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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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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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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Millennium Laboratories violated Stark Law and AKS with free urine test cups

ML logo

A federal judge has determined Millennium Laboratories (ML) violated the Stark Law and Anti-Kickback Statute (AKS) when it provided free point-of-care urine testing (POCT) cups to physicians who bill for urine chemical analysis.  The judge also ruled a jury will have to decide whether ML violated the Stark Law and AKS when it provided free POCT cups to physicians who could have billed for POCT but agreed not to.

The judge was ruling on a motion for summary judgement by Ameritox in the false advertising suit I have written about several times before (April 2014January 2013August 2012March 2012).

Most recently, the judge ruled on competing motions by Ameritox and ML, in which both sought to have aspects of the case ruled in their favor.

At the time, the judge dealt with most of the issues presented in the motions, but deferred ruling on whether the provision of free POCT cups constituted remuneration under Stark and the AKS until after a devoted hearing on the matter was held.

Note-I have written about this case quite a bit (probably more than some readers would prefer) because the issues here are applicable not just to the urine drug toxicology industry, but all of laboratory medicine.  For this reason, it is important pathologists, lab managers, lab owners, etc understand what is being argued and decided in this case, as it provides important insight into what is allowed and what isn’t under the Stark Law and AKS.


Ameritox claims ML entered into approximately 1,000 agreements through which ML provided free POCT cups to physicians who send their patients’ urine to ML for testing, and these free cups constitute prohibited remuneration under the Stark Law and AKS.

For those who do not know, POCT cups are urine cups which also contain drug testing strips that allow physicians to immediately determine whether a certain drug is qualitatively present.

ML never denied it provided the cups to doctors, but said it in no way constitutes illegal remuneration because ML made the doctors sign an agreement that they (the doctors) will not bill for POC testing.  Therefore, ML argues, it was not actually providing the doctors with anything of financial value when it gave them the free cups.

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Clinical laboratory PremierTox settles health care fraud allegations


Drs. Bryan Wood and Robin Peavler, the physician owners of a chain of addiction treatment centers called SelfRefind, as well as PremierTox, a clinical laboratory that performs urine drug screen testing, have agreed to pay $15.75 million plus interest to resolve False Claims Act violation allegations.

According to the settlement agreement, patients at SelfRefind were required to submit to urine drug screen testing, sometimes as often as every two weeks.  The urine was screened at SelfRefind, but was not automatically sent to an outside lab for confirmatory testing.

That reportedly changed in December 2010, when Drs. Wood and Peavler each purchased a 20% stake in PremierTox.  The government claimed after Drs. Wood and Peavler took a financial interest in PremierTox, SelfRefind began “automatically” sending all urine drug screens to PremierTox for confirmatory testing.

The government noted the sheer volume of urine samples that were sent to PremierTox after Drs. Wood and Peavler took an ownership interest simply overwhelmed the laboratory.  As a result, the lab kept samples frozen in a storage unit for months before it could test them.

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Horizon BCBS sues Avee Laboratories, others for urine drug testing fraud


Horizon Blue Cross Blue Shield of New Jersey is suing Avee Laboratories, Alere Toxicology, Laurie Deerfield, DO, and Leading Edge Recovery Center, a substance abuse treatment center, for $36 million in damages and penalties related to the submission of false and fraudulent claims for urine toxicology testing.

Horizon’s Allegations against Avee, Leading Edge and Dr. Deerfield

Horizon claims Avee used false and deceptive marketing materials and offered illegal inducements to convince health care providers to perform medically unnecessary point of care urine toxicology tests (POCT) and then send the samples to Avee for unnecessary confirmatory testing.

Horizon alleges Leading Edge Recovery Center and Dr. Deerfield, Leading Edge’s medical director, performed medically unnecessary POCT and confirmatory testing.  Even though patients had multiple negative POCT tests, Horizon says Dr. Deerfield and Leading Edge ordered confirmatory testing despite the fact they had no reason to believe the POCT were inaccurate.

Alee apparently had providers use “Custom Test Panel” order forms that enabled the providers to simply check a box that authorized Avee to perform multiple unnecessary tests on a single urine sample.  Many of these forms lacked a provider signature, according to Horizon.

The complaint goes on to claim Avee also told providers confirmatory testing of POCT was required by CLIA when it is not and waived patient co-pays so patients would not object to testing.

Financial Impact

Since 2009, Horizon states it paid Avee Labs and health care providers more than $24 million and $12 million, respectively.

As a result of the aforementioned tactics, Horizon says some providers increased their POCT claims by as much as 5,000% between 2009 and 2013.

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President of Biodiagnostic Laboratory Services pleads guilty to federal charges

Police removing evidence at BLS (Michael Karas/The Record)

Police removing evidence from BLS (Michael Karas/The Record)

The wheels of justice actually spun quickly this time.  David Nicoll, president of New Jersey-based Biodiagnostic Laboratory Services (BLS), his brother Scott Nicoll, and five others pled guilty on June 10, 2013 to conspiracy to violate the Anti-Kickback Statute and the Federal Travel Act, and money laundering.  They each face up to five years in prison and a $250,000 fine for the conspiracy count and twenty years in prison and a $500,000 fine for the money laundering charge.

I first wrote about this case in April when it was announced David Nicoll, along with his brother and cousin, were arrested for health care fraud and paying kickbacks to referring clinicians.

At the time, the FBI stated BLS’ business model led to over $200 million in revenue over a six year period for BLS, approximately $33 million of which went to David Nicoll.  He used that money to spend over $5 million on cars, $400,000 on sports tickets and $154,000 at a gentlemen’s club.

Then, a little less than a month later, it was reported two former sales reps for BLS had pled guilty to conspiring to bribe physicians.  They each face up to five years in prison when they are sentenced in September.

In addition to the prison time and fines mentioned above, David and Scott Nicoll agreed to return $50 and $25 million, respectively, to the government.  The other five who also pled guilty will return between $800K and $1.3 million.

Prison sentences will be announced on September 11, 2013.

Charges are still pending against Dr. Frank Santangelo, the internist alleged to have accepted $700K in kickbacks for $4.2 million in laboratory referrals to BLS.