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

Court Refuses to Let M.D./Executives Out of Their Non-Competes

 Case: After leaving the national reference lab in which they owned equity and served as executives, a pair of Georgia pathologists wanted to open a competing lab. Standing in their way was the non-compete covenant each pathologist signed when first joining the reference lab. Rather than wait to be sued, the pathologists took the initiative and asked the Delaware court to find the covenants null and void under a Delaware state law banning any contractual provision that purports to prevent a person from practicing medicine for a period of time or within a particular locale once the contract expires. But the court refused and said the covenants were enforceable.


Significance: The point of the law is to protect the physician-patient relationship and practice of medicine. And while the pathologists were physicians, they entered into the contract not as physicians wanting to treat patients but as executives planning to run a corporate operation. In addition, they practiced in Georgia and the law in question applied only to practice in Delaware [Bakotic v. Bako Pathology LP, 2019 Del. Super. LEXIS 658].

 Fired Pipeline Worker Loses Lawsuit against Drug Testing Lab

 Case: A Louisiana pipefitting worker who lost his job at an Exxon petrochemical plant because he tested positive for marijuana sued the testing lab for a laundry list of violations, including failure to carry out the test in accordance with federal Dept. of Transportation (DOT) a Pipeline and Hazardous Materials Safety Administration (“PHMSA”) regulations. But the federal court found the claims legally invalid and tossed the suit without a trial.

Significance: The testing lab didn’t follow the five-panel drug testing method or apply the high cutoff levels that DOT and PHMSA require for worker drug testing, the court acknowledged. But it didn’t have to. The federal rules apply only to testing that an employer must submit to the DOT and PHMSA. And while the plant was subject to those regulations, the testing in this case was done under an internal employment policy. So, the DOT and PHMSA standards didn’t apply [Tilson v. DISA, Inc., 2019 U.S. Dist. LEXIS 216318, 2019 WL 6878867].

Feds Break Up Another Genetic Test Fraud Kickback Scam

 Case: The owner of two Pennsylvania genetic testing labs was indicted for allegedly paying kickbacks to generate Medicare referrals for cancer genomic testing (CGx) and pharmacogenetic testing (PGx). The feds claim the owner conspired with business consultants, marketers and a telemedicine operator to acquire thousands of testing samples from elderly patients, along with the corresponding prescriptions they needed to bill Medicare for medically unnecessary CGx and PGx testing.

Significance: The new scheme looks just like the one enforcers busted as part of the Operation Double Helix initiative announced this fall—for the details, see Lab Compliance Advisor (LCA), Oct. 29, 2019—in which marketers used used targeted campaigns to induce beneficiaries to submit CGx and PGx specimens by means of cheek swabs sent to their homes or furnished at so called “health fairs” in exchange for percentage-based kickbacks paid by the testing labs.


NYC Lab Shells Out $151K for Accepting Millennium Test Cup Kickbacks

 Case: Another month, another hefty sum paid by a lab to settle claims for accepting free point-of -care-test cups from Millennium Health. The most recently announced OIG settlement involves Manhattan-based A.R.E.B.A. – Casriel, Inc. (ACI), which will pay $151,056 for being on the receiving end of those free test cups.

Significance: At least a dozen labs and medical practices have entered into similar settlements stemming from the massive Millennium kickback scandal, with settlement amounts ranging from $40.5K to $1.128 million. For a Scorecard listing the details of each settlement, see Lab Compliance Advisor (LCA), Dec. 12, 2019.

Florida Lab, M.D. Settle HDL-Related Kickback Charges for $107.2K

 Case: A physician and the medical practice he works for have agreed to pay the OIG $107,260 for allegedly accepting kickbacks from Health Diagnostic Laboratory, Inc. (HDL) Inc. in the form of “process and handling” fees for collection of blood samples, in exchange for referrals.

Significance: The case against HDL and its lab business associate Singulex, Inc. began as a qui tam whistleblower lawsuit alleging payments of kickbacks disguised as processing fees of $10 to $17 per test to physicians in exchange for orders of medically unnecessary blood tests; then, by billing Medicare and TRICARE for tests provided under the arrangement, the labs violated the False Claims Act (FCA). In April 2015, the case settled with HDL agreeing to pay $47 million and Singulex $1.5 million. Both labs also entered into Corporate Integrity Agreements with the government.




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