In Civil Suit, DOJ Seeks Triple Damages for Lab Test Fraud

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CERTAIN CLINICAL LABORATORY EXECUTIVES AND LAB SALES PROFESSIONALS may soon be made to pay where it hurts most—in their wallets. 

The U.S. Department of Justice (DOJ) announced on April 4 that it had joined a civil complaint against 18 defendants, all of whom are alleged to have violated the False Claims Act, Anti-Kickback Statute, and the Stark Law. The DOJ is asking for triple damages in the civil lawsuit, which, if successful, could mean defendants would have to pay back tens of millions of dollars to the federal government.

The complaint stems from clinical laboratory tests conducted by True Health Diagnostics in Frisco, Texas, and Boston Heart Diagnostics in Framingham, Mass. The Dark Report has been reporting on these entities since 2015. (See TDR, “True Health to Buy HDL Pending Court Approval,” Sept. 14, 2015.)

Warning to Lab Executives

The latest court action serves as clear warning to medical laboratory executives and lab sales teams about the risks of allegedly offering inducements to refer lab tests. It is evident the DOJ is devoting more attention to individuals’ accountability in such cases.

Many of the alleged violations occurred in Eastern Texas, which has been a hotbed of DOJ action in 2022 against lab kickbacks. In March, 10 physicians and one healthcare executive agreed to pay back $1.68 million to the government for alleged lab kickbacks. (See TDR, “Another 10 Doctors Settle Laboratory Kickback Cases, Pay Back $1.68M,” April 4, 2022.) 

Just a few months earlier in January, another seven Texas physicians and one hospital executive agreed to pay back $1.1 million. (See TDR, “Seven Doctors Settle Lab Test Fraud Case,” March 14, 2022.)

Fraud and Conspiracy

According to the DOJ, lab executives and employees at True Health and Boston Heart allegedly conspired with Little River Healthcare, which ran several small hospitals in Southeast Texas, to pay doctors to induce referrals to the hospitals for clinical laboratory testing. True Health and Boston Heart then allegedly performed those tests. 

Court documents allege that the hospitals paid a portion of their lab test profits to recruiters, who in turn kicked back those funds to the referring physicians. The recruiters allegedly set up companies known as management service organizations (MSOs) to make payments to referring doctors that were disguised as investment returns. 

However, those payments were based on, and offered in exchange for, the doctors’ referrals, said the DOJ’s lawsuit. 

“Executives and sales force employees [from Boston Heart and True Health] leveraged the MSO kickbacks to doctors to increase referrals and, in turn, their bonuses and commissions,” the DOJ stated.

The lawsuit further alleged that lab tests resulting from this referral conspiracy were billed to various federal healthcare programs. The claims, in many cases, also involved tests that were not medically necessary. 

In addition, to increase reimbursement from lab test claims, Little River allegedly falsely billed tests as hospital outpatient services. As described in the lawsuit, Little River allegedly paid out the following amounts from 2014 through 2018:

  • $30 million to Boston Heart for MSO kickbacks.
  • $18.5 million to various MSOs to induce referrals.
  • $15.9 million to True Health for MSO kickbacks.

True Health filed for bankruptcy in 2019 after the government stopped Medicare and Medicaid payments to the lab. (See TDR, “After Two-Year Battle with CMS, True Health Diagnostics on Verge of Collapse,” August 12, 2019.) 

Boston Heart agreed that same year to pay back nearly $27 million to resolve a variety of False Claims Act allegations, the DOJ stated. Little River closed in 2018. 

For the last decade, MSOs have been notorious for their connections to alleged lab test fraud. 

According to lawsuits and information previously uncovered by The Dark Report, it was clear that MSOs generated plenty of cash for fraudsters. The general MSO setup was as follows:

Organizers sold MSO shares to, say, 10 doctors, who each invested $20,000. That gave the organizers $200,000 in cash with little to no upfront costs. 

The MSOs commonly passed lab tests referred by their shareholder physicians to a rural hospital, which then billed payers for the tests. Because rural hospitals are allowed to charge health plans more for lab tests, the pass-through billing arrangement let the fraudsters and physician shareholders in the MSO reap large profits.

In one example cited in the DOJ’s April 4 civil complaint, Little River allegedly funded MSO kickbacks to physicians “with the knowledge and approval” of former CEO Jeffrey Madison and former Chief Financial Officer Peggy Borgfeld. 

Madison and Borgfeld, who are among the defendants in the civil suit, allegedly developed a business growth plan for Little River that centered on increasing referrals for toxicology lab tests.

“[Little River] paid recruiters to generate commercial and federal laboratory testing referrals; the recruiters transferred a portion of the funds to the recruiters’ MSO entities,” the lawsuit stated. 

From there, the MSOs paid the referring providers to induce their referrals to Little River. The hospital system then submitted the resulting claims to Medicare, Medicaid, and TRICARE, the federal health insurance program for military members and their families.

Lower Proof Standard

It’s important to note that the lawsuit is a civil complaint, not a criminal complaint. As such, the burden of proof on the plaintiffs is based on a “preponderance of evidence”—a lower standard than in a criminal case, in which a guilty verdict must be beyond a reasonable doubt.

“Under the preponderance standard, the burden of proof is met when the party with the burden convinces [the jury] that there is a greater than 50% chance that the claim is true,” according to the Legal Information Institute at Cornell Law School in Ithaca, N.Y. 

Also, while a defendant can be found guilty of a crime in a criminal case, if a defendant loses in a civil complaint, that party is considered liable. Prison time is not a punishment under civil cases.

The clinical laboratory kickback civil lawsuit provides few details about the original whistleblowers, Chris Riedel and Felice Gersh, MD, who prompted the complaint. The DOJ joined the qui tam suit after its filing.

Defendants Range from Lab CEOs to Sales Reps in the DOJ’s Civil Lawsuit, Filed on April 4 

APRIL 4th’s CIVIL COMPLAINT FILED BY THE U.S. DEPARTMENT OF JUSTICE lists the following people accused of various clinical laboratory fraud misdeeds: 

    • Peggy Borgfeld of Lexington, Texas, former Chief Financial Officer and Chief Operations Officer, Little River Healthcare.
    • Jeffrey “Boomer” Cornwell of McKinney, Texas, former Vice President of Sales for the Southwestern Region, True Health Diagnostics.
    • Christopher Gonzales of McKinney, Texas, a management service organization (MSO) recruiter.
    • Christopher Grottenthaler, of Frisco, Texas, True Health’s founder and former CEO.
    • Thomas Gray Hardaway of San Antonio, MSO recruiter and co-owner and operator of LGRB Management Services.
    • Susan Hertzberg of New York, former CEO of Boston Heart Diagnostics.
    • Laura Howard of McKinney, Texas, former Area Sales Manager and MSO recruiter, Boston Heart Diagnostics.
    • Ginny Jacobs of Magnolia, Texas, MSO recruiter and co-owner and operator of defendants S&G Staffing LLC and Jacobs Marketing.
    • William Todd Hickman of Lumberton, Texas, owner and operator of defendants Ascend Professional Management, Ascend Professional Consulting, and BenefitPro Consulting LLC. 
    • Scott Jacobs of Magnolia, Texas, MSO recruiter and co-owner and operator of S&G and Jacobs Marketing.
    • Stanley Jones of San Antonio, MSO recruiter and co-owner and operator of LGRB Management Services.
    • Stephen Kash of Beaumont, Texas, former Director of Strategic Accounts and MSO recruiter, True Health.
    • Courtney Love of Dallas, former True Health Account Executive.
    • Jeffrey Madison of Georgetown, Texas, former CEO, Little River Diagnostics.
    • Ruben Marioni of Spring, Texas, MSO recruiter and co-owner and operator of defendant Next Level Healthcare Consultants LLC.
    • Jeffrey Parnell of Dallas, MSO recruiter and co-owner and operator of LGRB Management Services.
    • Jordan Perkins of Conroe, Texas, MSO recruiter and co-owner and operator of Next Level Healthcare Consultants.
    • Matthew Theiler of Mars, Pa., former Vice President of Sales, Boston Heart.

Federal Laws Involved in the DOJ Lawsuit

IN ITS CIVIL LAWSUIT AGAINST SEVERAL LAB EXECUTIVES AND LAB SALES REPS, the Department of Justice cited violations to the following federal laws: 

    • The Anti-Kickback Statute prohibits providers from soliciting, providing, or receiving any payment to induce either the referral of an individual or furnish a service for which payment may be made under a federal healthcare program.
    • The False Claims Act imposes penalties for any person who submits or causes the submission of fraudulent claims for payment to the federal government. 
    • The federal Stark Law prohibits the referral of Medicare and Medicaid beneficiaries by a physician to an entity for health services if that physician (or the physician’s immediate family member) has a financial relationship with the entity.

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