Regulatory Update

Isn’t It Time for More Criminal Prosecutions of Lawbreakers?

Too many civil settlements without criminal charges leave some lab executives without fear of consequences

WILL FEDERAL PROSECUTORS BE PLAYING ANOTHER ROUND of the game “whack a mole” with some of the same principals and clients of Health Diagnostic Laboratory and Bluewave Healthcare Consultants? These are individuals who figured prominently in the ongoing federal whistleblower cases alleging fraud, kickbacks, and unnecessary testing at the lab company based in Richmond, Virginia.

What raises this issue is the possibility that certain of these individuals may be involved in a complicated scheme to regain control of HDL-now in Chapter 11 bankruptcy-through a sales auction being conducted by the bankruptcy court handling HDL’s case. (See related articles: article 1 & article 2)

This development will be of interest to those lab professionals who have been frustrated by the lack of effective enforcement of anti-kickback and fraud statutes by federal and state prosecutors over the past two decades. In the absence of firm enforcement of these laws, certain lab companies willing to push compliance limits have captured large volumes of specimens and generated unmatched amounts of profit.

This double standard could only exist because federal healthcare officials seem reluctant to regularly bring cases against certain lab companies widely viewed by most lab professionals as systematically violating federal laws governing inducement, kickbacks, and medically unnecessary testing.

As a result, inconsistent federal enforcement gave these same lab companies confidence that they could operate in this fashion. The principals running these lab companies had little to fear from the government. Seldom were criminal or civil cases originated by federal prosecutors in past years. Thus, these individuals saw little risk in operating as they did.

Why So Few Criminal Cases?

In those cases where a whistleblower had the federal government join his or her case, the Department of Justice typically has been willing to accept a civil settlement where the offending lab company-without acknowledging guilt or innocence-agrees to stop the alleged fraudulent activity. The disappointing aspect to these civil agreements is that the amount paid by the defendant lab was frequently much less than the total profits earned from the alleged fraudulent schemes!

Having observed this lack of strict enforcement of federal and state laws, these individuals are willing to push their inducements to physicians to the extreme. How else could a lab firm founded in 2008, grow to almost $380 million in annual revenue by 2013, while paying out what federal prosecutors claim was $80 million in illegal payments to physicians for lab test referrals? Maybe it is time to put fear of jail time back into the minds of those lab executives willing to bend the law past its breaking point.

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