Teamsters, UCFW Sue NID, Quest In Racketeering Case

Two unions file federal lawsuit and accuse nation’s largest lab firm of violating RICO Laws

CEO SUMMARY: For the second time in recent years, Quest Diagnostics Incorporated and Nichols Institute Diagnostics (NID) face a lawsuit alleging problems with a number of diagnostic test kits that were manufactured and sold by NID going back to 2000. The plaintiffs are two unions—the Teamsters and the United Food and Commercial Workers Union—who have filed a class action lawsuit alleging that the defendants violated the federal RICO act, among other claims. The lab firms deny the claims.

WHEN IT COMES TO FEDERAL RACKETEERING LAWSUITS, many people think back to the days when it was the mob and sometimes mob-influenced labor unions that were accused of violating the federal Racketeer Influenced and Corrupt Organizations Act, known as the RICO statute.

However, here’s a odd twist on that theme. Two unions are accusing Quest Diagnostics Incorporated and Nichols Institute Diagnostics (NID, a wholly-owned subsidiary of Quest Diagnostics that was shut down in 2005) of market behavior that, among other causes of action alleged in the lawsuit, violates the Federal RICO law.

Moved to Dismiss Case

The RICO cause of action is one of 10 causes of action that is included in the amended complaint, which was refiled on August 8, 2010. The lawsuit was originally filed on April 15, 2010, in federal court for the Eastern District of New York. The defendants have moved to dismiss the case and Quest has denied the allegations at issue in the suit. (See sidebar on page 9.)

The plaintiffs are a pair of health funds for the two unions. One is the International Brotherhood of Teamsters Local 456 Health and Welfare Trust Fund. The other is UFCW Local 1776 and Participating Employers Health and Welfare Fund. The two plaintiffs are suing on their own behalf and on behalf of a class of persons described in the lawsuit.

What will be of interest to pathologists, laboratory administrators, and executives at in vitro diagnostics (IVD) companies are the plaintiffs’ claims in this lawsuit. These claims center around the alleged non-performance of certain diagnostic test kits sold by NID for a period of time “between May 1, 2000 through the present,” as described in the lawsuit.

Many clinical laboratories in the United States and other countries purchased and used diagnostic test kits sold by NID during the time referenced by plaintiffs in their lawsuit. Similarly, during these same years, a number of IVD companies competed intensely with Nichols Institute Diagnostics as it marketed its analyzer and its menu of test kits. It is likely that some IVD competitors to NID are familiar with the allegations the plaintiffs are making in their lawsuit against Quest Diagnostics and NID.

These are among the reasons why both clinical laboratory professionals and IVD executives will want to understand the legal claims put forth by the Teamsters and the UFCW, on behalf of their health funds and the entire class they want to represent.

The simplest way to present these allegations is to quote directly from the plaintiffs’ amended lawsuit. The following comes from page 2 of the amended complaint (filed August 8, 2010):


  1. This class action is brought on behalf of all entities in the United States and its territories, who, for purposes other than resale, purchased, reimbursed and/or paid for Intact PTH Kits, Bio-Intact PTH Kits, 25 OH-D Kits, ACTH Kits, and DHEA-S Kits (here- in after, the “defective Nichols Kits”) during the period between May 1, 2000 through the present.
  2. Between May 1, 2000 and April 30, 2006 many of Defendants’ Kits produced results that were materially inaccurate and unreliable, and thus medically unnecessary. Inaccurate results from Defendants’ Kits led to overtreatment and unnecessary surgeries, which, in addition to the defective Kits themselves, were paid for in part or in full by Plaintiffs and Plaintiff Class members.
  3. During much of that time, Defendants misled physicians, laboratories, and the medical community at large, by promoting the accuracy and reliability of their Kits, while failing to disclose defects of which they were aware.
  4. Throughout, and possibly beyond, these six years of fraud, until federal regulators, the scientific community and the public caught up with Defendants’ misconduct, consumers and third-party payers had paid for thousands of inaccurate tests and subsequent overtreatments and unnecessary surgeries for thousands of critically ill patients, costing hundreds of millions of dollars.
  5. Consequently, Plaintiffs and all Plaintiff Class members seek damages as a result of their purchase of the afore-mentioned Kits.

Quest Diagnostics acknowledged the filing of this lawsuit. In each of its quarterly financial reports since the third quarter 2010, it has disclosed this class action lawsuit and wrote that:

In April 2010, a putative class action was filed against the Company and NID in the U.S. District Court for the Eastern District of New York on behalf of entities that allegedly purchased or paid for certain of NID’s test kits. The complaint alleges that certain of NID’s test kits were defective and that defendants, among other things, violated RICO and state consumer protection laws. The complaint alleges an unspecified amount of damages.

No other public statement issued by Quest Diagnostics about this class action lawsuit was located. In the past, however, Quest has strenuously denied the substance of these allegations, including that NID’s test kits were defective or that patients suffered harm of any kind.

Class Action Lawsuit

This class action lawsuit filed by the Teamsters and UFCW is the second legal action that has named Quest Diagnostics and Nichols Institute Diagnostics as defendants and alleged that certain test kits made and sold by NID were “defective” during a period of time starting around 2000 and lasting through 2006.

Plaintiffs in the earlier legal case were qui tam relator Thomas Cantor and the Department of Justice (DOJ), which joined Cantor’s suit after it was originally filed in federal court in 2004. This was the case that was resolved with a settlement that was announced on April 15, 2009.

Now, for the second time in as many years, attorneys for Quest Diagnostics and Nichols Institute Diagnostics must square off against plaintiffs alleging torts associated with the diagnostic kits manufactured and sold by NID. In this class action lawsuit, there are several distinctive features that bear watching by laboratory professionals, IVD executives, and health insurance managers.

Lawsuit Has Differences

For one, the causes of action in this class action are fundamentally different than the causes of action that made up the majority of the qui tam lawsuits filed over the past two decades that were unsealed and made public. These lawsuits commonly involved allegations that a laboratory had inappropriately billed and submitted claims to federal health programs, including Medicare, Medicaid, and CHAMPUS (now called TRICARE).

Typically, it would be argued that the claims in question were violations of federal statutes for false claims and anti-kick- back activity. There was no allegation that care provided a patient, for example, was negatively affected because a laboratory had offered inducements to a physician client in exchange for that physician’s Medicare patient referrals.

Cantor’s Qui Tam Lawsuit

That was not the case in the qui tam lawsuit filed by Thomas Cantor. This lawsuit alleged that certain diagnostic kits manufactured and sold by the NID during a specified number of years produced inaccurate results. The alleged failure of the diagnostic test kit to produce a test result that was consistent with its label as specified by the Food, Drug and Cosmetic Act was one basis for plaintiffs to define each resulting claim for service as a false claim.

Cantor’s whistleblower lawsuit further alleged that, when physicians relied on these inaccurate results, some patients may have received unnecessary care. That allegation is also contained in the class action lawsuit filed by the Teamsters and the UFCW.

In the past two decades, THE DARK REPORT is unaware of any major class action law suit that was: 1) based on some type of failure of, say, an FDA-cleared diagnostic test kit or a laboratory-developed test (LDT); and, alleged that the inaccurate lab test results produced when these tests were performed could have caused patients to be misdiagnosed, get care that was unnecessary, or even to get care that possibly proved life changing to the patient.

Thus, the class action suit filed by the Teamsters and the UFCW, which alleges that these types of consequences resulted as providers used the diagnostic test kits in question, has the potential to be a landmark legal case, if the plaintiffs can get past the defendants’ pending motion to dismiss.

In the qui tam lawsuit filed by Thomas Cantor, it was alleged that certain diagnostic kits manufactured and sold by the plaintiffs during a specified number of years produced inaccurate results.

For the lab industry, both the qui tam lawsuit filed by Thomas Cantor and the current class action lawsuit filed by the Teamsters and the UFCW appear to have interesting and relevant legal issues for manufacturers of diagnostic test kits and for laboratories that purchase and use those kits. Also, because such kits must perform equivalent to FDA-approved assays, this may be another legal issue.

Moreover, should this class action lawsuit actually make it to trial, it would be quite a courtroom drama to watch as lawyers representing the Teamsters union scrap with the tough battery of attorneys that look out for Quest Diagnostics’ corporate interests.

For Quest and Nichols Institute Diagnostics, Class Action Lawsuit Is an Example of DĂ©jĂ  Vu

DÉJÀ VU IS PROBABLY A GOOD DESCRIPTION of the reaction that executives from the nation’s largest laboratory testing company had last year when they learned that chapters of two national labor unions had filed a class action suit naming Quest Diagnostics Incorporated and Nichols Institute Diagnostics (NID) as defendants.

That’s because the date of this newest court filing was April 15, 2010, exactly one year to the day that Quest Diagnostics and NID had announced a settlement with the United States Department of Justice (DOJ) and whistleblower Thomas Cantor. That settlement was to resolve allegations involving certain diagnostic test kits made and sold by NID for a period lasting between 2000 and 2006.

Now, on the one-year anniversary of a settlement with the DOJ and federal health programs that totaled more than $300 million, executives at Quest Diagnostics found themselves facing a second legal action that alleged similar claims as had whistleblower Thomas Cantor in his qui tam lawsuit.

Global Settlement

As part of the global settlement with the Department of Justice, Quest Diagnostics and NID paid a total of $302 million to resolve all the allegations. Of this total, $40 million was a criminal fine paid by Nichols Institute Diagnostics as part of its guilty plea. The DOJ press release described it as a “felony misbranding charge in violation of the Food, Drug and Cosmetic Act relating to NID’s Nichols Advantage Chemiluminescence Intact Parathyroid Hormone Immunoassay, a test that was used by laboratories throughout the country to measure parathyroid hormone (PTH) levels in patients.”

In describing the civil settlement, the DOJ wrote that “Quest and NID will pay the United States $262 million plus interest to resolve False Claims Act allegations relating to the Advantage Intact PTH assay and four other assays manufactured by NID that allegedly provided inaccurate and unreliable results.”

Quest Diagnostics admitted no wrongdoing and denied the DOJ’s allegations in settling the civil action. In its April 15, 2009, press release about this settlement, Quest Diagnostics wrote that “While the company disagrees with and does not admit to the government’s civil allegations, it agreed to the settlement to put the matter behind it.” In that same press release, Michael E. Prevoznik, Senior Vice President and General Counsel of Quest Diagnostics, was quoted as saying “Quest Diagnostics conducts its business with the highest standards of quality and integrity, and we regard NID’s failure to meet our standards as unacceptable.”

Quest also emphasized that it, as distinct from its defunct subsidiary NID, was never charged with any crime, nor did Quest plead guilty to any crime. Although, in its civil action, the DOJ alleged that Quest through NID distributed defective test kits, Quest denied the tests were defective. And Quest has denied that any patients were harmed by NID’s tests, noting that the DOJ did not ultimately make such a finding.

So, it is ironic that exactly one year after this settlement involving government health programs, plaintiffs representing private health insurance plans have filed a class action lawsuit to pursue similar allegations. As in the Cantor/DOJ case, these plaintiffs claim they paid for diagnostic test kits that were defective.

In page three of their class action lawsuit, attorneys for the plaintiffs claim that “Throughout, and possibly beyond, these six years of fraud, …consumers and third-party payers had paid for thousands of inaccurate tests and subsequent overtreatments and unnecessary surgeries for thousands of critically ill patients, costing hundreds of millions of dollars.”

That allegation sets a strong battle line between the plaintiffs and the defendants in this case. This could be a high-stakes legal case. That’s because the defendants paid a total of $262 million to settle the allegations in the civil qui tam case initiated by Thomas Cantor in 2005. Maybe the lawyers for the Teamsters and UFCW, as plaintiffs, are hoping for their own déjà vu in terms of an eventual settlement.


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