Did Labs Rip Off Medicare? Feds Are Investigating

News of federal investigation into practices of certain cardiology testing firms is an opportunity

CEO SUMMARY: One reason why there is not a level playing field in lab industry compliance with laws governing kickbacks and anti-business behavior is that government officials do not act quickly against the lab industry’s worst offenders—if they take any action at all. News of a federal investigation into the payment of processing fees to physicians by a handful of laboratory companies offering cardiology testing is an opportunity for federal prosecutors to send the right message to the laboratory industry’s bad players.

ONE OF THE GREAT DIVIDES in the laboratory medicine profession exists between hospital-based clinical laboratories and some independent lab companies.

Consistently, the attorneys representing hospital-based laboratories will interpret federal and state laws and regulations in a conservative fashion. Consequently, the sales, marketing, and business development programs of hospital-based laboratories are rarely the targets of investigations by federal and state prosecutors.

Over on the independent lab company side of this schism, it needs to be said that there are indeed a substantial number of lab companies that take a similarly conservative position in their compliance with federal and state laws. Few of these lab companies ever find themselves investigated for possible violations of these laws because of their sales and marketing practices.

Unfortunately, the same cannot be said for a certain group of independent lab companies. In these lab firms, executives are ready to push their interpretation of federal and state laws governing inducements, kickbacks, and anti-business behavior. They justify these interpretations by paying law firms to provide opinions that support their aggressive reading of these laws and regulations.

Reluctance of Investigators

This inclination of certain independent lab company executives to develop sales, marketing, and business development schemes that push right to the boundary—and often cross the line—of compliance is generally based on their confidence that federal and state prosecutors will be unwilling to investigate the case, file charges, and seek full recoupment.

These lab executives believe that, even when federal prosecutors take action against such a lab company, the final settlement will be a civil settlement where the government only recovers a portion of the profits generated by the offending laboratory. Further, with a civil settlement, they are confident that they won’t be indicted and face theexpense and risk of a court trial for their actions. (Actions not taken by the overwhelming majority of lab professionals.)

It is important to recognize this schism that exists within the clinical laboratory industry. At any point in time, it is usually a new generation of miscreants who enter the lab testing business. Because they are willing to push and cross compliance boundaries, they gain immense competitive advantage. Often, the revenue growth and profits their illegal sales schemes generate is astonishing.

Latest Revelations

This is the reality of the clinical laboratory industry since the 1980s. Thus, the latest revelations of a sales scheme that was the subject of a front page exposé in The Wall Street Journal on September 8 demonstrate that there continue to be lab executives who want to push compliance boundaries in order to gain competitive advantage over other labs.

In its coverage, the WSJ reported that federal investigators are looking into the business practices of a handful of lab companies offering cardiology tests. These companies are alleged to have violated federal and state antikickback laws because they paid a processing fee each time a physician referred lab tests to them.

In this article, THE DARK REPORT provideds details about the Journal’s coverage of this development. What I would like to point out is how quickly such an alleged fraud can grow in the absence of appropriate regulation and enforcement action by federal and state authorities.

The WSJ reported that, in 2013, Health Diagnostics Laboratory of Richmond, Virginia, generated revenues of $383 million. Assume, for the moment, that three of the other four cardiology lab companies identified by the newspaper (Atherotech Diagnostics Inc.; Boston Heart Diagnostics Corp.; and Singulex Inc.) generated about $120 million in collective revenue in 2013.

Each of these companies is alleged to have paid processing fees to physicians to recompense them for handling lab specimens. This is one of the practices that the WSJ reported as under federal investigation (as well as the subject of an OIG Advisory Opinion issued in June 2014).

If you add up the $383 million and the $120 million, this totals more than $500 million in cardiology testing in one year for these four lab companies! It means these four lab companies took one-half billion dollars out of the healthcare system in just one year!

Federal prosecutors have good reason to believe that some proportion of these cardiology tests were medically unnecessary—ordered by physicians who might have been motivated to maximize the processing fees paid by these four labs.

Meanwhile, all of you reading this probably follow the classic adage that “if it walks like a duck, quacks like a duck, and looks like a duck, it probably is a duck.”

Thus, why would only this handful of labs consider payment of a processing fee to referring physicians compliant with federal and state laws, when thousands of peer lab organizations in this nation do not? Moreover, these thousands of labs have lost physician clients and test referrals to this handful of labs that were willing, as described by the WSJ, to pay such processing fees to physicians in exchange for lab test referrals.

Opportunity for Feds

This is why federal prosecutors have the opportunity to send a message to the lab industry’s bad players. As they review the evidence—and consider the huge dollars of this alleged multi-year fraud—they should hit offenders with all the remedies allowed by law, to the fullest extent. This should include all the physicians who were willing to accept processing fees and who ordered medically-unnecessary tests on their patients. Only when the lab companies, lab executives, and physicians are prosecuted with the full weight of federal law will we see a decline in the number of these schemes that plague the lab industry.

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