CEO SUMMARY: Federal prosecutors are sending a clinical lab owner to federal prison for almost eight years. Hopefully, this is a sign that the Department of Justice (DOJ) is ready to use criminal indictments more frequently against lab owners, lab managers, and lab sales reps who violate the federal anti-kickback statute. Morever, this case is just one of several that the DOJ has filed against a number of laboratory owners. Some of this enforcement is related to false COVID-19 test claims.
FEDERAL PROSECUTORS SEEM MORE WILLING TO PURSUE CRIMINAL FRAUD CHARGES against clinical laboratory owners and others who work for them, based on recent announcements in November from various U.S. Attorney’s Offices.
Across the country, individuals face trials or prison sentences for alleged wrongdoing with clinical laboratory testing and false claims:
• In Florida, a laboratory owner was sentenced to 82 months in prison for defrauding the federal Medicare program by paying illegal kickbacks to physicians.
• In New Jersey, a former medical laboratory sales representative faces a prison term after pleading guilty to conspiring to violate the federal anti-kickback statute.
• In Arkansas, a grand jury indicted a lab owner on charges of healthcare fraud allegedly in connection with over $100 million dollars in false billings for urine drug tests and COVID-19 tests.
These developments should serve as a warning to clinical lab administrators and pathologists to keep a close eye on their own operations and audit claims regularly.
Nearly Seven Years in Prison
On Nov. 9, Leonel Palatnik, the owner of clinical laboratories in Florida and Texas, was sentenced to 82 months in prison, a jail term that is one of the longest in the history of the clinical lab industry.
In May, Palatnik and Michael Stein were named in a 20-page indictment filed in U.S. District Court for the Southern District of Florida, according to the federal Department of Justice (DOJ).
In the nine-count indictment, the DOJ charged Palatnik and Stein with one count of conspiracy to defraud the federal Medicare program and to pay and receive kickbacks, four counts of solicitation and receipt of kickbacks in connection with a federal healthcare program, and four counts of offering to pay and paying kickbacks in connection with a federal healthcare program.
Palatnik was co-owner of Panda Conservation Group, which operated clinical labs in Florida and Texas, court documents show.
Additionally, Palatnik also controlled a holding company called Anucan LLC in which he and others involved with Panda owned multiple clinical laboratories, including Amerihealth Laboratory and MP3 Labs.
The labs specialized in genetic testing for cancer and cardiovascular deficiencies, the DOJ said.
As a result of the scheme, Medicare paid Panda’s laboratories more than $61 million for genetic testing orders procured by illicit kickbacks between April 1 and Dec. 31, 2020, the DOJ reported.
Palatnik Takes a Plea
On Aug. 31, 2021, Palatnik pleaded guilty to one count of conspiracy to defraud the United States and offer kickbacks and one count of paying a kickback, the DOJ said.
He also agreed to cooperate with prosecutors. Under the plea agreement’s terms, Palatnik must repay $61.3 million. During his incarceration, however, Palatnik must pay 50% of his wages, if any, from a federal prison job or $50 per quarter if he does not work while in prison, records show. Upon release from prison, Palatnik needs to pay 15% of monthly gross earnings to the government unless the court alters the repayment terms.
Palatnik’s attorney, Brian Bieber, JD, a criminal defense attorney with the Miami law firm of Gray Robinson, did not respond to The Dark Report’s request for comment.
Court documents listed Michael Stein as the owner of 1523 Holdings, a company that conspired with Palatnik and Panda, the DOJ alleged.
On June 17, Stein was arraigned in the U.S. District Court for the Southern District of Florida. He pleaded not guilty and requested a jury trial. That trial is continuing.
Palatnik allegedly conspired with Stein and other co-owners of Panda to pay illegal kickbacks to Stein in exchange for having Stein arrange for telemedicine providers to authorize genetic testing orders for Panda’s laboratories.
Panda and 1523 Holdings exploited temporary waivers to telehealth restrictions that the federal Department of Health and Human Services put in place during the COVID-19 coronavirus pandemic, the DOJ noted. Those amendments expanded access to care so that Medicare beneficiaries could get medical consultations from home.
“Palatnik and his co-conspirators took advantage of these waivers by using telehealth providers to authorize thousands of medically-unnecessary cancer and cardiovascular genetic testing orders,” the DOJ charged. “In exchange, Panda gave these providers access to beneficiary information and the opportunity to bill for purported telehealth consultations with Medicare recipients, which often did not take place.”
In a sentencing memorandum, DOJ prosecutors explained that Palatnik admitted in his plea agreement that Panda and its owners targeted Medicare beneficiaries with deceptive online advertising for genetic testing in order to obtain their insurance information and genetic material.
In that agreement, Palatnik acknowledged that starting in about April 2020, he and other Panda owners agreed to pay Stein’s company a $50,000 monthly kickback in exchange for having Stein arrange for telemedicine providers to authorize genetic testing orders for Panda’s medical laboratories.
Palatnik understood that the arrangement with Stein’s company was illegal and, therefore, Palatnik and other Panda owners entered into a sham contract with Stein for purported IT and consultation services to disguise the purpose of the payments, court documents show.
Also, Palatnik acknowledged that he knew that Stein recruited and supervised telemedicine providers who had no pre-existing relationship with the recruited patients and typically did not speak with the patients before authorizing the testing.
Other clinical laboratory professionals also have dealt with criminal enforcement from prosecutors.
Genetic Test Kickbacks
In a New Jersey case, former clinical laboratory sales rep Terri Haines pleaded guilty on Nov. 17 to paying a kickback and bribe to Lee Besen, MD, a primary care physician in Pennsylvania.
Haines used Besen’s name and medical credentials to order tests to detect genetic predisposition for cancer, also known as CGx tests, for Medicare patients she met at health fairs, according to the U.S. Attorney’s Office for the District of New Jersey.
Haines faces up to five years in prison and a fine of $250,000, or twice the gross gain or loss derived from the offense, whichever is greatest. Her sentencing is on March 22.
Haines owned GenRx Testing Solutions, which had a business relationship to provide DNA samples to a New Jersey laboratory that prosecutors did not publicly identify. In exchange for sales commissions, Haines sent the samples collected from Medicare patients at the health fairs to the lab, using Besen’s credentials to order the CGx tests. Medicare reimbursed more than $341,000 for the tests, which were ordered from July 2019 through October 2019.
Besen never attended any of the fairs and never met the patients for whom the genetic tests were ordered, the U.S. Attorney’s Office said. Besen previously pleaded guilty for his role in this and similar schemes involving CGx tests.
“He was also recorded saying that he hoped the money he made from CGx tests would help him ‘retire early,’” according to the U.S. Attorney’s Office.
In one example of the conspiracy, Haines paid Besen $1,500 sometime in July 2019 to use his name and credentials to order the CGx tests.
On July 19, 2019, Haines obtained a sample from a Medicare patient in Pennsylvania, and subsequently on August 19 caused the New Jersey lab to submit a claim for $10,280 for this patient’s test. Medicare reimbursed the lab $7,223, and Haines received a commission for the test sample.
Meanwhile, in Arkansas, prosecutors allege that laboratory owner Billy Joe Taylor filed claims for diagnostic tests that were not ordered by physicians and had not been performed. Taylor’s labs submitted false Medicare claims worth more than $100 million.
“Taylor allegedly then used the proceeds of the fraud to live a lavish lifestyle, including purchasing numerous luxury automobiles, including a Rolls Royce Wraith, as well as real estate, jewelry, guitars, and other luxury clothing and items,” according to the U.S. Department of Justice.
Taylor was charged with 16 counts of healthcare fraud and one count of engaging in a monetary transaction in criminally-derived property. He pleaded not guilty at his arraignment on Nov. 23 in U.S. District Court in Fort Smith, AK, according to the Arkansas Democrat-Gazette. A judge scheduled Taylor’s trial for January 10, 2022.
Bought Existing Lab Firms
The fraud allegedly occurred from February 2017 through May 2021. During that time, Taylor purchased existing laboratories and misappropriated confidential Medicare beneficiary and provider data that previously had been used to submit claims to Medicare, according to Taylor’s indictment.
He then used that information to repeatedly submit claims for urine drug tests and respiratory illness tests during the COVID-19 pandemic, prosecutors said. The indictment lists a variety of Taylor’s personal property that was tied to the false claims, including:
- Dozens of motor vehicles and trailers,
- Personal watercraft,
- Luxury footwear,
- Various musical instruments, recording equipment, and amplifiers, including a baby grand piano,
- Jerseys signed by retired athletes Shaquille O’Neal, Troy Aikman, and Wade Boggs,
- Guns, and,
- Hundreds of thousands of dollars in bank accounts.
In addition to the possible forfeiture of the seized items and real estate, the government also seeks the forfeiture of $12.5 million, which is equal to the gross proceeds traceable to the alleged violations.
DOJ Recommends Clinical Laboratories Be Alert for ‘Red Flags’ Consistent with Fraud
IN RESPONSE TO QUESTIONS FROM THE DARK REPORT, an official from the federal Department of Justice (DOJ) said executives working in clinical laboratories should be wary of sudden large volumes of lucrative tests, particularly if telemedicine is involved.
“Lab executives—like all Medicare providers—have an obligation to submit only true and correct claims, and to refrain from billing for medically-unnecessary testing or treatment and services not rendered,” the official said. “Billing large numbers of claims for often abused and highly lucrative tests, such as cancer genetic testing, could be considered a red flag.”
Telehealth Waiver Fraud
The DOJ’s Health Care Fraud (HCF) Unit thoroughly investigates entities or individuals who exploit regulatory changes designed to enable access to care during the COVID-19 pandemic, such as telehealth waivers, the official added. “The HCF Unit knows how to handle telemedicine cases involving clinical laboratory providers, and in recent years, has taken concrete steps to coordinate the prosecution of these and other multi-jurisdictional cases across the country.”
The HCF Unit does not collect statistics on the number of clinical laboratory owners who have been sentenced to prison, the official added. However, the unit has been active since September 2019, when it announced Operation Double Helix, an effort that resulted in federal criminal charges against 35 defendants associated with telemedicine companies and cancer genetic testing laboratories.
The operation snagged six laboratory owners or operators charged with various healthcare fraud and kickback schemes involving at least $787 million in fraudulent billings to Medicare and other insurers. (See TDR, “DOJ Charges 35 Individuals in Genetic Testing Scam,” Oct. 14, 2019.)
False Claims Fraud
Other healthcare fraud units in the DOJ have accused people of filing false claims worth hundreds of million of dollars. Targets of these units included:
- In September 2020, prosecutors charged three laboratory owners with healthcare fraud and kickback schemes involving approximately $639 million in fraudulent claims billed to Medicare, Medicaid, and private health insurance companies.
- In September 2021, the government charged three medical laboratory owners and operators who submitted $210 million in false claims.