Alberta Lab RFP, FTC, LabMD Biodiagnostic Lab Services Guilty Pleas


NEWS LEAKED ON SEPTEMBER 19 that Alberta Health Services (AHS) is preparing to issue a request for proposal (RFP) to select a company to build a state-of-the clinical laboratory facility to serve Edmonton, Alberta, and the surrounding region.

A news report published by the Edmonton Journal stated that “AHS President and CEO Chris Eagle said the proposed opportunity is potentially worth $3 billion [US$2.9 billion] over 15 years. The contract would call for a single company to build and then run a lab facility capable of handling a greater load and variety of medical tests.”

The Province of Alberta has been among the most aggressive in Canada at attacking clinical laboratory testing costs during the past 20 years. During the mid-1990s, it pushed through a major restructuring of the entire provincial healthcare system that included a cut in lab test budgets of about 40% in one year. (See TDR, January 6, 1997.)

Currently, there are two regional lab operations. AHS operates a single consolidated regional laboratory operation in Calgary. The lab testing arrangements in Edmonton are different. In Calgary, Calgary Laboratory Services is a whollyowned subsidiary of AHS. In Edmonton, the academic medical center handles its own testing and AHS has a contract with DynaLife to provide outpatient/outreach laboratory testing services.

This latest move by AHS is in anticipation of the expiration of its existing contract with DynaLife that ends in March 2015, along with the fact that DynaLife’s lease on its lab facility in downtown Edmonton will end in 2017.

DynaLife was originally created in 1996. That’s when three lab companies in Edmonton were merged into an entity then called Dynacare Kasper Medical Laboratories. The lab firms were Dynacare, Inc. (now owned by Laboratory Corporation of America), MDS Health Group (which sold its laboratory operations, now called LifeLabs), and Kasper Medical Laboratories, an independent lab company.

The leaked AHS memo stated that the volume of clinical lab tests in Alberta is increasing at the rate of 6% per year. There is also the need to accommodate the growth of expensive and complex molecular and genetic tests and support that testing with an enhanced information system.

What will be interesting to watch is which laboratory companies submit bids in response to the lab RFP. LifeLabs and Dynacare are the biggest private lab players in Canada, but the size of this project may attract the attention of such multi-billion- dollar lab giants like Quest Diagnostics Incorporated of the United States and Sonic Healthcare Ltd. of Australia.


TWO MORE PHYSICIANS AND ANOTHER LAB sales rep entered guilty pleas on September 11 as part of the ongoing federal prosecution of Biodiagnostic Laboratory Services LLC (BLS), of Parsippany, New Jersey.

This case first became public on April 9 when New Jersey U.S. Attorney Paul J. Fishman announced the arrest of the owner and several executives of BLS. Fishman said the laboratory generated revenue of $200 million between 2006 and 2013.

The scale of the fraud and kickbacks the lab paid to physicians is revealing. Fishman stated that Angelo Calabrese, M.D., a doctor with offices in North Arlington, New Jersey, referred at least $600,000 in lab test business to BLS between 2010 and 2013. In return, BLS paid him $130,000 in bribes. These payments were in the form of a sham consulting agreement and a sham rental agreement that generated payments of $4,500 per month, according to the U.S. Attorney’s press release.

Paul Ostergaard, M.D., with offices in Pompton Plains, New Jersey, admitted accepting “more than $50,000 in bribes to refer at least $150,000 in lab business to BLS.” According to the press release, this money came to Ostergaard in the form of a sham consulting agreement and a sham rental agreement.

With his guilty plea, BLS sales representative David McCann, 45, of Lyndhurst, New Jersey, admitted that he “paid thousands of dollars in cash on a monthly basis between December 2011 and April 2013 to numerous physicians on behalf of BLS in exchange for the doctors’ referral of blood specimens to BLS,” stated Fishman.

All three individuals face jail time and big fines. The two doctors must forfeit substantial amounts of cash. The press release said “the bribery count to which Calabrese and Ostergaard pleaded guilty is punishable by a maximum potential penalty of five years in prison and a $250,000 fine. McCann faces a maximum potential penalty of five years in prison and a $250,000 fine on the bribery conspiracy charge. Sentencing for all three defendants is scheduled for March 13, 2014.”

As to the forfeitures, the press release went on to say that “Calabrese and Ostergaard have also agreed to forfeit $334,000 and $53,900, respectively. The investigation has so far recovered more than $3 million through forfeiture.”

With these new pleas on September 11, the number of people who have pleaded guilty in the BLS case now totals 17. These defendants include the owner and executives of Biodiagnostic Laboratory Services, several of the lab’s sales representatives, and physicians who have admitted to accepting bribes in exchange for referring specimens to BLS.

Laboratory administrators and pathologists may want to use the stories published by THE DARK REPORT on this case to educate physician-clients about the BLS case and how one U.S. Attorney aggressively brought charges against the doctors who willingly participated in schemes that violated federal anti-kickback laws. This information is a powerful way to make the point that there are consequences for violating Medicare and Medicaid laws.


IN ITS COMPLAINT AGAINST LabMD, Inc., of Atlanta, Georgia, the Federal Trade Commission (FTC) accused the lab company of failing to protect the personal information—including medical data—of as many as 10,000 patients.

The action was announced on August 29. The FTC says that two separate breaches exposed patient information on the Internet. The information included “names, Social Security numbers, dates of birth, health insurance provider information, and standardized medical treatment codes,” wrote the FTC in its press release.

Not only did LabMD, a cancer testing company, deny the allegations in the FTC’s filing, it challenged the FTC’s claim that it has the authority to require firms to adopt information practice policies. On LabMD’s behalf, Cause of Action (CoA), which describes itself as a government accountability organization, filed an answer to the FTC’s action.

There is much Internet chatter about this case. Michael Daugherty, President and Founder of LabMD, has been outspoken in defense of his lab company. Clinical lab managers and pathologists may want to fol- low the progress of this case. It is an early example of how regulators want to act to enforce various laws governing protection of consumer and patient information.


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