Calloway Labs Settles with Feds, West Virginia

Pain management lab will pay $4.675 million to resolve charges of Medicare and Medicaid fraud

CEO SUMMARY: West Virginia is the second state in recent years to settle claims of Medicare and Medicaid fraud filed against Calloway Laboratories of Woburn, Massachusetts. Last month, the pain management lab company agreed to pay $4.675 million to resolve that case, while not admitting liability. During the period that Calloway was alleged to have submitted fraudulent claims in West Virginia, it was operating under a federal corporate integrity agreement signed with the OIG.

LAB COMPANIES OFFERING PAIN MANAGEMENT SERVICES continue to attract the attention of federal and state healthcare prosecutors. Last month, Calloway Laboratories, Inc., of Woburn, Massachusetts, agreed to pay $4.675 million to settle fraud charges related to falsely billing the Medicare and Medicaid programs in West Virginia.

Booth Goodwin, the U.S. Attorney for the Southern District of West Virginia, stated that, from March 2009 through April 2013, Calloway billed Medicare and West Virginia Medicaid using codes for pathology services and for urine drug testing. The charges are similar to those Massachusetts Attorney General Martha Coakley brought against Calloway in 2010.

Investigators from the Office of Inspector General (OIG) of the federal Department of Health and Human Services and the West Virginia Medicaid Fraud Control Unit charged that healthcare providers did not deem pathology services to be necessary, did not order such services, and that Calloway did not provide pathology services.

Instead, Calloway performed a type of medical review on every urine drug screen, Goodwin said. Although neither Medicare nor West Virginia Medicaid cover such reviews, the programs paid the claims because Calloway submitted them under the code for covered pathology services, he added.

Similar Case in 2010

In a similar case brought in July 2010, Coakley charged that Calloway falsely billed MassHealth, the state’s Medicaid program, for urine screening services that were not ordered by a doctor or authorized by prescribers for a medically necessary purpose. Coakley also charged that Calloway engaged in a kickback scheme to obtain urine drug screening business illegally and have MassHealth pay for the drug screens.

In 2012, Calloway paid $20 million to the Commonwealth of Massachusetts and $7.7 million to the federal government to resolve allegations of kickbacks involving the state Medicaid program and the federal Medicare program. Four defendants pleaded guilty to criminal charges and were excluded from participating in any Medicaid or Medicare program, stated Coakley at the time of the settlement.

Since March, 2012, Calloway has operated under both a three-year compliance and monitoring program involving an independent compliance reviewer and annual site and record audits with Massachusetts and a five-year corporate integrity agreement with the Office of Inspector General.

No Admission of Liability

Calloway spokesman David Ball said payment of $4.675 million by Calloway would “resolve the matter without an admission of liability” and that the agreement Goodwin announced on May 21 concludes an inquiry “into a legacy issue dating from 2009 and involved a disagreement about services ordered and performed, but not covered.” For some of that time, the company operated under previous management.

“By resolving this matter, Calloway eliminates the financial uncertainty associated with litigation and is now well positioned to focus on advancing its commitment to pro- vide state-of-the-art clinical toxicology laboratory services to patients and providers nationwide,” Ball said.

Calloway laboratories came under new ownership at the end of 2012. That is when Ampersand Capital Partners, a private equity firm in Wellesley, Massachusetts, acquired Calloway and named Gail Marcus, the former CEO of Caris Diagnostics (now Miraca Life Sciences) as President and CEO. (See TDR, October 8, 2012.)

A Target for Private Payers?

The rapid growth in pain management testing, provided by a host of newly-formed lab companies, makes this sector of lab testing a ripe target for cost-cutting by private payers. Some payers have dropped hints that more restrictive coverage guidelines and reduced prices will soon be forthcoming.

Do Govt. Prosecutors Have Pain Management Labs in their Sights?

NO SINGLE SECTOR OF LABORATORY TESTING has grown faster or been as controversial as that of pain management since it emerged about 15 years ago.

During this same time, compliance with federal and state laws has been an issue within the pain management sector. Compliance may be an issue because many lab owners in the pain management sector lack experience working in traditional clinical laboratories. Thus, they did not gain hands-on experience with the complicated issues associated with clinical laboratory compliance with Medicare and Medicaid laws and regulations.

Probably the first company to focus almost exclusively on this sector was AmeriTox, Inc., of Midland, Texas. Its business and marketing practices were questioned in 2007. That’s when a qui tam lawsuit alleging Medicare and Medicaid fraud was filed by a former AmeriTox sales representative. In 2010, without admitting guilt, AmeriTox agreed to pay $16.3 million to settle the case.

During these same years, pain management lab companies and their questionable business practices caught the attention of Martha Coakley, Attorney General for the state of Massachusetts. Between 2008 and 2012, Coakley pursued cases against five labs (including Calloway Labs) and signed settlements with each of them. (See TDR, October 17, 2011.)

In addition to the $27.7 million settlement with Calloway labs that was described earlier in this story, Coakley entered into settlements with the Willow Street Medical Laboratory, LLC (2007–$8.15 million settlement); Boston Clinical Laboratories, Inc. (2009–$600,000) System Coordinated Services, Inc. dba Life Laboratories (2010–$450,000); and Diagnostic Laboratory Medicine, Inc., (2011-$153,770).

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