Boston Heart Case Ruling Raises Questions for Labs

Legality of clinical lab marketing practices still to be decided after judge dismisses some claims

Share on facebook
Share on twitter
Share on linkedin
Share on print
Share on email

CEO SUMMARY: Is it a violation of federal healthcare laws when clinical labs pay physicians to mail specimens and/or forgive all or part of patients’ copayments and deductibles? A federal judge’s ruling in a lawsuit against Boston Heart Diagnostics last month dealing with these two actions created a precedent that could affect all labs. It means that clinical lab directors and their attorneys will want to follow this case closely to see how it concludes, according to a lawyer familiar with the issues.

There may be more significance to a recent decision in a federal court case involving Boston Heart Diagnostics and compliance with federal healthcare laws than the points brought out by The Dark Report in its coverage of that judge’s ruling in the last issue.

“Your article in the last Dark Report on the September federal court decision in this case was very good and it alerted the industry to developments in what may or may not be further areas of fraud activity to be investigated and prosecuted,” said attorney Jeffery J. Sherrin. “I think, though, that the case means a lot more for several reasons.”

Judge’s Ruling

Sherrin, who is President of O’Connell & Aronowitz, in Albany, N.Y., is referring to the case of the United States of America ex rel. Chris Riedel vs. Boston Heart Diagnostics Corporation and the judge’s ruling that involved some of the practices outlined in the arguments the plaintiff made in the case, which could affect how clinical lab companies market their services to physicians.

Those practices include paying physicians packaging fees to facilitate sending specimens to the lab and waiving copayments and deductibles.

Sherrin wanted to emphasize a key fact about certain of the plaintiff’s allegations of illegal marketing practices. “Even though some of the claims in the case were dismissed for deficiencies in the allegations the plaintiff made, that does not mean the practices outlined in those claims are automatically considered to be legal,” Sherrin said. “It means—at least in this case—that the plaintiff failed to allege facts that were necessary for the claims to go forward. That could be the result of a pleading error, or it could be that the plaintiff did not possess facts necessary to move the case forward.”

As The Dark Report explained (see TDR Oct. 1), a ruling in a case against Boston Heart Diagnostics last month could have far-reaching effects on clinical laboratories that pay physicians to mail specimens and/or that forgive all or part of patients’ copayments and deductibles.

For that article, Justin T. Berger, an attorney representing the plaintiff in the case against Boston Heart, explained that

U.S. District Judge Reggie B. Walton issued a ruling Sept. 12 in which he both granted and denied in part Boston Heart’s request to dismiss the complaints in the case. In the ruling, Walton thus decided that two legal theories in the case would go forward to trial, said Berger, a principal in the law firm of Cotchett, Pitre & McCarthy, LLP, of San Francisco.

Those two theories relate to practices that some labs use, including such practices as paying physicians packaging fees to facilitate sending specimens to the lab and waiving patients’ copayments and deductibles in a manner that benefits the referring physicians.

The plaintiff in the case is the United States, through Chris Riedel, CEO of Hunter Heart Inc., a clinical lab in Los Gatos, Calif. Riedel brought the case (United States of America ex rel. Chris Riedel vs. Boston Heart Diagnostics Corporation), as a whistleblower in 2012 and refiled it last year. Plaintiff is seeking money damages allegedly sustained by the Medicare program.

More Nuanced View

Although Berger said Walton’s ruling essentially made the practices illegal, Sherrin has a more nuanced view.

“The claims that were dismissed were dismissed for deficiencies in the pleading, not because the court found that the practices would not be illegal,” Sherrin said. “The case somewhat operates as a blueprint as to how the lawyers should plead the complaint in the next case, and there can be no comfort in the fact that the claims relating to several of the alleged schemes were dismissed.

“In this case, the judge sustained two major claims: waivers of copayments and inflated packaging fees,” Sherrin explained. “But that also does not mean that Boston Heart was guilty of kickbacks. It means that the complaint adequately alleges what it had to allege in order not to be dismissed.

“Those practices—as they may have been employed by Boston Heart—still could be legal,” he added. “What the court is saying is that the practices can be illegal if you are doing things that ultimately result in remuneration or compensation to the physicians and that compensation is made in return for referrals.

Legal or Illegal?

“But the very same conduct might not be illegal if it wasn’t intended to induce referrals, the physicians were not remunerated, or the lab didn’t know that what it was doing was or may be illegal,” he said.

“Ultimately, a number of factors will go into whether a practice, such as waiver of copayments, is illegal,” he said. “For example, the complaint alleges that the waivers of the patients’ responsibility to pay copayments and deductibles benefited the referring physicians personally, because waiving those payments will increase the number of patients who want to use those physicians and make the physician’s job easier. It is not at all clear that relieving a physician of the alleged burden of explaining payment responsibilities to patients would constitute unlawful remuneration.

“But now, the plaintiff, Riedel, has to prove—through discovery or during the trial itself—that not only were the patients’ responsibilities waived routinely, but that waiver of responsibility was done with the intent to induce referrals and that the physician was remunerated as a result of waiving those responsibilities,” he added. “Proving intent and showing that the intent resulted in remuneration may be difficult to establish.

Waiving Patient Fees

“In some cases, waiving of these fees could be a kickback, but in other instances, doing so could be a perfectly legal practice,” Sherrin suggested. “It could be legal if a lab waives these fees not to induce physicians to refer specimens to you but rather to increase the amount of money patients must pay.

“In recent years, labs have found it difficult to collect copayments and deductibles from patients,” he added. “Labs know, for example, that if they send a bill to a patient for $1,000, they may get nothing. But if that same lab sends a bill for $100, it may get paid $100.

“That’s just one reason that labs would engage in pricing policies that have nothing to do with inducing a physician to refer specimens,” he said. “If a lab wants to waive its copayment fees, we advise them that it should be patient-specific, not across-the-board; to do it directly with the patient; and leave the physician out of it entirely. That way, it is more difficult to prove that the physician has gotten remunerated in any way.

“What I’m saying is that when a judge grants a motion to dismiss, it just may mean that the plaintiffs did not make sufficient allegations that the practices in question were illegal,” Sherrin said.

“Take the issue of speaker fees, for example. In this case, the judge said the complaint contends that the speaker fees paid by the defendent lab company were ‘outrageous,’” continued Sherrin. “That could mean anything and it might have nothing to do with fair market value. It could just mean that the plaintiff believes that the doctor doesn’t know what he’s talking about and yet he’s being paid this large fee.

“For these reasons, this case gives us a blueprint about what the plaintiff must argue and what the defense should contend on the other side,” he concluded. “All of these issues are important for clinical labs to follow because, if this case goes to trial, Boston Heart may win the case. Or, Boston Heart also could lose the case. Either way, it will be a costly process.”

In Federal Court Case, Clinical Lab Firm’s Board Member Became a Whistleblower

ONE ISSUE WORTH DISCUSSING from the case involving Boston Heart Diagnostics is the fact that the plaintiff in the case once served as a member of the lab’s board of directors. As a result of serving on the board, he acquired information that enabled him to file a federal whistleblower case against the lab, said attorney Jeffrey J. Sherrin, President of O’Connell & Aronowitz, in Albany, N.Y.

The plaintiff who filed the original whistleblower case in 2012 is Chris Riedel, CEO of Hunter Heart Inc., a clinical laboratory company in Los Gatos, Calif.

“Because Chris Riedel was a member of Boston Heart’s board of directors before he filed his case, it means that information he claims to have could have been acquired largely in his role as a director,” observed Sherrin. “It should concern labs and other providers if board members can use information that they acquire in their fiduciary capacity as board members against their organizations.

“Board meetings are supposed to be open so that they allow for the full exchange of information and the expression of all opinions,” he added. “And, of course, board members have a fiduciary responsibility. But the exchange of otherwise necessary information and opinions could be stifled at board meetings if members or key employees fear that other board members will use information acquired during board meetings against the company.

“I’m not saying that what Riedel did in filing this lawsuit is right or wrong,” Sherrin added. “I’m only saying that it could have a negative effect on discussions during board meetings. That should be a concern for labs, and particularly for lab directors.”

Contact Jeffrey J. Sherrin at 518-462-5601 or


Leave a Reply


You are reading premium content from The Dark Report, your primary resource for running an efficient and profitable laboratory.

Get Unlimited Access to The Dark Report absolutely FREE!

You have read 0 of 1 of your complimentary articles this month

Privacy Policy: We will never share your personal information.