Millennium Health close to declaring bankruptcy?

Millennium Health logo

Bloomberg Business recently published an article that says, among other things, embattled urine drug toxicology company Millennium Health (MH) is close to finalizing a deal with its lenders “to restructure the company in bankruptcy court”.

The Bloomberg article also says the settlement MH is negotiating with the federal government could reach $275 million (as opposed to $250 million as previously reported), and MH is offering to place itself under the control of its creditors.  In exchange:

…the lenders wouldn’t pursue potential legal claims against owners including founder James Slattery and private-equity firm TA Associates that the probe wasn’t disclosed to investors while the company was marketing the $1.8 billion loan last year, [people with knowledge of the matter] said.

The current equity holders would provide funds to Millennium so it can pay the settlement reached this week with the U.S. Department of Justice over allegations of overbilling a federal health-care program and other matters, said the people. A group of owners, including Slattery, would provide most of the funds, while TA Associates would pay a minority share, they said.

The government has not yet publicly shared (at least that I have seen) what exactly it is MH is alleged to have done, but the Wall Street Journal reported in June 2015 MH was being accused of “bill[ing] the federal government for unnecessary tests.”

Right after that WSJ article was published, I wrote about a Civil Investigative Demand (CID) letter that was sent to a physician in August 2014 that stated the Department of Justice (DOJ) was investigating allegations that the physician:

… and/or [MH] submitted, or caused to be submitted, false claims to federal health care payors […] for medically unnecessary urine drug testing (“UDT”)…

The CID stated the DOJ was also investigating whether:

…MH “provided kickbacks or other forms of unlawful remuneration to health care providers […] in order to induce UDT referrals to [MH]”.

See this article for more of the CID’s contents.

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Appellate court affirms significant narrowing of whistleblower suit against Quest Diagnostics

Quest logo new

The Third Circuit Court of Appeals has affirmed the decision of a lower court to significantly narrow the physician kickback allegations against Quest Diagnostics in a whistleblower suit filed by Dr. James Judd.


Dr. Judd, a family practitioner at Hatboro Medical Associates (HMA) in Hatboro, Pennsylvania, filed his qui tam suit against Quest in 2010.  He alleged Quest violated the Anti-Kickback Statute and Stark Law by inducing HMA and medical practitioners in numerous other states to refer work to Quest by providing free:

  • laboratory collection supplies including non-safety phlebotomy needles
  • Hemoccult and rapid Strep test kits.
  • office supplies, including “computer equipment, printers, a fax machine and computer software” and “printer supplies, such as paper and toner.”
  • access to Quest’s patient database for purposes of ordering tests and reporting test results.

Quest also allegedly provided HMA with discounted rates for substance abuse testing and 80 other clinical laboratory tests.

As a result, Dr. Judd claimed HMA and other providers did indeed refer business to Quest and therefore submitted false claims to Medicare for blood collection and in-office testing due to the fact free supplies from Quest were used to perform the services.

Quest moved to dismiss Dr. Judd’s suit, arguing the allegations he made have already been disclosed publicly in three prior qui tam suits and cannot be pursued again, and that Dr. Judd failed to adhere to the “particularity” requirement of Federal Rule of Civil Procedure 9(b) in his pleading.

After considering arguments from both parties, the District Court dismissed Dr. Judd’s claims “regarding Quest’s scheme with providers other than HMA before 2010”.  The judge permitted Dr. Judd’s allegations “regarding false claims submitted by HMA and the discounted testing services that Quest provided healthcare providers after 2010” to continue, but apparently Dr. Judd voluntarily withdrew his HMA claims at some point after that.

The District Court also dismissed with prejudice:

…all of Judd’s claims regarding healthcare providers other than HMA, whether arising before or after 2010, and whether based on his free-supplies theory or his discounted-testing theory, because they failed to satisfy the requirements of Rule 9(b)…

Dr. Judd appealed.

Appellate Court Ruling

Quest had argued any pre-2010 conduct was governed by the False Claims Act’s public disclosure bar that was in effect prior to passage of the Affordable Care Act (ACA) in March 2010.  The pre-ACA bar required courts to dismiss allegations that had been already been disclosed publicly at the federal, state or local levels, whereas the post-ACA bar only required dismissals for public disclosures made at the federal level.

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Quest Diagnostics agrees to pay $1.8 million to settle duplicate testing allegations

Quest logo new

Quest Diagnostics yesterday agreed to pay $1.8 million to settle a qui tam (whistleblower) lawsuit that was filed in July 2012 by a former Quest phlebotomist who alleged both Quest and LabCorp performed, and billed Medicare for, duplicate laboratory testing.

I first wrote about this suit in October 2014, right after the judge unsealed it. Briefly, Ms. Elisa Martinez used to work as a phlebotomist at Quest’s patient service center (PSC) in Red Bluff California, and during her time at the PSC, she noticed:

…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.

Ms. Martinez stated she watched a phlebotomist at her PSC pour urine from one specimen cup into a second cup in order to facilitate the duplicate testing, and an employee in the business office confirmed each duplicate test was billed separately.  When she asked one of her supervisors about the matter, she was allegedly told to “listen more and back up everybody”.

Only a few allegations are made in the complaint, and it is important to note Ms. Martinez was not required to present an exhaustive list of all fraudulent acts she witnessed; she only had to present enough to move the case forward.

According to the press release announcing the settlement, the “U.S. Department of Justice investigated and substantiated the allegations” in the suit, but Quest “denied any liability or wrongdoing.”  An article over at Taxpayers Against Fraud says Ms. Martinez will receive $358,000 of the settlement.

I reached out to Mr. Michael Hirst, one of the attorneys representing Ms. Martinez, and he was kind enough to provide me with the following comment about the case:

Ms. Martinez has performed a significant public service by coming forward and blowing the whistle.  Without her courage, none of this would have been exposed.

The performance of medically unnecessary and duplicate tests can put patients at risk and undermine the integrity of the Medicare program.  Government programs like Medicare and Medicaid, which are vital to so many, need to be protected by all.

The amended complaint that was filed on January 30, 2015 does not list LabCorp as a defendant, so at some point LabCorp was dropped from the suit, although I do not know precisely when or why.

DOJ intervenes against Tonya Mallory, BlueWave HealthCare Consultants and Berkeley HeartLab


On August 7, 2015, the Department of Justice has officially intervened in three separate qui tam (whistleblower) lawsuits against founder and former CEO of Health Diagnostic Laboratory (HDL) Tonya Mallory, BlueWave Healthcare Consultants and its founders/owners Floyd Calhoun Dent and Robert Bradford Johnson, and Berkeley HeartLab (BHL).  The Complaint in Intervention was filed almost four months to the day after the government announced it would intervene against the defendants.

I have discussed the schemes HDL, BlueWave and BHL are alleged to have engaged in before, so what follows is merely a (relatively) short collection of some of the factual allegations contained in the government’s 48 page complaint.

Factual Allegations against Berkeley

  • BHL induced referrals with a “draw fee” of $20 per sample starting in 1999
  • BHL ignored the warnings about per-patient payments contained in OIG Advisory Opinion 05-08, and merely changed the name from “draw fee” to “process and handling fee”, and reduced the amount paid to $7.50 per sample.  Some accounts still received as much as $11.50 per sample
  • BHL paid Dr. Rex Butler tens of thousands of dollars in 2009 in exchange for approx. $384,366.72 in referrals
  • BHL paid Dr. Bodo Brauer tens of thousands of dollars in 2010 in exchange for approx. $570,843.31 in referrals
  • BHL paid Dr. Jeffrey Gladden tens of thousands of dollars in 2010 in exchange for approx. $556,825.98 in referrals
  • Between 2005-2011, BHL paid about $6 million in P&H fees to physicians and physician groups in exchange for about $96 million in Medicare and TRICARE reimbursement
  • BHL executives encouraged their sales force to use the P&H fees during their sales pitches to generate new referrals, and advocated for increasing the amount paid to keep business it was losing to HDL
  • BHL stopped paying P&H fees about 8 months after it was acquired by Quest Diagnostics, and eventually lost so much market share as a result that it “no longer operates as an independent laboratory providing advanced lipid testing.”

Factual Allegations against BlueWave, Johnson and Dent

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Cigna accuses urine drug toxicology laboratories of fraud, kickback scheme


Health insurer Cigna recently filed a lawsuit against Sky Toxicology Lab Management and urine drug toxicology (UDT) laboratories Sky Toxicology, Frontier Toxicology and Hill Country Toxicology that, among other things, accuses them of engaging in fraud and a lucrative patient-referral kickback scheme.

All three labs are located in San Antonio Texas.  Sky Tox and Frontier Tox are about a block apart from one another, and Hill Country Tox is about a 10 minute drive away.  According to the “About Us” pages on the websites, the three UDT labs share the same executive team:  W. Wade White, MD-CEO and Medical Director; Lance Hupfeld-Chief Sales Officer; Bradley West-Chief Operating Officer.

Sky Toxicology Lab Management is a limited partnership organized in Florida in 2013, according to the Form D on file with the Securities and Exchange Commission.  Its principal place of business has the same address as Sky Toxicology, and it lists Dr. White, Mr. Hupfeld, Mr. West and a fourth individual named Nick Boatman as its executive officers.

Factual Allegations

The vast majority of health insurance plans administered by Cigna are called Administrative Services Only (ASO) plans that are funded by private companies through employee contributions, with Cigna providing claims processing and appeal adjudication services.  Cigna has fiduciary responsibility for these plans, which are also governed by the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that provides protection for individuals with private health insurance plans through a set of minimum standards.

Cigna allows members to choose whether they want to receive care from health care providers (including laboratories) that are in Cigna’s network or outside of Cigna’s network.  If the member chooses an out-of-network provider, the member will incur more financial responsibility through higher co-pays, deductibles and co-insurance than if they had used an in-network provider.

The member can also be balance billed, which is when the out-of-network provider bills the patient for the difference between what they charged for their services and what the insurance company paid.

Cigna claims it is “widely-known” that patients who pay for even a small portion of their health care out-of-pocket will make “more informed choices regarding medical care, and choose care that is medically necessary, and not simply free of charge.”

Since July 2011, Cigna has paid more than $17.5 million to Sky Tox for over 40,000 processed claims, more than $3.4 million to Frontier Tox for over 5,900 claims, and more than $1.8 million to Hill Country Tox for over 3,400 claims. The overwhelming majority of these claims were submitted under ASO plans.

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Millennium Health may pay $250 million to settle whistleblower allegations

Millennium Health logo

Urine drug toxicology giant Millennium Health (MH) is reportedly negotiating a settlement with the federal government for as much as $250 million according to the Wall Street Journal.  In addition, another outlet has reported MH is meeting with restructuring consultants and bracing for potential additional lawsuits from its lenders and private payors.

A source told me about a month ago that MH and the federal government were working on a settlement that could reach $250 million, but I was unable to obtain independent confirmation, so I did not proceed with an article at that time.

What did Millennium allegedly do?

I was able to get ahold of a Civil Investigative Demand (CID) letter the Department of Justice (DOJ) sent to a physician back in August 2014 that required the physician to “provide documents and testimony to the Federal Government, and to answer the attached interrogatories.”

The CID stated the DOJ was investigating allegations that the physician “… and/or [MH] submitted, or caused to be submitted, false claims to federal health care payors […] for medically unnecessary urine drug testing (“UDT”)” and that MH “provided kickbacks or other forms of unlawful remuneration to health care providers […] in order to induce UDT referrals to [MH]”.

The DOJ told the physician its primary areas of inquiry were:

  1. Submission of claims for UDT services and reimbursement for those claims;
  2. Medical necessity of UDT generally and for specific patients;
  3. Ordering of UDT, including, but not limited to, the documents and forms used to order UDT;
  4. Sales practices concerning UDT directed towards you or the entities for which you work, including, but not limited to, promises or provision of free goods and services; and
  5. Remuneration by urine drug laboratories to you or the entities for which you work

The documents requested and interrogatories also provide additional insight into the government’s investigation.  Among the documents requested were:

  • All contracts and agreements including custom profiles and/or standing orders
  • All documents concerning payments or other remuneration (including meals, staffing assistance, discounted equipment, assistance with CLIA certifications and electronic medical records, and speaker fees)
  • All documents concerning waiver of co-pays by MH
  • All documents submitted to MH including requisition forms, custom profiles, and standing orders
  • All documents concerning medical necessity of UDT, including confirmatory or quantitative testing of negative UDT screen results performed at the point-of-care
  • All patient records and billing files for eleven patients listed

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Kickback allegations against LabCorp in Georgia whistleblower suit dismissed



A US district court judge in Atlanta has dismissed the federal kickback allegations made against LabCorp in a whistleblower suit filed by Chris Riedel, former owner of Hunter Laboratories.  At the same time, the judge remanded the suit’s state law claims back to Georgia state court.


Mr. Riedel originally filed the current whistleblower suit against both LabCorp and Quest Diagnostics in January 2008, and alleged the two lab giants made false claims to Georgia Medicaid by submitting claims for payment that were significantly higher than the maximum allowable reimbursement rates under Georgia’s Medicaid program.

Mr. Riedel also accused Quest and LabCorp of “provid[ing] kickbacks in the form of deeply discounted private rates to draw in large volumes of ‘pull through’ Medicaid and other referrals” and argued this is a violation of the federal Anti-Kickback Statute (AKS).

The state of Georgia declined to intervene in the suit in August 2012, but Mr. Riedel continued with the action on his own.  Because of the distinctly federal question raised by the AKS allegation, the case was removed to federal court on May 31, 2013.

Quest and LabCorp filed motions to dismiss the suit in July 2013, which Mr. Riedel opposed.  Then in November 2013, the court was notified Mr. Riedel and Quest had agreed on the financial terms of a settlement, but still needed to negotiate non-financial terms.  Apparently those negotiations were eventually successful, because according to court documents, the settlement agreement between Mr. Riedel and Quest was executed on March 5, 2014.  To my knowledge, the contents of that agreement have never been made public.

Mr. Riedel amended his complaint against LabCorp (which was not a party to the settlement agreement) in January 2015, but still alleged LabCorp offered deeply discounted rates to parties other than Georgia Medicaid, and made false claims to Georgia Medicaid by “falsely representing that the fees being charged were no greater than the maximum fees payable pursuant to Georgia regulations.”

In addition, Mr. Riedel again argued these deeply discounted rates, which were lower than LabCorp’s cost to perform the tests, were a kickback designed to induce the referral of tests for beneficiaries of government health care programs, which were then billed out at much higher rates.

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Two pain docs arrested for urine drug toxicology testing fraud

PPSA patients waiting in line (Fox10 News)

Patients waiting in line outside PPSA on May 21, 2015 (Fox10 News)

“We are committed to the highest standard of patient care.”  That is a quote from the website of Dr. John Patrick Crouch and Dr. Xiulu Ruan of Physicians’ Pain Specialists of Alabama (PPSA), who were arrested on May 20, 2015 by federal agents after being indicted on charges of unlawful distribution of controlled substances and healthcare fraud related to urine drug toxicology (UDT) testing.

Unfortunately, not many details are available in the indictment, Department of Justice press release, and various media reports, but I am sure more will come out as the case progresses.  Like other cases involving health care fraud (alleged, proven and/or admitted) I have discussed on the site, the lifestyles of the involved parties is quite fascinating (see below).

Drs. Couch and Ruan were arrested as part of “Operation Pillution”, a federal law enforcement effort aimed at prescription drug abuse in the southern US. On the day the two were taken into custody, federal agents conducted raids on multiple pain clinics and pharmacies in Arkansas, Alabama, Louisiana and Mississippi.

Indictment Contents

Distribution of Controlled Substances

In addition to owning PPSA, Drs. Couch and Ruan also own C&R Pharmacy, which I believe is located in the same building as PPSA.


Dr. John Patrick Couch (

Starting in about January 2011, Drs. Couch and Ruan allegedly conspired to distribute and dispense numerous Schedule II controlled substances “outside the usual course of professional practice and not for a legitimate medical purpose”.

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Whistleblower allegations against Family Dermatology/Nelson Dermatopathology

Dr. Paula Nelson being confronted by a reporter (

Dr. Paula Nelson being confronted by a reporter (

A couple of weeks ago I wrote about the Department of Justice press release that announced Family Dermatology, which also operates a dermatopathology laboratory called Nelson Dermatopathology, had agreed to pay a little more than $3.2 million to settle allegations it violated the False Claims Act.

At the time, the whistleblower suits that contained the allegations were not yet on PACER, so I could not get into any more detail than was provided by the DOJ.  But now I have the three suits in hand and can discuss the allegations that were brought against Family Dermatology/Nelson Dermatopathology that led to the settlement.

The whistleblower suits were filed by three different dermatologists (Scott Ross, Harold Milstein and Mark Baucom); Dr. Ross’ is the longest and most detailed and will be discussed first.

Dr. Scott Ross’ Facts/Allegations

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Aetna sues Health Diagnostic Laboratory and Bluewave Healthcare Consultants


In a lawsuit filed earlier this month, health insurer Aetna seeks to recover “tens of millions” of dollars from Health Diagnostic Laboratory (HDL) and its sales contractor Bluewave Healthcare Consultants, claiming they paid illegal kickbacks to physicians and encouraged them to order unnecessary tests, and provided unlawful inducements to patients.

This lawsuit follows closely on the heels of the announcement from the Department of Justice that HDL will pay at least $47 million and could pay as much as $100 million to settle similar allegations in three separate qui tam lawsuits.

Factual Allegations

Aetna begins with a brief discussion of its network and how Aetna members have to pay substantially more copayment or coinsurance if they use an out-of-network provider.  This obviously serves as an incentive to stay in-network, which then leads to lower health care costs for the company, since the providers within the network have already agreed to a set fee for their services.

If an out-of-network provider is used, Aetna will have to pay far more for services since the providers do not have a contract.

HDL is not in Aetna’s network.  In order to secure referrals from Aetna physicians (who are contractually obligated to refer patients/services to in-network providers, including laboratories, whenever possible) to go outside Aetna’s network, HDL and Bluewave paid physicians $20 per specimen.  Aetna points out this is more than 6 times what Medicare allows.

HDL logoReaders may recall one of the qui tam suits I covered on April 13th (United States ex rel. Riedel v. Health Diagnostic LaboratoryInc., et al.) alleged physicians could increase the payments they received from HDL, Bluewave and Singulex depending on how they packaged the samples and ordered the tests:

A physician can draw four vials of blood, order four tests, ship them in four packages to defendants, and receive an $80 packaging fee.

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