Labs In Court

A roundup of recent cases and enforcement actions involving the diagnostics industry

Texas Court Nixes Toxicology Labs’ ERISA Beneficiary Unpaid Claims Lawsuit against United Healthcare

Case: After United Healthcare denied their claims, plan members assigned their benefits to a pair of toxicology labs who then filed a lawsuit to against United under the federal Employee Benefits Retirement Security Act (ERISA) to recover the benefits. In addition to contending that the benefits arrangement was a sham, United moved to have the case dismissed on a procedural ground. And that’s just what the Texas federal court decided to.

Significance: ERISA allows beneficiaries sue their health plans for unpaid benefits, provided that they first “exhaust their administrative remedies” before going to court. Although the sides clashed on whether the labs actually submitted the claims to United, the labs admitted that they didn’t bother to appeal the denials. There were literally thousands of claims and the labs contended that going through the cumbersome six-month appeals process would be futile. But the court disagreed, noting that the “futility” exception to the exhaustion of remedies requirement applies “only in the most exceptional circumstances.” Showing that resorting to the appeals process would be a pain in the behind wasn’t enough; to prove futility, labs had to show that denial of the appeals would be a certainty.

[Mission Toxicology, LLC v. Unitedhealthcare Ins. Co., 2020 U.S. Dist. LEXIS 205919, 2020 WL 6491662]

Employee Who Tests Positive for Meth Can’t Sue Company that Created Workplace Testing Arrangement

 Case: After his hair sample workplace drug test came back positive for methamphetamine, a construction worker was assigned to “Inactive” status, meaning that none of the employers in the drug testing consortium arrangement would allow him onto its work sites. The worker contended that the positive test was due to over-the-counter medications and sued the company that ran the testing arrangement for not requiring or requesting testing for d/l isomers. But the Louisiana federal court tossed the case without a trial.

Significance: The worker basically sued the wrong defendant. To be guilty of negligence, a person must owe a duty of care to the plaintiff. However, no such duty between the testing company and the worker in carrying out the testing existed in this case. The testing company merely created and administered the testing program; it didn’t collect the samples, perform the tests or perform medical review of positive results. So, the worker didn’t have a legally valid claim for negligence against it.

[Thibodeaux v. DISA Global Sols., Inc., 2020 U.S. Dist. LEXIS 204953, 2020 WL 6479540]

Manager Can’t Sue Lab for Disability Discrimination After Signing a Severance Release

Case: Things went downhill for a clinical lab manager after he got into a violent confrontation with one of the union stewards representing the phlebotomists he supervised. Two days after the incident, the manager went to the ER for anxiety and was diagnosed with “emotional stress reaction.” He then went on disability leave allowing him to work but not at the same facility as the steward. But what was supposed to be just a temporary accommodation dragged on with the employer denying his request for reassignment to a new facility. The manager eventually decided to resign and file a workers’ comp claim. But after settling the workers comp claim and signing a severance agreement and release, the manager had a change of heart and sued the lab for failure to accommodate his disability under the California Fair Employment and Housing Act (FEHA). But the state court dismissed the case.

Significance: The release agreement was enforceable, the court concluded, even though it didn’t specifically mention the FEHA as among the laws for which the manager released the lab. The manager signed the release voluntarily; and he received “consideration,” i.e., something of value, for doing so, namely a $45,000 severance payment.

[Razon v. S. Cal. Permanente Med. Grp., 2020 Cal. App. Unpub. LEXIS 7518, 2020 WL 6737418]

North Carolina Health System Principles Pay $900K to Settle False Billing Charges

Case: The owner and two managers of now defunct Carolina Comprehensive Health Network, PA (CCHN), a group of family medicine practices and pain management services providers in North Carolina, have agreed to fork over $900,000 to settle claims of falsely billing Medicare and Medicaid for medically unnecessary diagnostic tests and procedures. According to the complaint, CCHN submitted false claims for positional nystagmus testing, rotational axis testing, nerve conduction testing and autonomous nervous system testing over a six-month period in 2015.

Significance: This case began as a qui tam claim filed by a whistleblower. Although the details are sketchy, the government’s decision to intervene in the case was probably a decisive factor in persuading CCHN that it had come time to settle.

Tennessee Operator Fined $9.015 Million for Running Drug Testing Lab After Being Excluded from Medicare

Case: Mr. Dube was excluded from federal healthcare programs in June 2012. But that didn’t stop him from establishing American Toxicology Labs (ATL)in Tennessee in May 2013. With Mr. Dube’s wife serving as the registered agent, ATL applied to participating in Medicare and Medicaid listing the wife as owner and the couple’s home address as its principal office address. even though he had been than a year earlier. Once admitted, ATL performed urine drug screens for opioid treatment facilities generating $8.5 million in false billings to Medicare and Virginia, Kentucky and Tennessee state Medicaid programs, with the excluded Mr. Dube at the helm at all times.

Significance: In addition to running a lab while he was excluded, Mr. Dube received $441,646 in kickback payments for referring Medicare and Medicaid patients to third party providers. In addition to $9,015,046 in fines, restitution and forfeiture, the couple was sentenced to three years of probation, four months of home detention and 400 hours of community service.


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