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

No Dice for Whistleblower Claim Blaming Software Firm for Double-Billing

Case: A physician coding supervisor for a North Carolina health system that used billing software from Epic filed a qui tam lawsuit against the firm claiming that the product caused it to double-bill the government for “hundreds of millions of dollars” worth of anesthesia services. The government declined to join the case and the district court judge in Florida tossed it out without a trial [US ex rel. Petrowski v. Epic Systems Corp.].

Significance:The whistleblower’s legal problems stemmed less from the claim’s substantive merits—or lack thereof—but the amateurish and ineffective way in which it was asserted. The judge chastised the whistleblower for merely parroting language from the False Claims Act and failing to provide specific, credible allegations of how Epic had violated it. To make matters worse, she didn’t try to amend and clarify the complaint even after Epic moved to have it dismissed due to vagueness and lack of specificity. But the whistleblower is considering her appeal options and the case may not yet be over.

Vermont Hospital Accused of Falsely Billing Outpatient Tests Settles for $1.65 Million

Case: The DOJ contended that between 2012 and 2014 Brattleboro Memorial Hospital (BMH) knowingly submitted claims for outpatient lab tests without the required medical necessity documentation. “In some instances, the clinicians’ orders for laboratory tests did not appear to adequately document the diagnosis code included on the billing claim form as required,” according to the U.S. Attorney. Rather than risk a trial, BMH coughed up $1,655,000 to settle the case.

Significance: BMH likely avoided a much higher fine by fully cooperating with the investigation and implementing billing system and personnel changes to address the problem that led to the improper billing. The bad news is that BMH might have been able to prevent the case from being brought in the first place had it heeded the warnings of the veteran administrator in the finance department who allegedly observed the billing improprieties. But after her “vigorous protests” went ignored and she began experience what felt like recriminations, she went the legal route by filing a qui tam whistleblower lawsuit against BMH. The government joined the suit, all but forcing the settlement and the whistleblower will share 15% to 20% of the recovery.

Doctor Busted for Drug Test Abuses as Part of “Pill Mill” Scam

Case: Dr. Rodney Moret, a 67-year-old Michigan M.D, pleaded guilty to using his pain management and HIV infusion clinic as a “pill mill.” In addition to illegally dispensing $15 million worth of prescription drugs, including controlled substances Hydrocodone, Alprazolam, and promethazine with codeine cough syrup, the doctor billed Medicare for $6 million worth of tests that were either not medically necessary or not performed at all. Sexually molesting and harassing female patients made an ugly situation that much more hideous and surely weighed in the judge’s decision to sentence the doctor to 75 months’ imprisonment.

Significance: Dr. Moret is the most recent doctor taken down in what has become a crucial part of the federal government’s opioid drug crusade: urine tests ordered by prescribing physicians to be performed at the labs they own. (See GCA March 2018, for more details.)

Drug Testing Lab & Referring Psychiatrist Indicted for Kickbacks

Case: After a lengthy investigation, the feds indicted the owner of a now-defunct Kentucky clinical drug testing and screening lab for allegedly paying $843,242 to a psychiatrist in illegal kickbacks for Medicaid patient referrals. The psychiatrist was also indicted.

Significance: Each defendant faces a maximum sentence of $250,000 in fines and/or five years in jail. The lab owner denies the charges citing his 50+ years of sanction-less service; the psychiatrist has yet to respond.

Precipio Inc. Settles Shareholders’ Suit for $1.9 Million

Case: Crede Capital Group invested $5 million in Transgenomic in exchange for stocks and warrants. In June 2017, Transgenomic merged with molecular DX firm Precipio and the surviving company, Precipio Inc., assumed Transgenomic’s debts. Crede then exercised its Transgenomic warrants. But when Precipio Inc. allegedly did not make the required cash payments and Crede sued for $2 million in damages. Rather than fight it out in court, the parties have agreed to settle the case for $1.925 million in cash, stock or a combination of both to be paid out over a 15-month period.

Significance: The settlement is just one of the things the newly merged firm has done to reduce Transgenomic’s roughly $19+ million pre-merger debt to $7 million. News of the debt reduction, which was included as part of Precipio Inc.’s most recent Securities Exchange Commission public filing, sent shares up nearly 30% to $.66.


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