Labs In Court

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

Texas Lab Loses $30.6 Million Whistleblower Suit over False Billing of Technician Travel Mileage

Case: A case that began as a whistleblower complaint by a competing lab ended with a $30.6 million judgment against a Texas lab for falsely billing Medicare for travel reimbursements. In addition to billing for miles ostensibly driven by technicians to collect specimens that were actually shipped via airplane without any technician onboard, the lab failed to prorate mileage, treating a single shipment of multiple samples as though each sample had been shipped separately.

Significance: The lab claimed that it followed guidance from the CMS Manual suggesting that it could bill for the mileage. But the federal appeals court wasn’t impressed. For one thing, CMS guidance isn’t legally binding, especially when it contradicts clear billing laws. Besides, the lab misread the guidance which applied to billing for mileage that technicians actually travelling somewhere, which wasn’t the situation in this case. The argument that it was a reasonable mistake to believe that it could bill for miles not travelled by anyone “borders on the absurd” [United States ex rel. Drummond v. BestCare Lab. Servs., L.L.C., 2020 U.S. App. LEXIS 4904].

Failure to Give Documents to Hospital Auditor Costs Lab Its Right to Be Paid for Test

What Happened: Blue Cross Blue Shield (BCBS) initiated a billing audit of an Alabama hospital after noticing its average urine drug tests had spiked from 30 to 1,100 per month. The hospital asked its lab provider to furnish the physician orders and other records BCBS auditors needed to verify the tests were medically necessary but the lab didn’t provide them. As a result, BCBS denied the hospitals claims. In turn, the hospital withheld the $245,000 it still owed the lab under the lab services contract. The lab sued the hospital for breach of contract.

Ruling: The Alabama federal court ruled in the hospital’s favor. When one side violates a contract, the other can recover as long as it can show was in “substantial compliance” with the agreement. The hospital’s failure to pay was a clear contract violation; the problem was that the lab also violated the contract by not providing the records the hospital needed to give the auditors. The court ruled that this was a “material breach” justifying the hospital’s refusal to meet its own contractual obligation to pay [Riverboat Grp., LLC v. Ivy Creek of Tallapoosa, LLC, 2020 U.S. Dist. LEXIS 27947].

Chicago M.D. Convicted for Medically Unnecessary Allergen Tests

Case: A federal jury in Chicago convicted a physician on six fraud charges for approving medically unnecessary percutaneous allergen tests for Medicare patients over a four-year period starting in 2011. In most cases, the physician issued his approval after the tests had already been performed.

Significance: The physician was part of a larger fraud scheme involving several medical entities in an attempt to avoid attracting Medicare scrutiny by reducing the volume of billing by any single company. Upon receiving payments from Medicare, those entities sent the physician a check representing his cut of the proceeds.

Fired Lab Assistant Loses Defamation Lawsuit against Her Supervisor

Case: A lab assistant fired for poor performance claimed that her supervisor committed defamation by making the following oral remarks:

“We’re letting you go because we feel you’re not a good fit for the lab”; and

“You didn’t do anything wrong, but you were slow and not keeping up with your work.”

The federal court tossed her case. Even if the remarks were defamatory, you can’t have defamation without publication and there was no allegation the supervisor published the remarks or that any third person heard them.

Significance: The assistant’s second defamation claim, which the court also dismissed, pointed to the written statements containing those same remarks made by the supervisor for the HR files. But while being in writing satisfied the publication requirement, the written statements were protected by qualified privilege because they were part of the termination process and accessible only to those with a legitimate interest or role in that process [Nedrick v. Southside Reg’l Med. Ctr., 2020

U.S. Dist. LEXIS 20337, 2020 WL 534052].


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