Kickbacks

LabCorp Faces Trial for Providing In-Office Phlebotomist Services to Doctors Taking Processing and Handling Fees from HDL

The Health Diagnostic Laboratory (HDL) and Singulex, Inc. scam in which physicians were paid process and handling fees for referrals of medically unnecessary blood tests remains the biggest and most notorious lab kickback scandal in history. And while the entities settled in 2015, the case remains highly radioactive to not only the HDL and Singulex principals but also the physicians on the receiving end of those illegal processing and handling fees. The fallout has even extended to other testing labs that allegedly went about their business even though they were aware of what was going on. One of the biggest targets has been LabCorp, which a federal court has now ruled must stand trial for False Claims Act (FCA) violations stemming from its highly indirect and peripheral role in the scandal.

The South Carolina Whistleblower Case

The whistleblowers contend that LabCorp technicians stationed inside the offices of doctors taking illegal processing fees from HDL and Singulex were aware of the kickback arrangement but continued to draw blood from patients knowing that the specimens would be referred to HDL and Singulex for tests that would be subsequently billed to Medicare. Because those tests were the product of an illegal kickback, billing for them amounted to making a false claim under the FCA.

The case has been going on for years. The government has declined to intervene. And the South Carolina federal district court has dismissed three of the four broad sets of claims. But one group of claims has survived, namely, those related to whether the lab giant conspired in false claims made by HDL and Singulex and submitted false claims of its own. The newest ruling is on LabCorp’s motion for summary judgment, i.e., dismissal without trial, on those claims. The court denied the motion, giving the relators an opportunity to prove the charges at trial.

Issue 1: Is LabCorp Liable for False Claims of HDL and Singulex?

The FCA imposes liability on “any person who knowingly . . . causes to be presented, a false or fraudulent claim for payment or approval” (Section 3729(a)(1)(A)). A person doesn’t have to be the one that actually submits the claim to be liable. Liability extends to claims that are rendered false by one party, but submitted to the government by another. The relators claimed that LabCorp had crossed the line and was liable for the false claims submitted by HDL and Singulex in connection with the blood draws of its in-office phlebotomists for the doctors receiving the processing and handling fees. To rule on this issue, the court focused on two parts of Section 3729(a)(1)(A)).

Did LabCorp Act “Knowingly”? The FCA defines “knowingly” as actual knowledge or acting in deliberate ignorance or in reckless disregard of the truth or falsity of the information. It doesn’t require that the person have a specific intent to defraud. In deciding a summary judgment motion, courts look at the record in the light most favorable to the party being targeted for dismissal, in this case, the relators. Seen from this perspective, the court ruled that there were “disputes of material fact as to whether LabCorp acted in reckless disregard to the falsity of the information” presented in billing for the tests. Specifically, there was evidence showing that LabCorp was aware that its phlebotomists had been drawing blood for doctors who were “getting paid by HDL” and “that HDL calls the fee a ‘process and handling fee.’” Later, it anonymously asked the OIG to issue a Special Fraud Alert identifying HDL’s payment of processing and handling fees as a potential violation of the Antikickback Statute (AKS).

Did LabCorp “Cause” a False Claim to Be Presented? The FCA doesn’t specifically define what it means to “cause” a false claim to be presented. The standard courts use is whether the person was “a substantial factor” in the claim’s being presented and whether such presentation was foreseeable. The court had no trouble finding that it was foreseeable to LabCorp that HDL and Singulex would present claims to Medicare for the illegally referred tests. And the fact that its phlebotomists were drawing blood for the tests was also a “substantial factor.”

Issue 2: Did LabCorp Submit False Claims of Its Own?

Section 3729(a)(1)(A) of the FCA imposes liability on a person who “knowingly presents. . . . a false or fraudulent claim for payment.” The relators claimed that LabCorp itself paid kickbacks to the referring physicians by having its phlebotomist provide “courtesy draws,” free blood draws to the doctors it knew were receiving kickbacks from HDL and Singulex to induce referrals to LabCorp. By then billing Medicare for tests done on those specimens, it submitted false claims. The court ruled that a jury could rule either way on whether courtesy draws crossed the line. As a result, it denied summary judgment on the claim.

Issue 3: Did LabCorp Conspire with HDL and Singulex to Submit False Claims?

Having found that there were genuine, trial-worthy disputes over whether the same was true on the question of whether LabCorp had knowingly presented, or caused to be presented a false or fraudulent claim for payment under Section 3729(a)(1)(A), the remaining issue was whether it had also conspired with HDL and Singulex to commit such violations (in violation of the Section 3729(a)(1)(C) ban on conspiring to violate subparagraph (A)).

Unfortunately for LabCorp, the court said there was. Essentially, the same evidence showing that LabCorp knew what was going on but allowed its phlebotomists to continue drawing blood for physicians on the HDL and Singulex dole was enough to raise a trialable issue on conspiracy.

United States ex. rel. Lutz v. Lab. Corp. of Am. Holdings, 2021 U.S. Dist. LEXIS 112832, 2021 WL 2457693

Takeaway

Denial of summary judgment isn’t a ruling on the merits. The relators will still have to prove their claims. And holding LabCorp liable for participating in the FCA offenses committed by HDL and Singulex will be anything but easy.

One key piece of evidence that wasn’t enough to secure summary judgment but may be significant in defending the charges at trial is that after its LabCorp’s compliance department investigated and became aware that in-office phlebotomists were drawing blood for doctors who were paid processing and handling fees by HDL and Singulex, certain LabCorp divisions stopped drawing blood for testing by those labs, required doctors to certify that they weren’t receiving processing and handling fees, or instituted a $5 draw fee on the doctor. The key question is whether those actions were too little, too late, and why they weren’t implemented across all LabCorp divisions.

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