Labs In Court

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

NIPT Lab Company Pays $49 Million to Settle False Billing and Kickback Charges

Case: A month after going public, Progenity agreed to shell out $49 million to settle claims of overbilling and paying physicians kickbacks to order its noninvasive prenatal tests (NIPT). The case, which began as a whistleblower lawsuit, contends that the San Diego biotechnology knew the test performed wasn’t FDA approved, and thus not covered by TRICARE; as a result “it falsely and fraudulently used a medical billing code that TRICARE did cover.” The settlement also resolves claims of falsely billing Medicaid for NIPT with state attorneys general getting $13.2 million of the sum.

Significance: In addition to deliberately using a false billing code, prosecutors accused Progenity of kickback violations, including:

  • Paying physicians excessive “draw fees” above fair market value for collecting blood specimens for the NIPT tests;
  • Providing meals and happy hours disguised as educational sessions for physicians and their staff; and
  • Improperly waiving or reducing patient coinsurance and deductible payments.

Whistleblower Can Sue Lab for Alleged Specimen Fee Kickback Collection Ripoff

Case: A whistleblower filed a False Claims Act suit charging a California lab of entering into “sham phlebotomy contracts” paying kickbacks to physicians’ family members and staff in the form of process, handling and collection fees at above market rates. The lab argued that the $15 per blood sample draw fees, as compared to the Medicare rate of $3, were legitimate because: (1) they covered a “panoply” of services that including apportioning the blood in vials, spinning the vials in a centrifuge, packaging and labeling the vials and arranging for shipment; (2) the $15 payment is made to a staff or family member and not to the physician. But the federal court denied the lab’s motion to dismiss the case.

Significance: The ruling just means the case can go to trial and isn’t a decision on the merits. In determining that the whistleblower had a legally valid FCA claim, the court cited the 2014 OIG Special Fraud Alert warning that the potential for paying kickbacks in the form of excessive collection fees extends not just to blood collections but other specimen processing and arrangements, in essence nixing the lab’s “panoply” argument. As for whether $15 was a legitimate rate for the fees, the question at the dismissal stage isn’t whether the charges are true but whether the complaint states a valid legal claim, assuming the charges are true. So, the lab would have to keep its price defense in its back pocket and use it at trial [United States ex rel. STF, LLC v. Vibrant Am., LLC, 2020 U.S. Dist. LEXIS 150345].

Connecticut Methadone Clinic Settles Urine Drug Test False Billing Charges for $345.3K

Case: A methadone clinic settled claims of overbilling the Connecticut Medicaid Program for urine drug tests for $354,367. Under state rules, methadone clinics receive a bundled weekly per patient rate that includes on-site drug abuse testing and monitoring. The case began when state auditors discovered that both the clinic and an outside independent lab billed Medicaid for testing performed by the latter in violation of the bundling rules, forcing the state to pay twice for the same test.

Significance: Apparently, this wasn’t the clinic’s first violation of the bundling rules. In 2016, the state issued an Audit Report cautioning the clinic about improperly referring urine drug tests to an outside lab and warning of financial disallowances in future audits if it continued. And it did continue.

Lab Sues Health Plan for Failing to Reimburse and Stonewalling on Pay Resolution

Case: Over the first two years of the contract, the health plan reimbursed the toxicology drug-testing lab promptly and in full. The problems began when the plan brought in an outside auditor which made medical records and documentation demands that the lab contended weren’t simply onerous but also unreasonable. Soon thereafter, the plan stopped paying the lab’s claims—adding up to $681,126 over a 10-month period. The lab made numerous attempts to resolve the payment disputes only to be met by a “shell game” of ever-shifting excuses ranging from lack of medical necessity to improper billing for presumptive and definitive testing of samples. So, the lab sued on half a dozen grounds, three of which the New York court dismissed.

Significance: The plan conceded that the breach of contract and state insurance law claims should be allowed to go to trial but contested the other four. When it was all said and done, the plan’s batting average was .750, with the court tossing the lab’s claims for declaratory judgment, violation of state General Business Law and tortious interference with business relations. The one claim that survived dismissal was for breach of good faith and fair dealing, which the court said wasn’t duplicative of the breach of contract claim [Truetox Labs., LLC v Healthfirst PHSP, Inc., 2020 N.Y. Misc. LEXIS 4058, 2020 NY Slip Op 50900(U), 68 Misc. 3d 1209(A)].




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