Health insurance fraud cases take new turn with HDL-BlueWave outcome

Government shows it’s serious about Medicare and health insurance fraud cases

This is an excerpt from a 2,700-word article in the February 12, 2018, issue of THE DARK REPORT. The complete article is available for a limited time to all readers, and available at all times to paid members of the Dark Intelligence Group.

CEO SUMMARY: The outcome of the latest Medicare health insurance fraud trial has several critical elements that laboratory managers would do well to note. First, it demonstrates the new personal exposure that individuals may face from the federal government. Second, although the defendants thought they’d get a better outcome by going to a jury, they were dead wrong. Finally, it’s clear that blaming bad legal advice is a losing strategy if you’re thinking of breaking the rules. THE DARK REPORT delivers exclusive insight on how lab executives should manage compliance programs, from an experienced attorney who followed every detail of the trial.

Health care fraud cases imageON JAN. 31, A JURY IN U.S. DISTRICT COURT for the District of South Carolina found Tonya Mallory, the founder and former CEO of Health Diagnostic Laboratories (HDL) of Richmond, Va., guilty of violating the federal False Claims Act (FCA).

Also, the jury found Floyd Calhoun Dent III and Robert Bradford Johnson guilty of violating the FCA. Dent and Johnson had served as sales representatives for HDL while working for BlueWave Healthcare Consultants, HDL’s former marketing partner.

In the jury verdict, the court ordered  Mallory, Dent, and Johnson to pay $16,601,591, which, the jury found, was the value of filing 35,074 false claims for HDL’s services, said attorney Peter W. Chatfield of Phillips and Cohen in Washington, D.C.

Under the treble-damages provisions of the FCA, the defendants’ $16,601,591 liability will be tripled, said Chatfield. He followed the case closely because he represents Michael Mayes, MD, an internal medicine specialist in Hilton Head Island, S.C., who filed one of three Medicare fraud whistleblower suits in the case. As a whistleblower, Mayes stands to collect an amount that is yet to be determined, Chatfield said.

The jury also found Dent and Johnson guilty of violating the FCA for paying $10 to $20 process-and-handling-fee kickbacks to doctors to induce them to order tests from Singulex, a specialty heart lab in Alameda, Calif., the law firm said. For the 3,813 claims filed in the Singulex portion of the case, the court ruled Dent and Johnson must pay $467,935, an amount that would be tripled as well, Chatfield said.

The government alleged that Mallory, Dent, and Johnson conspired to pay kickbacks in the form of blood draw and processing and handling fees that totaled $20 for each blood test referral to HDL. In finding the defendants liable for those false claims, the jury must have concluded that at least one purpose of the payments made with respect to those claims was to induce doctors to order cardiovascular blood tests for federally-insured patients from the former defendant labs that the doctors might otherwise have thought were not medically necessary, the firm added.

The case began in 2011 when Mayes and two other whistleblowers alleged that the defendants paid kickbacks to physicians to induce them to use HDL’s bloodtesting services. The U.S. Department of Justice joined the case in 2014.

Settlement in Health Insurance Fraud Case

In April 2015, the DOJ announced that HDL and Singulex agreed to resolve allegations that they violated the FCA. Soon after the agreement was announced, HDL filed for bankruptcy and later was sold to True Health Diagnostics of Frisco, Texas. (See TDRs, April 20 and Sept. 14, 2015.)

For clinical lab directors and pathologists, one important take-away from the cases of Mallory, Dent, and Johnson is that all labs should ensure that they get good legal advice from lawyers who specialize in healthcare law, Chatfield cautioned.

“The first lesson is to recognize that, whenever you run businesses in healthcare, it is essential to get advice from people who specialize in healthcare law and understand the complex legal issues of financial arrangements,” advised Chatfield.

Another major issue in the case was how much HDL paid physicians for sending patients’ blood samples to the lab company. Those fees were paid to doctors for processing and handling lab specimens.

“HDL had been paying those fees to physicians before the Inspector General of the federal Department of Health and Human Services issued an advisory opinion in June 2014 that said the payment of P&H fees was illegal,” stated Chatfield.

The OIG issued its “Special Fraud Alert: Laboratory Payments to Referring Physicians,” on June 25, 2014.

Confusion About Payments

Chatfield explained the issue, saying, “Medicare and Medicaid will not permit labs to pay processing and handling fees to referring doctors so that there is no economic incentive to refer specimens to a specific lab.”

“But for HDL and BlueWave, there was confusion about these payments because they started paying those fees before the OIG opinion and they were paying P&H fees above the blood draw fee as a way to compensate physicians for preparing the lab samples for shipping to the lab,” he added. “Their premise was that they could pay doctors to do this because otherwise the physicians were doing work for the lab [processing specimens] that was not compensated. That premise was factually and legally wrong.”

“At this point, if HDL and BlueWave had a healthcare lawyer look at the CPT codes for how doctors are compensated, they would have discovered“ why it was legally wrong.

What lessons should lab professionals draw from this health insurance fraud case? Please share your thoughts with us in the comments below.


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