some of their customers/clients below market rates in exchange for Medicare/Medicaid referrals.  Quest moved to have the case thrown out on the grounds that Mr. Bibi, who used to be general counsel for Unilab, was ethically precluded from blowing the whistle on a former client.

FLPA argued Mr. Bibi’s client was Unilab, a laboratory that no longer exists, and not Quest, and he is therefore able to sue Quest.

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Appeals court reverses $1.5 million organ incineration award

Scales of Justice

A Florida appeals court has reversed the final judgment of a lower court that awarded $1.5 million to the daughter of a woman whose organs were incinerated after autopsy.

I first wrote about this case on September 10, 2012, right after the original verdict was announced, and then again nine days later after a local news report raised some interesting questions about the case.

Background

Ms. Sharren Sutka died on March 27, 2005* at Winter Haven Hospital in Winter Haven Florida.  Her daughter, Brandy Kay Liles, who stated in a 2006 article she was concerned her mother may have received an inadvertent morphine overdose while in the hospital, requested an autopsy.

Dr. Phillip Gordon, a partner at Ridge Pathology Consultants, performed the autopsy.  After the autopsy, Dr. Gordon placed Ms. Sutka’s organs in a red biohazard bag and turned the bag over to the hospital, which incinerated the organs.

Ms. Sutka’s body (sans organs) was released to the funeral home and she was buried on April 7, 2005.

In his final autopsy report that was released on April 18, 2005, Dr. Gordon opined the cause of Ms. Sutka’s death was:

…respiratory arrest, secondary to desquamative interstitial pnuemonia, with pulmonary hemorrhage, possibly complicated by sleep apnea and morbid obesity, DIP, secondary to smoking.

Ms. Liles was apparently not happy with the results of the autopsy, and inquired at the funeral home about performing a second autopsy.  The funeral home told her her mother’s organs had not been sent with the body.  When Ms. Liles asked the hospital about her mother’s organs, the hospital told her they had been incinerated.

This angered Ms. Liles, who stated she could not get a second autopsy, nor could she respect her mother’s last wish, which was to be buried and not cremated, because the organs were incinerated.

She subsequently filed suit against Dr. Gordon, Ridge Pathology Consultants and Winter Haven Hospital alleging intentional infliction of emotional distress (tort of outrage), and conspiracy.  She also alleged vicarious liability against Ridge Pathology and Winter Haven Hospital for Dr. Gordon’s actions.

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