A federal judge has denied Bostwick Laboratories’ (Bostwick) motion to dismiss a qui tam (whistleblower) lawsuit filed by Michael Daugherty, the president of LabMD. Daugherty alleges Bostwick charges Medicare for services not ordered by a physician and illegally induces physicians for referrals.
Daugherty learned of the business practices he names in his suit because LabMD, a uropathology lab in Atlanta, shares clients and competes with Bostwick. Additionally, Daugherty’s previous company used to send samples to Bostwick.
Mr. Daugherty’s allegations center around urine cytology and fluorescence in situ hybridization (FISH) testing. He alleges Bostwick routinely (not on a case by case basis) performs FISH testing on atypical urine cytology cases regardless of whether the referring clinician requested FISH testing and then bills the government for the tests.
Interestingly, the court noted the American Urological Association does not include FISH testing in its best practices recommendations for the diagnosis of bladder cancer because:
…insufficient data are available to recommend [its] use in the evaluation of patients with microscopic [blood in the urine]…
This will of course come as a shock to anyone familiar with client billing and in-office pathology schemes, where FISH testing is often ordered routinely, given its generous (albeit recently reduced) reimbursement.
In addition to FISH, Mr. Daugherty alleges Bostwick performs other tests of dubious necessity without a physician order and also bills those to government payers.
The Stark and anti-kickback violations alleged by Mr. Daugherty are interesting. He claims Bostwick performs both the professional and technical components of FISH testing, but allows the referring physicians to bill for the professional component. Mr. Daugherty says Bostwick will send a draft professional interpretation of the FISH test, complete with the referring physician’s practice logo, to the referring physician, who finalizes the draft and then bills as if he/she actually interpreted the test.
Mr. Daugherty alleges Bostwick further induces physicians to send it work by using a client billing scheme, whereby Bostwick charges the referring physicians a reduced amount for the FISH technical component. This then allows the referring docs to mark up and bill Medicare for the full amount, and pocket the difference.
But wait, there’s more:
Further, Relator alleges, inter alia [among other things], that Bostwick offers discounted billing for privately insured patients in exchange for the practices referring federal healthcare program business to Bostwick; routinely waives co- pays and deductibles for Medicare patients; encourages customers to issue standing orders to reflex FISH and other tests that have high reimbursement rates; offers financial assistance with electronic medical records in exchange for referrals of business; offers to assist physician practices in establishing in-house laboratories by offering below-market services in exchange for referrals.
In its motion to dismiss, Bostwick argues because physician supervision is not necessary for the performance of the technical component of FISH testing, client billing and marking up is permissible.
This argument to me does not hold water. Even though a laboratory’s medical director may not be watching over every technician’s shoulders on every test they perform, the medical director (a physician) is indeed supervising the process, thereby ensuring accurate testing across the board. Were there not a physician laboratory director, the lab would not be able to perform testing at all. This is why hospitals and other entities pay pathologists a laboratory director fee-to supervise lab processes and testing.
Bostwick also argued that because the generic issue of marking up for laboratory work has been discussed publicly for years, and because Bostwick “publicly” disclosed its markup program (albeit to urologists in 2009), federal public-disclosure law requires the suit be dismissed.
Bostwick further argued any FISH test it performs is to aid the pathologist in arriving at a final diagnosis, and therefore falls under the pathologist-exception to the rule that any test billed to a government payer must be ordered by a physician.
Bostwick also says Mr. Daugherty failed to prove that even one FISH test was performed that did not fall under the pathologist-exception.
The judge was unpersuaded by any of Bostwick’s arguments.
And here is a very important part in the judge’s decision with respect to whether or not Bostwick illegally induced urologists with its draft FISH reports where all the referring doc has to do is sign his/her name (emphasis added):
This would enable the physician to have the results of the professional component of the test without the physician having to actually conduct any professional analysis or incur any of the costs associated with performing the professional component of the test. To drive this inducement home, Bostwick assured physicians that “[t]here is no need to purchase a microscope, or anything else for that matter” (Id.). Such an arrangement, where Bostwick incurs all costs associated with the tests but where the physician practice gets to reap the payment from the federal healthcare program, is, to this Court, clearly an arrangement whereby something of value was given in order to induce referrals, exactly the scenarios contemplated by the AKS and the Stark Laws.
Judge Spiegel goes further:
Simply put, not having to do the work of the professional component of the test and not having to set up and maintain the infrastructure in order to do the test and, instead, merely reviewing work that is already complete and signing one’s name is certainly something of value. Bostwick Lab’s contention that it is merely a “legitimate business practice” is a legal conclusion with which, at this stage in the proceedings at least, this Court disagrees.
Now it is important to note this case is only in its early stages, and Bostwick has not been formally judged to have done anything wrong. After all evidence is presented, it is possible the business practices brought forth could be found to be proper.
In my opinion, however, Bostwick has a huge problem on its hands, as a federal judge, based on available evidence, disagrees with Bostwick that its draft FISH report business model represents a “legitimate business practice”.
This case could have far-reaching effects beyond the walls of Bostwick Labs and all of the physicians who have availed themselves of Bostwick’s client billing program may have reason to be extremely fearful. If Bostwick is found to have provided illegal inducements and kickbacks, then all of the referring physicians who clamored to profit from work they did not do could very likely get in serious trouble for accepting those same illegal inducements and kickbacks.
After all, Bostwick isn’t the one actually billing CMS for the tests; it is the referring physicians, according to what I have read here. And they could be on the hook for violating the False Claims Act as well.
The CAP also provided a brief write-up of this decision.
The full decision is here (US EX REL. DAUGHERTY v. BOSTWICK LABORATORIES).