This is a synopsis of three in-depth articles in the Aug. 12, 2019 issue of THE DARK REPORT (TDR). The full articles are available to members of The Dark Intelligence Group.
CEO SUMMARY: In 2017, an auditor for CMS alleged that True Health Diagnostics filed fraudulent claims and the federal Medicare program cut all payments to the lab company-one month later, the cuts were reduced to 35% of the billed amount. Two months ago, CMS ended all payments again. True Health filed a lawsuit in federal court, asking for an injunction to compel CMS to pay the disputed lab test claims. But when the judge dismissed the lawsuit, True Health filed for Chapter 11 bankruptcy. These types of activities are what cause officials to act punitively against all labs, making it critical for laboratory management to understand such cases. THE DARK REPORT is the only news source providing in-depth insights about this case.
Last month, True Health Diagnostics of Frisco, Texas, filed a Chapter 11 bankruptcy petition in federal court in Delaware. On July 30, 2019, True Health said the bankruptcy filing was a consequence of Medicare officials suspending 100% of payments to the laboratory company in June, leaving it without the cash needed to continue operating.
On the same day, True Health announced plans to lay off 392 employees in its laboratory in Richmond, Va., and notified officials in Virginia that it may need to cease operations, depending on the outcome of its dispute with the federal Centers for Medicare and Medicaid Services (CMS).
The dispute began in 2017 when CMS auditors found ‘credible allegations of fraud,’ prompting CMS to cut 100% of its payments to True Health. By last month, the total loss in payments over two years came to more than $20 million.
This story is an important one for clinical laboratories because of federal audits and CMS’ actions in response. True Health Diagnostics detailed those actions in a lawsuit it filed on July 2 in U.S. District Court in Texas against the federal Secretary of Health and Human Services (HHS) Alex M. Azar II and CMS Administrator Seema Verma.
Over the past several years, The Dark Reporthas reported on bankruptcies and closures of multiple lab companies after federal audits led CMS to assess sizable recoupment amounts—often in the tens of millions of dollars. At times, these amounts have totaled 100% of an audited lab’s revenue for three to five years.
The Dark Report believes enough laboratory companies have failed after Medicare audits and sizeable recoupment demands that such aggressive actions from CMS may mean these steps represent a new trend for the clinical lab industry that didn’t exist five years ago.
That is why the information and allegations contained in the court papers filed by True Health Diagnostics offer useful insights into the actions of Medicare auditors and how CMS officials are using those audit findings to either assess a substantial recoupment amount against the lab or to even completely stop reimbursing claims submitted by that lab company.
“The situation at True Health shows how closely CMS and the federal Department of Justice continue to scrutinize the lab industry,” commented Justin T. Berger, a Principal with the law firm of Cotchett, Pitre and McCarthy and a lawyer who has represented whistleblowers in qui tamactions under the federal and California false claims acts.
Did Lab Fraud and Abuse Happen?
Of equal importance to this story are allegations within the court documents of Medicare fraud and abuse. In its lawsuit, True Health Diagnostics denied that it has committed fraud. The Dark Report sought comment from CMS and True Health and as our issue went to press, True Health had not responded to our request.
In response to True Health’s lawsuit, HHS also filed documents with the court that describe the findings of the Medicare auditors and alleging that True Health billed CMS improperly.
The final chapter in this story has yet to be written because statements in the court documents indicate that True Health faces a federal qui tam (whistleblower) lawsuit that was filed in 2015 and that remains under seal.
The dispute between True Health Diagnostics and CMS became public on July 2 when True Health filed its lawsuit against HHS and CMS. In its lawsuit, True Health describes its two-year dispute with CMS.
This dispute started when CMS alleged that True Health filed fraudulent claims for lab testing and CMS stopped paying True Health’s claims in May 2017. Since then, CMS has withheld more than $20 million in payments without due process, True Health said in the lawsuit. The dollar amounts are significant because True Health Diagnostics serves about 335,000 individuals annually, with more than 65,000 of those people on Medicare, the lawsuit said.
Medicare Withholds Payment
One month later, in June 2017, CMS decided that instead of stopping 100% of all payments to True Health, CMS would pay 35% of the total payments the lab requested in the lab-test claims it filed.
At the point when True Health Diagnostics believed it was doing what was needed to end the suspension of payments, the case took an unusual turn in June of this year when CMS again stopped paying 100% of True Health’s claims. The move forced the lab company to file for bankruptcy protection and to lay off workers.
In response to CMS’ action to cut all payments in June, True Health sought an injunction against CMS on July 2 to require the agency to restore payments.
Just three weeks later, on July 22, U.S. District Court Judge Michael J. Truncale dismissed the case, a move that led to the bankruptcy filing and layoffs in Virginia.
Based on information in True Health Diagnostics’ court filings, it appears that the private companies working as Medicare auditors used statistical sampling and extrapolation. Under this method, auditors audit a small number of claims, then extrapolate those results across the total number of claims filed over a specific period of time to determine a larger number that could be considered in error or fraudulent.
Federal Agent’s Declaration of Fraud
The lawsuit True Health Diagnosticsfiled tells one side of the story. Another side of the story comes from a sworn declaration from Special Agent Jack J. Geren Jr., of the Office of Inspector General of the federal Department of Health and Human Services.
Geren has served as a special agent since 1998 and is assigned to the Office of Investigations for HHS’ Office of Inspector General in its Dallas regional office. He investigates fraud in the Medicare and Medicaid programs. While investigating True Health, Gereen said he believes “the company and its principals are engaged in a scheme to defraud federal healthcare programs.”
His declaration begins with the fact that True Health Diagnosticspurchased the assets of Health Diagnostics Laboratory in 2015 and “hired many of the individuals associated with HDL’s fraudulent conduct,” he said. “Prior to the acquisition, HDL had been driven out of business as a result of pervasive healthcare fraud,” he added.
After the HDL acquisition, said Geren, “…in an internal board of directors meeting on October 15, 2015, True Health noted that it was ‘business as usual.’”
“Specifically, evidence in the ongoing civil and criminal investigations, which began in 2017, suggests that True Health Diagnostics—following its acquisition of HDL and hiring its former employees—engaged (and continues to engage) in criminal activity commonly referred to as payment of illegal remuneration, money laundering, billing for services not rendered, and billing for medically unnecessary services.”
Then, Geren explained, True Health Diagnosticsworked with rural hospitals to route patient blood samples through those rural facilities because Medicare paid those hospitals more to process certain lab tests than it paid non-rural hospitals. Also, True Health recruited physicians and allegedly overpaid them to send patients’ specimens to rural hospitals that submitted claims to CMS on behalf of True Health, he said. “Ultimately, the scheme comes at the expense of the taxpayer,” he added.
What would you do if a lab you worked at appeared to be engaging in fraudulent activities? Please share your thoughts with us in the comments below.