Labs In Court: A roundup of recent cases and enforcement actions involving the diagnostics industry

HDL, Part II: Time to Hold the Individual Officers Accountable
Case: Three years after Health Diagnostics Laboratory, Inc. (HDL) and its marketing partner BlueWave Healthcare Consultants—both now defunct— paid the feds $50 million to settle kickback claims, the individuals involved in the scheme have been brought to justice. On Jan. 31, a federal jury in South Carolina unanimously convicted HDL's former CEO and BlueWave's two co-owners of conspiring to pay doctors sham specimen processing and handling fees of $17 and routinely waiving copays and deductibles in exchange for referring Medicare and Tricare to HDL and its partner Singulex for medically unnecessary blood testing. But the $16 million damage award the jury returned was far below the $174 million the DOJ asked for.

Significance: For sheer dimensions, the HDL scheme has been described as among, if not the biggest case of lab fraud ever. In many ways, it also represents the new dynamic of federal healthcare fraud enforcement, not simply because it began as a whistleblower suit (actually, a series of three suits) but in its following of Yates Memo principles of separating the corporation from its individual principals and going after each group separately. This strategy represents a dramatic departure from previous DOJ policy of focusing on the corporate entity and allowing the individuals to avail themselves of the corporate liability shield and legal defense.

Illumina Wins $26.7 Million in Patent Infringement Damages
Case: Illumina won a patent infringement lawsuit against Ariosa Diagnostics in the US District Court of the Northern District of California. The case began in 2014 when Illumina claimed that Ariosa's test for "simultaneous quantification of hundreds of DNA loci" infringed the former's patent covering methods for amplifying and genotyping samples simultaneously. That same year, Roche acquired Ariosa and created a microarray version of the test. So Illumina filed a second suit claiming that the new test also infringed. The jury agreed with both claims and awarded Illumina $26.7 million in damages.

Significance: The case may not be over. General counsel for Roche Molecular Solutions is quoted as saying in an email that the company is disappointed" with the decision and is reviewing its legal options. Stay tuned.

Fresenius Settles HIPAA ePHI Charges for $3.5 Million
Case: HIPAA requires providers to perform a thorough risk assessment of the systems they use to secure electronic personal health information (ePHI) and correct the vulnerabilities they identify. On Feb. 1, the federal agency that enforces the HIPAA rules, the HHS Office for Civil Rights, announced that Fresenius Medical Care North America has agreed to fork over $3.5 million to settle charges of failing to meet this obligation at five of its facilities. The specific forms of violation varied from facility to facility—lack of procedures for incident response, no policies for removing hardware and electronic media containing ePHI within and outside the facility, inadequate encryption, failure to prevent unauthorized access, etc.

Significance: Although the $3.5 million fine stings, the real pain point for Fresenius may be the onerous corrective action plan that OCR imposed on the affected facilities, including the obligation to:

• Conduct a top-to-bottom HIPAA compliance audits;
• Submit a Risk Management Plan based on the audit findings to HHS for approval;
• Submit separate written reports on encryption measures and device and media controls;
• Develop and implement an enhanced privacy and security awareness training program; and
• Deliver annual reports and training reports.

Allergy Firm Claims Quest Conspired to Freeze It Out of the Market
Case: Texas-based United Allergy Services (UAS) is suing Quest Diagnostics for conspiring with Thermo Fisher Scientific's Phadia business and other market players to squeeze it out of the market in a deliberate bid to eliminate lower-priced competition. The suit claims that Quest and its co-conspirators persuaded insurers and other potential customers that doing business with UAS would create "medical, legal and other risks." UAS, which provides testing and allergen immunotherapy for hay fever and other allergies, claims it lost $200 million in profits as a result of the plot.

Significance: There's a mysterious subtext. The case actually began in 2014, when UAS sued Quest's co-conspirators but not Quest. Why UAS decided to bring a separate subsequent action against the lab giant rather than naming it in the original suit is unclear. In any event, that original suit has now been dismissed. Meanwhile the plot thickens, as UAS deals with a whistleblower lawsuit by a former marketing representative accusing it of overbilling Medicare for allergy testing. It adds up to a fascinating drama and we'll keep you apprised as it unfolds.