CEO SUMMARY: In a ruling issued Sept. 12, a U.S. District Court judge decided that two common clinical laboratory business practices are illegal inducements that can lead to charges of ling false claims. The practices occur when labs pay physicians to package and mail patients’ specimens and when labs waive copays and deductibles for patients. Essentially, the judge’s decision in this federal case makes such practices illegal. That means this ruling is now required reading for clinical laboratories and their legal counsel.
CLINICAL LABORATORIES THAT PAY for packaging and handling of patients’ specimens and give discounts to patients for copayments and deductibles could be liable for filing false claims under a recent court ruling by a federal judge.
The ruling was made last month in the case of United States of America ex rel. Chris Riedel vs. Boston Heart Diagnostics Corporation. It could have far-reaching effects on those clinical labs that pay physicians to mail specimens, as well as those labs that forgive all or part of patients’ copayments and deductibles, according to Justin T. Berger, an attorney representing the plaintiff in the case against Boston Heart Diagnostics.
Federal Whistleblower Case
In the case against Boston Heart Diagnostics of Framingham, Mass., the plaintiffs are Chris Riedel, CEO of Hunter Heart Inc., a clinical lab in Los Gatos, Calif., and the U.S. Department of Justice. Riedel and the DOJ are seeking money damages and civil penalties in the case that was filed originally in 2012 in U.S. District Court for the District of Columbia. Riedel and his lawyers have amended the complaint twice since then, filing the most recent version in October 2017.
When asked for comment on this ruling, a spokeswoman for Boston Heart provided the following statement: “Boston Heart is focused on helping healthcare providers and patients characterize disease, individualize treatments, and engage patients in their own heart health, in compliance with applicable laws and regulations. As Boston Heart fully cooperates with ongoing investigations, our policy is to not comment on pending litigation.”
In an interview with THE DARK REPORT, Berger, a principal in the law firm of Cotchett, Pitre & McCarthy, LLP, of Burlingame, Calif., discussed the ruling, which was issued Sept. 12 by U.S. District Judge Reggie B. Walton. “Walton decided to grant and deny in part Boston Heart’s request to dismiss Riedel’s amended complaint,” noted Berger. “In the ruling, Walton thus decided that two legal theories in the case would go forward to trial. Those two theories relate to payment from labs to physicians for packaging and handling of patients’ specimens and waiving patient copays and deductibles.”
By essentially making such practices illegal, Walton’s ruling is now required reading for clinical laboratories and their legal counsel, Berger advised.
“In addition to these two issues,” Berger explained, “the judge ruled on labs’ use of speakers bureaus as a way to pay physicians who order large numbers of tests and on the use of large panels of tests that can lead to medically unnecessary testing. Both issues have potential liability for labs.”
“There are several significant legal theories from this case that will proceed as the trial goes into the discovery phase,” he added. “Because these theories stem from a federal district court decision, lawyers can rely on them as persuasive authority in other federal courts nationwide, meaning they are now part of case law.” Although the case has not yet proceeded to trial, Berger will request that it does so in the next 12 months, he said.
“One very important development in this case so far is the issue of what happens when labs write off copays and deductibles,” commented Berger. “The judge’s decision relating to writing o copays and deductibles is the first to address head-on the issue of what labs call pull-through.” Pull-through is a practice labs use when they want physicians to send all of their specimens to them, rather than using multiple labs.
“This is the first decision that directly ties pull-through to false claims and kickbacks, because this judge said that it gives rise to false claims and to kickbacks,” he emphasized.
“Here’s what I mean regarding how this case addresses the practice of pull-through, which is something we’ve seen more and more over the past 10 years,” he explained. “When labs write off or give big discounts to patients covered by private insurers who otherwise would need to pay copayments and deductibles in full under the requirements of their health plans [and in compliance with the laws of many states], the labs are seeking to ‘pull-through’ the doctors’ other business, including the Medicare and Medicaid business of those doctors.
Labs Writing Off Co-Pays
“A lab that does this knows that—in order to keep its ordering physicians happy and the patients of those ordering physicians happy—the lab can write off copays and deductibles as an inducement to get the physicians to send all their lab test business to that lab,” stated Berger. “Labs will do this regardless of whether the lab is the best around or has the best levels of service among its competitors.
“Essentially, this federal judge is saying that—by allowing this theory to proceed—it is considered to be a fraud on taxpayers,” Berger said. “at issue has come up in other cases, but only tangentially, such in the Blue Wave Healthcare Consultants whistleblower case in South Carolina. (See “In HDL Case, Judge Imposes Damages, Penalties of $114 Million,” TDR, May 29, 2018.)
Violations of Federal Law?
“But in the Blue Wave case, pull-through was not a focus of the government’s case by any means,” he added. “The Boston Heart case is different and so is likely to prompt a lot of discussion about what labs should do regarding how to be compliant when collecting copays and deductibles. Labs will need to discuss this case with their lawyers on how to ensure that they’re not violating federal law in light of this decision.
“The way for labs to protect themselves from such court claims is not to write off copays or deductibles and not to give discounts to patients who owe copayments and deductibles,” advised Berger. “Instead, labs should go through all contracts to make sure no physicians are waiving copays or deductibles.
Issue of Importance to Labs
“That was the first issue of importance to labs in Judge Walton’s ruling,” he continued. “The second issue of importance to labs is that it reconfirms that labs should not pay physicians for packaging and handling patients’ specimens to send those specimens to the labs.
“Again, the Blue Wave case addressed this issue too, and everyone took note of that decision in South Carolina,” stated Berger. “Since then, most labs have shied away from the practice of paying packaging and handling fees or labs have morphed that practice into something else.
“But all labs should know now that this decision in the Boston Heart case says that paying packaging and handling fees is out of bounds,” warned Berger. “It is a form of kickback. Also, this decision highlighted the fact that just putting a thin veil over the practice by making the payment, not directly to the physician, but to an office staff member or to a family member, is no better. In fact, in many ways, putting such a veil on the practice is worse because it’s evidence that the lab is trying to hide the practice.
“That’s what’s alleged in this case, and the federal court found that it’s a kickback violation,” he said. “Now that the judge has issued his ruling, labs paying physicians to mail specimens and labs forgiving all or part of patients’ copayments and deductibles are the two theories that will proceed in this case.
Boston Heart Case Issues May Lead to Legal Jeopardy
IN ADDITION TO ISSUES related to paying for shipping and handling of patients’ specimens and to writing off patients’ copayments and deductibles, clinical labs need to be aware of the legal jeopardy related to paying for speakers bureaus and large panels of tests, said Justin T. Berger, an attorney with Cotchett, Pitre & McCarthy.
In the federal case against Boston Heart Diagnostics, the court found that paying speakers bureau fees to physicians who order a high number of tests could be a kickback violation, Berger said.
“But the court also found that the complaint against Boston Heart didn’t sufficiently allege that the Boston lab knew that the practice of paying for speakers was illegal,” he explained. “For that reason, the court is not allowing that claim to go forward based on the current allegations in the amended complaint. But, the court confirmed that the type of practice involving paying physicians as speakers can be a kickback.
“There are many labs that have some form of speakers bureau or who pay physicians to speak at conferences and other meetings,” he advised. “So labs will want to review this decision on the speakers bureau issue.
“The other issue that deserves attention relates to medically unnecessary tests that are part of big panels of tests,” Berger warned. “With big panels, all of the tests in the panel may not necessarily be medically necessary for every patient. To order these large panels of tests, labs encourage physicians to just check one box and not look at each patient’s needs. That raises the question of medical necessity.
“For these reasons, labs should review this case closely and discuss implications of this ruling with their in-house or external legal counsel,” he said.
Contact Justin Berger at 650.697.6000 or firstname.lastname@example.org.