DOJ Indicts Ten Individuals for Pass-Through Lab Test Billing Fraud

Defendants alleged to have used rural hospitals to submit $1.4 billion of lab test claims to private payers

PASS-THROUGH LAB TEST BILLING SCHEMES involving rural hospitals and $1.4 billion in fraudulent lab test claims are at the core of multiple indictments announced recently by the federal Department of Justice (DOJ).

Ten individuals—including laboratory owners, billing company executives, and hospital administrators—were charged in an elaborate pass-through billing scheme using four rural hospitals in three states to submit fraudulent bills for laboratory testing, federal officials announced June 29.

$1.4 Billion in Test Claims

In a 40-page indictment, the DOJ alleged that from November 2015 through February 2018, the conspirators billed commercial insurance companies about $1.4 billion for fraudulent laboratory testing claims and were paid $400 million. Filed in U.S. District Court for the Middle District of Florida in Jacksonville, the indictment named the conspirators as:

• Jorge Perez, 60

• Ricardo Perez, 57

• Aaron Alonzo, 44

• Nestor Rojas, 45, and

• Neisha Zaffuto, 44, all of Miami;

• Seth Guterman, 54, of Chicago

• Aaron Durall, 48, of Parkland, Fla.

• Christian Fletcher, 34, of Atlanta

• James Porter Jr., 49, of Ocala, Fla., and

• Sean Porter, 52, of Crystal River, Fla.

Through their attorneys, these defendants have denied the charges when contacted by the press for their comments.

Readers of The Dark Report may recall some of these names from previous coverage of this type of scheme in 2018. (See TDR, “Insurers Sue to Challenge Pass-Through Bill Schemes,” May 7, 2018; “Why Lab Companies Buy Bankrupt Rural Hospitals,” May 29, 2018; “Rural Hospital Group Says Lab Billing Model Is Legal,” July 9, 2018; and “Attorney Explains 70/30 Rule, Pass-Through Bill Arrangements,” July 9, 2018.)

Pass-Through Billing

Using management companies they owned, the conspirators took over small rural hospitals that were struggling financially and then used those hospitals to submit fraudulent lab-testing bills to commercial health insurers, the indictment alleged.

The bills for millions of dollars of expensive urinalysis drug tests and blood tests were conducted mostly at outside laboratories that the conspirators controlled or were affiliated with, court documents show. Most of the laboratory tests were medically unnecessary, the DOJ alleged.

It was after 2010 when fraudsters began to target financially-struggling rural hospitals. They would either obtain management contracts to operate the hospital or would purchase the hospital. Rural hospitals were the ideal platform for the pass-through billing scheme because private health insurers would reimburse nearly all clinical services at higher rates.

This was because insurers knew the hospitals were often the only local source of medical services in a community and that the rural hospitals had much higher costs to provide these services.

The indictment describes how the conspirators also used billing companies they controlled to submit the bills on behalf of the hospitals. “While outside laboratories did most of these lab tests, the conspirators allegedly billed private insurance companies as if these laboratory tests were done at the rural hospitals,” the DOJ explained.

The four hospitals named in the indictment were:

• 25-bed Campbellton-Graceville Hospital in Graceville, Fla.;

• 40-bed Regional General Hospital in Williston, Fla;

• 49-bed Chestatee Regional Hospital in Dahlonega, Ga.; and,

• 25-bed Putnam County Memorial Hospital in Unionville, Mo.

“The rural hospitals had negotiated contractual rates with insurers that provided for higher reimbursement than if the tests were billed through an outside laboratory,” court documents show.

Allegations of Kickbacks

To obtain the urine and other specimens for clinical laboratory testing, the conspirators paid kickbacks to recruiters and healthcare providers, most of whom were affiliated with sober homes and substance abuse treatment centers. After collecting the proceeds, the conspirators engaged in a sophisticated money-laundering scheme to distribute the fraudulent proceeds, the DOJ alleged.

Among the charges the DOJ listed in the 23-count indictment were conspiracy to commit healthcare fraud and wire fraud, substantive healthcare fraud, conspiracy to commit money laundering, and substantive money laundering.

The indictment also includes seven pages listing the assets the defendants could be required to forfeit if found guilty. The list of assets includes millions of dollars in funds acquired through the scheme, jewelry, high-end automobiles, and real property.

Fraudsters Targeted Rural Hospitals

RURAL HOSPITAL MAKE IDEAL TARGET VEHICLES FOR HEALTHCARE FRAUD because so many of them were—and continue to be—in dire financial straits. At the same time, the local communities they serve are looking for any solution that can keep their communities’ only healthcare provider open and functioning.

Thus, when a smooth-talking fraudster showed up with a business plan that promised to bring in millions of dollars in profitable revenue, hospital boards and community leaders were all too eager to sign-up to keep their hospital open and providing care.

Pass-through billing schemes are the most common way dishonest operators generate revenue. The other factor that enables this scheme is that rural hospitals typically are in-network for all health plans and paid much higher rates for all services, since a 25-bed rural hospital does not have the economies of scale as would a 500-bed hospital. Thus, not only did the fraudsters have an entity that could bill any health insurer, but they could bill at highly-inflated prices and be paid much more money per claim than would be true for larger hospitals.

The scale of this fraud is astonishing. The Dark Report wrote about Blue Cross Blue Shield of Mississippi suing 29-bed Sharkey-Issaquena Community Hospital in Rolling Fork, Miss.; and four Texas-based toxicology lab companies for submitting $39 million in lab test claims (for toxicology tests) in just 120 days! (See “Mississippi Blue Cross Sues Hospital, Tox Labs, TDR, June 5, 2017.)

The Dark Report also wrote about Aaron Durall’s pass-through billing arrangement with 37-bed Sonoma West Medical Center (SWMC) in Sebastopol, Calif. In 2018, Anthem, Inc. sued to recover $16 million for toxicology testing. (See “Anthem Alleges $16M in California Hospital Lab Fraud,” TDR, Aug. 20, 2018.)



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