DOJ $6B Fraud Crackdown Charges 345 Defendants

Largest enforcement action in department history also ensnares molecular and drug-testing lab firms

CEO SUMMARY: Department of Justice cases involving clinical labs or molecular test claims may represent about half (or about $3 billion) of the total fraudulent claims. Those claims stem from genetic testing, urine-drug and other tests, and healthcare services, the DOJ said. In addition, the DOJ reported that labs were involved in filing fraudulent claims for lab tests while working with telemedicine physicians who allegedly were not following best practices when ordering tests for patients.

ANNOUNCED LAST WEDNESDAY WAS A MASSIVE TAKEDOWN OF MEDICARE FRAUDSTERS by prosecutors at the¬†federal Department of Justice (DOJ).¬†Collectively, the DOJ has filed criminal¬†charges against 345 defendants in 51¬†federal districts and 31 states in what¬†it described as an ‚Äúhistoric nationwide¬†enforcement action‚ÄĚ involving $6 billion¬†in fraudulent claims.

Certain types of clinical laboratory testing are at the core of many of the cases filed by U.S. attorneys in different states, including pain management testing, drugs-of-abuse testing, and genetic testing. The common elements of the individual cases were described by the DOJ in its press release, as follows:

These defendants have been charged with submitting more than $6 billion in false and fraudulent claims to federal healthcare programs and private insurers, including:

‚ÄĘ more than $4.5 billion connected to¬†telemedicine;

‚ÄĘ more than $845 million connected to¬†substance abuse treatment facilities, or¬†‚Äėsober homes‚Äô; and

‚ÄĘ more than $806 million connected¬†to other healthcare fraud and illegal¬†opioid distribution schemes across the¬†country.

This program is described as the 2020 National Health Care Fraud and Opioid Takedown. This development may be significant for the entire clinical laboratory industry, for five reasons.

More Fraud Prosecutions?

First, this may be a sign that federal prosecutors¬†are finally ready to more aggressively¬†prosecute fraud in the substance¬†abuse sector of healthcare.¬†If true, this puts a large number of lab¬†companies that sprang up in the past 15¬†years to offer opioid/pain management¬†and drugs-of-abuse tests‚ÄĒand that were¬†seen by competitors as always willing to¬†offer illegal inducements and kickbacks to¬†referring physicians‚ÄĒat risk of criminal¬†and civil action by federal prosecutors.

Second, DOJ officials filed fraud cases against providers and organizations that submitted false claims to both Medicare and private health insurers. This is evidence that these enforcement actions are intended to curb illegal billing of both government and private health plans.

Moreover, in this regard, the DOJ is following the lead of private insurers. For more than five years, major health insurance companies have filed lawsuits in many jurisdictions around the United States against these same types of providers. The payers sought to recover tens and hundreds of millions of dollars for the identical types of fraud described in theDOJ’s press release. (See TDRs, June 5, 2017, and Jan. 22, 2018.)

Third, the fact that telemedicine providers are linked to $4.5 billion of the $6 billion in fraudulent claims should be a red flag to pathologists. Fraudsters were using telemedicine as a way to quickly and cheaply authorize high volumes of procedures, including clinical lab tests. If federal investigators will be more closely watching telemedicine claims for fraud, then pathologists will want to fully document any lab test procedures they authorize by telephone, so that they have the necessary information whenever their labs may be audited by Medicare or private payers.

Role of Whistleblowers

Fourth, what remains unknown in these cases involving 345 defendants and $6 billion in fraudulent billings is the role of whistleblowers. How many of these cases involve qui tam cases is unknown. Further, there could be a large number of ongoing whistleblower cases that remain under seal. That means the federal government knows about these allegations of fraud, but the providers named as defendants have not been served while federal investigators continue to gather evidence.

Fifth‚ÄĒand what may be most significant¬†for the entire clinical laboratory¬†industry‚ÄĒis how and why the 2020¬†National Health Care Fraud and Opioid¬†Takedown may be just the opening round¬†of a major enforcement effort against lab¬†companies offering genetic tests.¬†As explained here in this issue, the analysis¬†of Medicare Part B spending on molecular¬†and genetic tests indicates the number¬†of claims for these tests is increasing at¬†both an unprecedented and unsustainable¬†rate.

When Bruce Quinn, MD, PhD, looked at at the 2019 data from Medicare Administrative Contractors (MACs) in all 50 states, he determined that payments for genetic test claims in several states exploded by as much as 700% between 2018 and 2019! Quinn is the founder and principal of Bruce Quinn Associates LLC, in Los Angeles.

Audits? Recoupments?

Assume that private health insurers, such as Anthem, UnitedHealthcare, Aetna, Humana, Cigna, and others are experiencing similar increases in genetic test claims that approach 700% in the 12 months of 2019, compared to 2018. If true, then all labs performing molecular and genetic tests can expect greater scrutiny of these claims. This can include tough payer audits that result in demands for recoupment that can financially break the lab company.

This happened to a number of lab companies in recent years that offered proprietary genetic tests. The Dark Report investigated the closure of a number of these lab companies. The common element was either:

‚ÄĘ an audit by a Medicare contractor that¬†used sampling and extrapolation to¬†look at a small number of claims and¬†used those findings to justify a recoupment¬†amount in the tens of millions of¬†dollars (see TDR, Sept. 18, 2017); or,

‚ÄĘ a decision by a Medicare Administrative¬†Contractor (MAC) to deny¬†coverage for a lab company‚Äôs proprietary¬†test, with the consequence that¬†the company could not obtain coverage¬†from private payers and thus filed¬†bankruptcy or went out of business (see¬†TDR, July 8, 2013).

It should be noted that the claims data used in Quinn’s analysis originated in 2018 and 2019, before the SARS-CoV-2 outbreak began in this country last February. Molecular and genetic test claims for COVID-19 in 2020 will be a huge number.

Review Lab Compliance

For the reasons presented above, the DOJ’s announced plans to intensify its prosecution of healthcare fraud would make it timely for all clinical laboratories and anatomic pathology groups to review their organizations’ compliance with federal and state laws and regulations. It is also recommended that labs assess their documentation of physician orders for lab tests, including ICD-10 codes and other needed documentation. This is the information Medicare and private payer audits want to see in support of the lab test claims being audited.

In general, the clinical lab profession will welcome tougher enforcement of federal anti-kickback and other statutes. For more than a decade, many in the clinical laboratory industry have watched widespread fraud and abuse by certain lab companies offering drugs-of-abuse, pain management, and genetic tests and wondered when federal prosecutors would take action to curb this activity.

Federal Lab Prosecutions

These lab professionals will support additional federal cases filed against lab operators alleged to have violated federal and state laws. In the list of cases announced last Wednesday, federal prosecutors saidcharges were brought against clinical laboratories and molecular pathology groups, pharmacies, telemedicine providers, and operators of sober homes. The 345 defendants cited in 191 cases include more than 100 doctors, nurses, and other licensed medical professionals.

A review of the cases showed that fraud charges involving clinical labs or molecular test claims may represent about $3 billion worth of the total the DOJ reported for fraudulent billing.

In addition, the DOJ reported that laboratories were involved in filing fraudulent claims as a result of working with telemedicine physicians who allegedly did not follow best practices when ordering diagnostic tests for patients, the DOJ said.

More Federal Prosecutions?

The DOJ investigations and prosecutions¬†are happening in the midst of the ongoing¬†COVID-19 pandemic. DOJ officials are¬†already on record with their statement that¬†they intend to prosecute fraud involving¬†COVID-19 healthcare services‚ÄĒincluding¬†lab tests‚ÄĒon a priority basis.

It should also be no surprise if, during the COVID-19 pandemic, a growing number of whistleblowers file qui tam lawsuits. Taken together, these factors may mean that clinical labs will see federal prosecutors file a record number of criminal and civil cases involving healthcare fraud in the future.

Attorney Says Prior Justice Department Actions Showed More Federal Charges Were Coming

ONE HEALTHCARE ATTORNEY WHO WORKS CLOSELY with clinical laboratory companies and with labs doing molecular testing was not surprised to learn about the federal Department of Justice’s national crackdown on healthcare fraud cases last week.

‚ÄúAll of the cases cited by the DOJ in¬†its crackdown last week were not unexpected,‚Ä̬†said Danielle Holley Tangorre, a¬†partner in the law firm of O‚ÄôConnell and¬†Aronowitz in Albany, N.Y.

‚ÄúGiven last year‚Äôs DOJ action known as¬†Operation Double Helix, and then recent¬†fraud alerts about genetic and other forms¬†of testing, we knew that labs were an area¬†of concern for the DOJ,‚ÄĚ she said. ‚ÄúPlus,¬†we‚Äôve seen a rapid increase in billing for¬†genetic testing. As a result, there has been¬†higher amounts of reimbursement paid¬†over the last year or so.

‚ÄúWe‚Äôve seen Medicare come out and¬†say that labs and all healthcare providers¬†need to be cognizant that only certain laboratory¬†tests are covered and that other¬†tests are not covered‚ÄĚ explained Tangorre.¬†‚ÄúAlso, Medicare has warned providers¬†that it will pay only if the lab tests are¬†medically necessary.

‚ÄúThis is also true of health insurance¬†companies that made similar statements¬†about how labs need to follow new guidelines¬†when submitting claims for genetic¬†testing and for any tests that have higher¬†reimbursement levels,‚ÄĚ Tangorre added.¬†‚ÄúAll lab directors should know that¬†any laboratory that has a huge and sudden¬†spike in billing for certain tests is¬†probably going to trigger some form of¬†analytics from payers,‚ÄĚ she commented.

‚ÄúThe insurance companies want to know¬†your lab is only doing testing that‚Äôs medically¬†necessary and that your lab follows¬†all the rules.¬†‚ÄúInsurers also want to know how your¬†lab markets its tests and whether it is¬†developing relationships with physicians¬†who have good relationships with their¬†patients,‚ÄĚ she noted.

‚ÄúTelemedicine is one of the tricky areas¬†that can cause a lot of concern for clinical¬†laboratories, and that‚Äôs why the DOJ cited¬†so many telemedicine companies,‚ÄĚ she¬†commented. ‚ÄúOnce a physician works with¬†patients via telemedicine, then insurers¬†want to know if any tests that doctor¬†ordered are medically necessary.

‚ÄúIf no recent history exists between¬†the patient and the telemedicine physician,¬†then there might not be a legitimate¬†reason to order lab tests for that patient,‚Ä̬†warned Tangorre. ‚ÄúIf there‚Äôs no medical¬†necessity to order lab tests, then labs¬†need to be aware of that fact before they¬†submit claims that payers may challenge¬†or deny when auditing the lab.‚ÄĚ

Contact Danielle Holley Tangorre at 518-462-5601 or

One Large N.J. Case Involved $1.2 Billion

ONE OF THE LARGEST FRAUD CASES DESCRIBED BY THE FEDERAL DEPARTMENT OF JUSTICE involved multiple defendants in New Jersey who were charged for their alleged roles in schemes to defraud insurers of more than $1.2 billion.

The owners and operators of three diagnostic testing laboratories and one marketer were charged for alleged healthcare fraud and kickback schemes under the Anti-Kickback Statute (AKS) and the Eliminating Kickbacks in Recovery Act (EKRA). The case involves $522 million in fraudulent claims billed to Medicare, Medicaid, and commercial health insurers, the DOJ reported. Of that amount, some $84 million was paid for diagnostic tests, the department added. In this case, the three defendants are:

‚ÄĘ Reyad Salahaldeen

‚ÄĘ Mohamad Mustafa

‚ÄĘ Travores Wills

The entities are:

‚ÄĘ Allergy Solutions System, LLC, Ala.

‚ÄĘ Express Diagnostics, LLC, N.J.

‚ÄĘ BioConfirm Laboratory, LLC, Ga.

‚ÄĘ Tox Management, LLC¬†(dba Accurate DX), Texas

‚ÄĘ Tri-State Toxicology, LLC¬†(dba Definitive DX), Texas

‚ÄĘ Brothers Consulting, LLC, Ga.

The defendants were charged with paying kickbacks to a network of marketers to procure DNA samples for genetic testing that they knew were medically unnecessary and that would not be paid under the patients’ healthcare benefit programs, the DOJ noted. Medical professionals approved the tests, including doctors using telemedicine who had not previously treated the patients and who had little or no contact with the patients in connection with prescribing the tests, the DOJ said.



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