Final Three Labs Settle California Qui Tam Case

Individual agreements with seven defendant lab companies lack guidance on future compliance

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CEO SUMMARY: In recent months, the California Attorney General (AG) entered into settlement agreements with the last three defendant laboratory companies involved in the Medi-Cal discount pricing whistleblower lawsuit. The AG did not make this news public. In their respective settlement agreements, the three laboratory companies stipulated that the agreement was not an admission of liability. Overall, the California Attorney General collected more than $300 million from the seven defendant laboratory firms.

IN CALIFORNIA, three defendant laboratories disclosed settlements with the State Attorney General. Each settlement resolves allegations made in the long-running whistleblower lawsuit originally filed in 2005 by Hunter Laboratories, Inc., and Chris Riedel.

The central issue in this qui tam case is the widespread practice of charging certain providers a lower price for a laboratory test than the price for which that lab bills the Medi-Cal program for that same test. It was alleged that this practice violated state laws. (See TDR, February 7, 2011, and June 13, 2011.)

Financial Penalties

The financial penalties associated with the three new settlement agreements were as follows: Physicians Immunodiagnostic Laboratory, Inc. (PIL), will pay the state $600,000; Primex Clinical Laboratories, Inc., will pay $750,000; and Whitefield Medical Laboratory, Inc., will pay $400,000. All three lab firms denied liability.

Earlier this year, both Quest Diagnostics Incorporated and Laboratory Corporation of America entered into settlement agreements with the California Attorney General. Both companies vigorously denied the allegations described in the whistleblower lawsuit.

Quest Diagnostics agreed to pay $241 million (reported to be the largest amount ever recovered in a state enforcement action). As part of its settlement, LabCorp agreed to pay $49.5 million.

Additionally, in their respective settlement agreements, both Quest Diagnostics and LabCorp agreed to extensive reporting requirements for Medi-Cal claims through 2013, but no such reporting is required of the private laboratories. With the announcement of the private laboratories’ settlement, it is believed that the California Attorney General’s active cases related to laboratory charges have concluded.

When these three laboratory companies reached agreements to resolve pricing issues with the California Attorney General in November, the state released no details on the cases. All seven defendant lab companies have now resolved their part of the whistleblower case that the California Attorney General’s office announced in March 2009.

Co-counsel for the three laboratories during the settlement negotiations was attorney Dawn Brewer of Marina Del Rey, California. She is familiar with this lawsuit and the resolutions made public.

Settlement Agreements

“When these three laboratories entered into settlement agreements with the California Attorney General, they denied any wrongdoing and agreed to pay a specific sum with no reporting requirements,” she said. “The California Attorney General reached similar settlement agreements with other laboratories named in the lawsuit.”

These final three settlement agreements bring an end to the qui tam case filed back in 2005 by Hunter Laboratories, Inc., and Chris Riedel. Then-Attorney General Edmund G. Brown joined the lawsuit in 2009 and made the case public at that time. In his press conference, Brown said that the defendant laboratory companies violated state law and regulations. He stated that no provider can charge Medi-Cal—the state’s Medicaid program for the poor—a price for any service that is more than they charge for the same service to other purchasers under comparable circumstances.

Labs Want Clear Guidance

What has disappointed the clinical lab industry in California is the lack of definitive guidance by the state on how to comply with the state laws that were central to the whistleblower lawsuit. Many lab industry executives expected that one outcome from the resolution of this whistleblower lawsuit would be objective guidance on how these state laws would be interpreted and enforced going forward. Brewer picked up this theme. She noted that state officials should offer labs more guidance on billing procedures.

“Part of the complexity of this case was Medi-Cal’s seeming acceptance, for years, of different price structures for different purchasers,” explained Brewer. “These three smaller laboratories asserted that Medi-Cal had known of the differences in charges for which they regularly reimbursed the labs, and they rejected Medi-Cal’s claim that it provided clear guidance on reimbursement practices.”

With the settlement of this qui tam lawsuit in California, the action shifts to six other states where it is known that similar whistleblower lawsuits are active. These lawsuits are in Florida, Georgia, Massachusetts, Virginia, Michigan, and Nevada.

Lab CEOs Comment On Their Settlements

COMMENTING ON THE LATEST SETTLEMENTS, Alfred Ramzi, CEO of Physicians Immunodiagnostic Laboratory, Inc., (PIL) said, “The 130 employees of PIL feel vindicated by today’s agreement, and we are recommitting ourselves to maintaining the highest standard of conduct for our industry. We hope the conclusion of the case will now lead to a dialogue with regulators about what is needed to ensure a level playing field and open competition among laboratories of all sizes.”

Erik Avaniss-Aghajani, CEO of Primex, said, “This resolution to the costly and disruptive detour from running our business demonstrates that, despite the competitive disadvantages of being named as a defendant in the case, we defended our practices as fair and in compliance with the dozens—if not hundreds—of billing instructions that govern our industry.”

Jatin Laxpati, President of Whitefield Medical Laboratory, commented, “Our clients–and our competitors for that matter– understood that we vehemently denied that we had improperly charged Medi-Cal for testing. After reaching this resolution, we are anxious to return our focus to service to our loyal and valued clients.”

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