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

LabCorp Can Sue Physician to Collect $117K Worth of “Pass-Through” Charges for Uninsured Patients

Case: Labs like LabCorp typically enter “pass-through” arrangements with physicians covering patients that lack insurance or are otherwise self-pay. The way it works: The lab bills the physician who ordered the results. The physician then pays the bill and seeks reimbursement from the patient. Thus, the charges “pass through” the physician to the patient. LabCorp contends that this was the case with a New Mexico physician liable for $117,210 of unpaid charges on a pair of accounts. But the physician disagreed, claiming that the accounts were set up solely to facilitate billing for insured patients and that he had never agreed to pay for any services rendered to uninsured patients. So, he asked the federal court to dismiss the claim.

Significance: The court refused. Even though the agreement didn’t specifically mention it, the court concluded that LabCorp had presented evidence showing that the physician’s open accounts amounted to a pass-through arrangement. Specifically, LabCorp contended that it told the physician as part of its standard practice in setting up accounts that account holders are held liable for any charges not paid by insurance. It also claimed it performed “in-services” to review the physician’s billing terms the way it does will all account holders. The physician also knew that pass-through arrangements were a customary practice in the industry. While not ruling on whether all of this proved that there was a pass-through arrangement in place, the court concluded that the evidence created enough of a question to warrant a trial.

[Lab. Corp. of America v. McMahon, 2020 U.S. Dist. LEXIS 227956, 2020 WL 7125249]

Texas Hospital Pays $48 Million to Settle False Claims and Kickback Charges

Case: In one of the largest kickback settlements of 2020, Texas Heart Hospital of the Southwest, a partially physician-owned hospital, and its management company subsidiary (which we’ll refer to collectively as Heart Hospital) have agreed to shell out $48 million to settle federal healthcare fraud charges. The first thing Heart Hospital allegedly did wrong was requiring physicians to satisfy annual 48 patient contacts per year to maintain ownership in the hospital, in violation of the
Anti-Kickback Statute and Stark Law. By subsequently billing Medicare for services provided to patients as a result of those illegal arrangements, Heart Hospital then violated the
False Claims Act.

Significance: The case began when two former physician owners, Mitchell Magee and Todd Dewey, brought a whistleblower lawsuit against Heart Hospital. As a reward, they will split a $13.9 million share of the recovery.

Georgia Physician Pays $36,000 to Settle HIPAA Right of Access Violation Charges

Case: In April 2019, the HHS Office for Civil Rights (OCR) received a complaint about a primary care physician practice’s failure to respond to a patient’s request for access to his medical records. A month later, OCR provided technical assistance to the practice on the HIPAA right of access requirements and closed the complaint. But in October 2019, the agency received a second complaint alleging that the practice still hadn’t given the patient access to his medical records. So, OCR investigated and determined that the practice’s failure to provide the requested medical records was a potential violation of the HIPAA right of access standard. In addition to eventually giving the patient access, the practice agreed to settle the complaint for $36,000 and agreement to take corrective actions and undergo two years of OCR monitoring.

Significance: This is the 13th settlement of an investigation under the OCR’s HIPAA Right of Access Initiative, which began in the spring of 2019. Here’s a Scorecard of all announced settlements to date. For more on the Initiative, see
National Intelligence Review (NIR), Nov. 18, 2020.

OCR Right of Access Initiative Settlements Scorecard (as of Dec. 29, 2020)

Provider Settlement Amount* Allegations
St. Joseph’s Hospital and Medical Center 160000 Phoenix hospital refused to provide PHI to patient’s mother even though she was his legal representative
NY Spine Medicine 100000 Neurology practice refuses patient’s multiple requests for copies of specific diagnostic films
Bayfront Hospital 85000 Florida hospital didn’t provide expectant mother timely access to the PHI of her unborn child
Korunda Medical 85000 After first refusing to provide it at all, Florida primary care and interventional pain management services provider sent patient’s PHI to third party in the wrong format and charged him excessive fees
Beth Israel Lahey Health Behavioral Services 70000 Massachusetts provider ignored request of personal representative seeking access to her father’s PHI
University of Cincinnati Medical Center, LLC 65000 Ohio academic medical center failed to respond to patient’s request to send an electronic copy of her medical records maintained in its electronic health record EHR to her lawyers
Housing Works Inc. 38000 New York City non-profit services provider refused patient’s request for a copy of his medical records
Peter Wrobel, M.D., P.C., dba Elite Primary Care 36000 Georgia primary care practice failed to provide patient access to his medical records
Riverside Psychiatric Medical Group 25000 California medical group didn’t provide patient copy of her medical records despite repeated requests and OCR intervention
Dr. Rajendra Bhayani 15000 NY physician didn’t provide patient her medical records even after OCR intervened and closed the complaint
All Inclusive Medical Services, Inc. 15000 California multi-specialty family medicine clinic refused patient’s requests to inspect and receive a copy of her records
Wise Psychiatry, PC 10000 Colorado psychiatric firm refused to provide personal representative access to his minor son’s medical record
King MD 3500 Virginia psychiatric practice didn’t provide patient access to her medical records even after OCR intervened, provided technical assistance and closed the complaint

New York Court Tosses Case against Lab Accused of Drug Test Tampering and Falsification

Case: After his court-ordered hair follicle tests came back positive for cocaine, Mr. S, a gentleman accused of child abuse sued the testing lab for fraud and mental distress. “I don’t use drugs of any kind,” he insisted, contending that the lab tinkered with the sample and falsified the results. The test lab filed a motion to dismiss all claims without a trial.
Result: Motion granted.

Significance: The issue wasn’t necessarily the truth of the charges. The reason the New York federal court tossed the claims is that in all three cases Mr. S’s
legal theory was faulty:

  • The fraud claim was invalid because Mr. S left a vital element of the fraud tort out of his complaint, namely, that the lab made any intentional misrepresentations to him;
  • The intentional infliction of mental distress claim failed because even if the allegations were true, the lab’s actions didn’t amount to conduct “so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized society,” which is the standard required to prove that tort; and
  • The negligent inflection of mental distress claim was defective because, again, Mr. S left an essential element of the tort out of his pleading, i.e., the “guarantee” that his alleged distress was “genuine.”

[Spencer v. Lab. Corp. of Am. Holdings, 2020 U.S. Dist. LEXIS 223451, 2020 WL 7024381]

Technician Who Never Complained Can’t Sue Lab for Supervisor’s Alleged Sex Harassment

Case: He dismissed her as a “typical millennial” and “Princess Diana” (Diana happened to be her first name). He asked her why she didn’t wear stiletto heels and low-cut tops. Above all, he constantly (and falsely) referred to her as a lesbian and a “softball player,” a derogatory term for lesbians. But at the end of the day, none of these things that her supervisor allegedly did turned out to be enough for a lab technician to make out a legal case for creating a hostile work environment against the lab. But while dismissing the sex harassment case, the Illinois federal court allowed the lab technician to go to trial on her claim that the supervisor retaliated against her for exercising her
Family and Medical Leave Act (FMLA) rights.

Significance: This was a fairly complex case with a lot of context, most of it involving issues other than sex harassment. The key facts that worked to the lab’s advantage with regard to the sex harassment claim:

  • The lab had a clear and strongly worded sex harassment policy;
  • The technician was good at her job and did productive work;
  • She worked well with the supervisor and while there was some back and forth between, it appeared mutual and mostly playful; and
  • Most important of all, the technician never once went to HR or anybody else to complain about sex harassment.

[Trahanas v. Northwestern Univ., 2020 U.S. Dist. LEXIS 241663]


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