California Case Shows Why Paying Specimen Collection Fees of Any Amount Are a Liability Risk

Paying physicians fees to collect and process patient samples for testing is a dicey proposition because it exposes labs to suspicion under the Stark and Anti-Kickback Statute laws. Such arrangements are particularly problematic when the fee recipient is a family member of the referring physician. In case any of you needed a reminder of these facts, consider this recent case from California.

Whistleblower Sues Over “Sham” Fees

 The case began when 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 acknowledged that the $15 per blood sample draw fees were significantly higher than the Medicare rate of $3, but contended the payments were legitimate because:


  • 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; and
  • 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.


The lab claimed that the whistleblower didn’t have a valid legal claim and asked the California federal court to toss the case without a trial. But the court refused [United States ex rel. STF, LLC v. Vibrant Am., LLC, 2020 U.S. Dist. LEXIS 150345].

What It Means

Even though the ruling just means the case can go to trial and isn’t a decision on the merits, it’s a critical turning point that will probably result in the lab’s having to fork over a lot of money. Explanation: Having survived summary judgment, the whistleblower is now in a far stronger negotiating position because, barring an appeal, the lab knows it will have to settle the case to avoid risking a trial.


Paying collection fees to family members of referring physicians is inherently risky, regardless of how you structure the arrangement and the fee amount you pay. As noted by the court, the OIG has issued several Fraud Alerts warning that excessive collection and processing fees paid to physicians may be deemed kickbacks to induce referral.

Such arrangements also make it easy on whistleblowers to survive summary judgment. Ultimately, the lab’s “panoply” argument and defense of the fee amount as legitimate could prove true. The problem is that to get a case tossed out of court, your lab must attack the whistleblower’s legal theory, rather than its truth. So, while the lab would get a chance to defend the fees at trial, the fact that it entered into these arrangements doomed what for any defendant should be Plan A, i.e., getting the case dismissed without having to go to trial to begin with.


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