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February 2024 Labs in Court

by , | Jan 26, 2024 | Essential, Lab Industry Advisor, Labs in Court

Recent cases show labs should be wary of issues such as improper relationships, medical necessity, kickbacks, and potential telehealth fraud.

Recent cases over the last few months demonstrate that the U.S. Department of Justice (DOJ) and the Office of Inspector General at the U.S. Department of Health and Human Services (HHS-OIG) continue to pursue cases against laboratories and their owners for improper relationships with ordering providers, payment of kickbacks, payment of commissions to independent contractors, and medically unnecessary testing.

Laboratory and Its Owner Settle for More Than $13 Million in Case Related to Lack of Medical Necessity, Payment of Commissions, and Improper Relationships

On January 10, 2024, the DOJ announced that a now-defunct laboratory and its owner and chief executive officer agreed to collectively pay the United States and the state of New Jersey over $13 million and cooperate in the DOJ’s ongoing investigation.1 The government contends that the laboratory and its owner engaged in multiple kickback schemes including:

    1. paying commissions to independent contractors,

    1. knowledge that the independent contractor marketers paid kickbacks to healthcare providers to induce test orders,

    1. using alleged management services organizations to pay kickbacks to healthcare providers disguised as investment returns,

    1. paying kickbacks for referrals disguised as consulting and medical director fees,

    1. paying physician practices fees for specimen collection, and

  1. submitting claims for tests that were not medically necessary, ordered regardless of patient history and treatment plan, and at the highest-reimbursing G-code, G0483.2

Laboratory Owner and CEO Indicted for Alleged Kickback Scheme and Medically Unnecessary Definitive Urine Drug Testing

In November 2023, the DOJ obtained an indictment against the co-owner and chief executive officer of a clinical laboratory for his role in paying kickbacks, having improper relationships with providers, and allegedly submitting medically unnecessary definitive urine drug testing services for over $148 million.3 The indictment alleges that for almost 10 years, the laboratory billed for at least 15 substances regardless of a provider’s order or a patient’s history or treatment plan.3 The government alleges the laboratory submitted orders on “behalf” of providers, waived co-pays and deductibles, used a “pass-through billing scheme using hospitals,” and paid physicians kickbacks disguised as ownership dividends.3 

Significant Lessons from Enforcement Actions Related to Medical Necessity, Relationships, and Billing

In both cases, the government alleges that billing uniformly at the highest-reimbursing G-code signals that testing is not medically necessary. The government’s allegation that a lab ordered on “behalf” of providers raises concerns because ordering providers are required to make determinations of medical necessity. In addition, the government has expressed concern regarding the routine waiver of co-pays and deductibles as a violation of the Anti-Kickback Statute.4 These cases highlight potentially improper relationships with management services organizations and hospitals, as well as paying dividends to referring providers through improper ownership interests. The most recent case also signals concern regarding payment of commissions to independent contractors, consistent with the enforcement trend seen over the past year in several other cases.

Recent cases also demonstrate that the DOJ and HHS-OIG continue to prioritize investigations of telemarketing and medicine fraud, particularly with respect to cancer genetic testing (CGx) and pharmacogenetic testing (PGx).

Nurse Practitioner Sentenced to 20 Years for Ordering Genetic Tests for Patients She Did Not Treat

On December 21, 2023, a nurse practitioner was sentenced to 20 years in prison after being found guilty of healthcare fraud by a federal jury in Miami.5 The government alleged, and proved at trial, that the provider worked with telemedicine and marketing companies to sign orders for CGx and PGx testing, among other services, without pre-existing relationships with patients, without physically examining patients, and based solely on brief telephone conversations with patients. Nonetheless, the provider signed certifications stating that she was the patients’ treating provider and that the genetic tests she ordered were for the diagnosis and treatment of the patients’ medical conditions. In exchange for signing genetic testing orders, the provider was paid “consultation fees” and was provided referrals and the ability to bill Medicare for telemedicine visits for patient consultations. As a result of her orders, claims were submitted to Medicare and Medicare Advantage for $119 million for genetic tests that were not medically necessary, not prescribed as the result of a legitimate telemedicine visit or provider-patient relationship, and induced through unlawful kickbacks.6 In 2020, this provider ordered more CGx tests for Medicare beneficiaries than any other provider in the nation.

DME Company Owner Indicted for Alleged $60 Million Healthcare Fraud Involving Genetic Testing

In a similar case, on December 14, 2023, the owner of a durable medical equipment (DME) company was indicted by a federal grand jury in Miami on charges that he paid kickbacks and bribes to offshore call centers operated by his co-conspirators to obtain Medicare beneficiary information and pressure beneficiaries to accept medically unnecessary products and services and to provide information needed to bill federal healthcare programs.7 The government alleges, for example, that in some instances telemarketers pretended to be Medicare representatives calling the beneficiaries. The owner and his co-conspirators are also accused of paying telemedicine and telemarketing companies to provide doctors’ orders for medically unnecessary genetic testing and medical products. Documents obtained by the government purportedly demonstrate that the owner and his company paid telemarketing firms fees based on the number of prescriptions that were generated from their calls. The government alleges that over $60 million in false claims were submitted to Medicare for medically unnecessary genetic testing and products that were also induced through kickbacks.

DOJ Continues to Prioritize Enforcement Actions Against Labs that Use Telemedicine Companies and Telemarketers to Recruit Patients

These cases are not isolated incidents in the landscape of healthcare fraud. Since HHS-OIG’s Special Fraud Alert in July 20228 concerning telemedicine companies using kickbacks to recruit and reward providers to order medically unnecessary medical services, the DOJ has prosecuted numerous laboratory owners and operators for allegedly violating the Anti-Kickback Statute by paying for patient referrals from providers working with telemedicine and telemarketing companies. These cases underscore the potential consequences that clinical laboratories and executives may face when providing remuneration to marketing companies and telemedicine providers in exchange for orders for testing. This is an active area of qui tam litigation and criminal prosecutions, and we expect to see many more enforcement actions related to the use of marketing and telemedicine companies to obtain patient referrals.


    1. “New Jersey Laboratory and Its Owner and CEO Agree to Pay Over $13 Million to Settle Allegations of Kickbacks and Unnecessary Testing,” https://www.justice.gov/opa/pr/new-jersey-laboratory-and-its-owner-and-ceo-agree-pay-over-13-million-settle-allegations

    1. Settlement, https://www.justice.gov/opa/media/1332441/dl?inline

    1. “Man Charged in $148 Medicare and Medicaid Fraud Scheme,” https://www.justice.gov/opa/pr/man-charged-148m-medicare-and-medicaid-fraud-scheme

    1. 1994 Special Fraud Alert, https://oig.hhs.gov/documents/special-fraud-alerts/876/121994.html#:~:text=Routine%20waiver%20of%20deductibles%20and,services%20paid%20for%20by%20Medicare

    1. https://www.justice.gov/opa/pr/nurse-practitioner-sentenced-192m-medicare-fraud-scheme

    1. https://www.justice.gov/criminal/criminal-fraud/file/1495681/dl?inline

    1. https://www.justice.gov/opa/pr/man-charged-60m-health-care-fraud-and-kickback-scheme

    1. https://oig.hhs.gov/documents/root/1045/sfa-telefraud.pdf

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