Is New Cycle of Laboratory Fraud Plaguing the Industry?

Sins of a few labs may cause unnecessary pain for all clinical labs and pathology groups

CEO SUMMARY: Taken collectively, the growing number of federal investigations of lab companies and health insurer lawsuits against lab companies alleging fraudulent business practices signals a disturbing new trend for the lab industry.  In THE DARK REPORT’s typical hard-hitting analysis of an emerging clinical laboratory trend, it is noted that while these allegations are leveled at just a handful of lab companies, the amount of money these labs took out of the system exceeds a billion dollars, and some experts predict that payers will enact tough requirements to stop such abuses. 

STARTING ABOUT TWO YEARS AGO, a stream of news stories about federal investigations of certain clinical laboratory companies for fraudulent practices have made regional and national headlines. During this same time, a number of health insurance companies have also made news after filing lawsuits against certain clinical lab companies that allege similar laboratory fraud.

Examples of recent federal criminal or civil cases against laboratories include:

  • BioDiagnostic Laboratory Services, Parsippany, NJ, March 2013: federal convictions of 38 people, including 25 physicians, for offering bribes or accepting inducements to refer lab tests
  • Health Diagnostic Laboratory, Inc., Richmond, VA, April, 2015: civil settlement of allegations that the lab paid inducements to physicians for referrals and billed Medicare and Medicaid for medically-unnecessary tests.
  • Singulex Laboratories, Alameda, CA: April 2015: civil settlement of allegations that the lab paid inducements to physicians for referrals and billed Medicare and Medicaid for medically- unnecessary tests.
  • Bostwick Laboratories, Nashville, TN, August, 2013 and October, 2014: two civil agreements with the federal DOJ to settle allegations of offering kickback incentives to physicians in exchange for referrals.
  • Millennium Health LLC, San Diego, CA, case not settled: In June, The Wall Street Journal reported that Millennium, a large toxicology testing lab company, was in settlement talks with the federal government to resolve allegations of billing Medicare and Medicaid for medically-unnecessary tests (and possible other violations). Settlement amount rumored to be in the range of $250 million.

Big-Dollar Laboratory Fraud Cases

Several of these federal cases against lab companies involve large sums of money. Biodiagnostic Laboratory Services was said to have generated revenue of $200 million in the eight years of 2006 through 2013. Health Diagnostic Laboratories is reported to have produced revenue of $417 million in calendar 2012 and was projected to post revenue of $383 million in calendar 2013. That’s a total of $800 million in revenue at this one lab company in just two years!

Pathologists and lab managers should not miss the point: this handful of bad actors in the lab industry accused of fraudulent business practices have taken more than $1 billion out of the healthcare system in just a couple of years! Keep in mind that the total spent on clinical laboratory testing is about $75 billion per year (per a recent Cain Brothers lab industry report).

Thus, if this small group of labs was able to pull $1 billion and more from their schemes to induce medically-unnecessary testing, what is the total amount of fraudulent lab test billing that Medicare, Medicaid, and private health insurance officials see?

The upside for the entire clinical laboratory industry from these developments is that the sooner payers take action against that class of labs considered to be engaged in fraudulent business practices, the sooner the competitive playing field will be leveled. The downside is that, should the federal Medicare and Medicaid programs enact onerous new requirements to stop these fraudulent schemes, this would add another expensive burden for those lab organizations that have always taken great care to fully comply with all laws and the terms of their provider contracts.


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