Another Decision in the HDL Case Highlights Kickback Risks of Patient Responsibility Waivers Involving Private Payers

The Health Diagnostics Laboratory, Inc. (HDL) and Singulex saga continues. The latest chapter involves not the labs themselves but BlueWave Healthcare Consultants, their marketing firm. And it raises new and potentially troubling implications for labs that waive copayments and deductibles for patients covered by private payers.

A Quick Recap
The HDL case has been described as the mother of all clinical lab fraud schemes because of the massive dollars involved. For those of you unfamiliar with it, the case began as a qui tam lawsuit accusing HDL, Singulex and one other lab (the now defunct Berkeley Heart Lab) of working with BlueWave to induce blood testing referrals, including medically unnecessary large multi-assay panels, by paying physicians sham specimen processing and handling fees of between $10 to $17 per referral and routinely waiving copayments and deductibles.

In 2013, the FDA issued a warning letter to 23andMe requiring that it stop marketing its DTC Personal Genome Service. The FDA had concluded that the $99 saliva test was a class III medical device requiring FDA approval. But a little less than two years later, the company won FDA approval for a DTC genetic carrier test for Bloom Syndrome.

In 2015, HDL paid $47 million to settle False Claims Act (FCA) charges against it; Singulex settled for $1.5 million. Both labs also entered into corporate integrity agreements with the government. The settlement forced HDL into Chapter 11 but the embattled lab giant’s legal woes continued. In addition to its creditors, HDL is being sued by Cigna for $84 million in damages the private payer allegedly suffered as a result of the scheme. Adding insult to injury, BlueWave has also sued its former partner for millions in unpaid consulting fees.

The Newest Case
Now BlueWave is in the hot seat. The most recent case centers on the waiver of copayments and deductibles by HDL and Singulex. In the case it was argued that the waivers were kickbacks to induce referrals even though they applied to patients of private insurers. BlueWave disagrees and asked the South Carolina federal court to throw out the charges without a trial.

Ruling: The court refused.

Reasoning: Waivers of private insurance copays and deductibles may amount to kickbacks under the Anti-Kickback Statute (AKS). And there was evidence suggesting that the waiver arrangements in this case did cross the line:

• BlueWave’s agreement with HDL and Singulex allegedly required the labs to agree not to charge patients for copays and deductibles; and

• BlueWave then leveraged the labs’ no-balance billing practices to induce referrals by highlighting those practices in the marketing pamphlets it gave to physicians.

Bottom Line: BlueWave will have to stand trial for its role in the kickbacks scheme. And remember that committing a kickback violation can make a defendant guilty of FCA violations if it submitted false claims for services provided as a result of those illegal referrals.

What It Means
The concept of finding a kickback violation based on an arrangement involving services paid by private insurers is nothing novel, notes Baker Donelson attorney Robert Mazer. For example, the OIG has stated that improper physician discounts on private pay business can be used to unlawfully induce referrals of Medicare tests.

But, Mazer suggests, the relationship between forgiveness of a private patient’s cost sharing responsibility and financial benefit to a physician related to his referrals of federal health care program appears much more attenuated.

Be mindful that waiver arrangements can raise kickback red flags even when they involve private payers.