Home 5 News 5 Carolina Lab Owners Shell Out $6 Million to Settle FCA Charges

Carolina Lab Owners Shell Out $6 Million to Settle FCA Charges

by | Jul 6, 2022 | News, Open Content

Owners of now defunct Physicians Choice Laboratory Services were accused of paying kickbacks to physicians to order tests from the lab.

At its pinnacle, Physicians Choice Laboratory Services (PCLS) had over 450 employees in North and South Carolina. But while PCLS is now defunct, the same cannot be said of its two former owners, Douglas Smith and Philip McHugh, who last fall agreed to fork over, respectively, $4.5 million and $2,021,795 to settle charges of falsely billing Medicare for millions of dollars in lab drug testing services over a two-year period between 2013 and 2015. 

Smith and McHugh were the kingpins in the alleged scheme under which PCLS paid physicians kickbacks in exchange for ordering tests from the lab. By subsequently billing Medicare for those services, the lab violated the False Claims Act. Smith is also one of the named defendants in a whistleblower lawsuit in a North Carolina federal court. In December 2019, a former sales rep and lab manager for PCLS was assessed a penalty of nearly $650,000 for his role in the scheme. 

Meanwhile, medically unnecessary urine drug testing (UDT) remains a primary target for federal fraud enforcers and whistleblowers. North Carolina-based Radeas LLC is among the most recent lab to fall into the dragnet, agreeing to shell out $11.6 million to settle charges of falsely billing Medicare for such tests. Between January 2016 and September 2021, Radeas billed Medicare for two types of UDT:

  • Relatively inexpensive presumptive tests for qualitative detection of drugs; and
  • High-cost tests that quantitatively confirm the results of presumptive tests and identify the types of drugs used.

Medicare covers confirmatory tests, provided that they’re medically necessary. Specifically, a physician must order the confirmatory test for the particular patient after reviewing the results of the presumptive test. The problem is that Radeas allegedly performed both tests at about the same time and then submitted the results to the physician. It then billed Medicare for the confirmatory tests even though there was no documentation to support that they were medically necessary.