New Developments in $1 Billion Lab Fraud Case

Federal whistleblower case reveals details about what appears to be biggest-ever lab fraud

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CEO SUMMARY: Court documents filed last month in the federal qui tam case against Health Diagnostic Laboratory, Singulex, Berkeley Heart Lab, BlueWave Healthcare Consultants, and several lab executives allege that the defendants used illegal inducements and kickbacks to file false claims and generate payments of $500 million from Medicare and Tricare. This money was paid in just 60 months, from 2010 through 2014. Add up payments to the defendants from private insurers—two of whom are suing HDL—and the total could be as much as $1.2 billion.

WOULD IT BE NATIONAL NEWS if only three healthcare providers used illegal physician inducements to generate more than $1 billion in payments from Medicare and private health insurers in just 60 months?

Of course it would! And if some of the same miscreants responsible for this billion-dollar healthcare fraud were involved in launching a new provider company that already generates criticism from competitors about its non-compliant sales and marketing practices, wouldn’t that also be important news?

We think the answer to both questions is: Yes! In this special issue of THE DARK REPORT, you will read the nation’s first comprehensive news coverage to explain how, between 2010 and 2014, three lab companies were able to take in between $1 billion and $1.2 billion from claims submitted to Medicare and private insurers that the federal government alleges were generated by offering thousands of physicians illegal inducements and kickbacks.

You will also learn the fascinating story of how two lab sales reps created a lab sales company that was paid $242.8 million during 2010 to 2014, and how that company distributed $116 million to those two individuals during the same period, making them the richest sales reps in the clinical lab industry.

This remarkable story does not stop there. You’ll learn about evidence now surfacing in news stories that hints at how some of the individuals accused of this wrongdoing-apparently having no fear of criminal prosecution from the federal government-may be involved in a brand-new lab company that specializes in the same cardiology tests that were at the heart of a still-unfolding whistleblower case.

Big Whistleblower Case

The foundation to this story is the federal qui tam case that was filed by multiple whistleblowers and includes the following as defendants: Health Diagnostic Laboratories, Inc., of Richmond, Virginia; Tonya Mallory, HDL’s former CEO; Singulex, Inc., of Alameda, California; BlueWave Healthcare Consultants, Inc., of Hanceville, Alabama (the sales consulting company that marketed the testing services of HDL and Singulex), BlueWave’s cofounders Floyd Calhoun Dent, III, of Columbia, South Carolina, and Robert Bradford Johnson of Hanceville, Alabama; and Berkeley HeartLab (no longer in business).

In September 2014, The Wall Street Journal used a front-page story to break the news about the federal investigation into those lab companies. Additional news coverage of ongoing developments means that many pathologists and lab administrators are aware that HDL and Singulex entered into settlement agreements with the federal government in April. Both companies denied guilt and agreed to upfront payments of $47 million and $1.5 million respectively, along with additional payments under certain conditions.

Some optimism at HDL

Following that settlement with the federal government, reports from inside HDL—which, at its revenue peak, dwarfed Singulexindicated that the executive team there thought that they had weathered the storm. The belief was that, given the modest size of the settlement, HDL could survive financially.

But HDL was not prepared for what happened next. Following publication of the WJS story last Fall, HDL was sued by Cigna Corporation for $84 million. Now, within weeks of the settlement with the Department of Justice, HDL found itself being sued by Aetna, Inc., for “tens of millions of dollars.” Further, in court documents filed with HDL’s Chapter 11 bankruptcy case in early July, it was reported that UnitedHealthcare had stopped paying HDL’s claims.

Federal prosecutors claim that the three labs paid $80 million to physicians in the form of inducements, kickbacks, and other forms of illegal remuneration.

Outsiders then realized that HDL was in dire financial straits. Three of its largest payers had ceased to issue payment for HDL’s lab claims. However, this financial stress was the result of HDL’s own business actions.

The next chapter in the HDL story came on August 7. That’s when the DOJ filed a whistleblower lawsuit against the defendants named above. Federal attorneys want a jury trial to recover money paid to HDL by the Medicare program, along with treble damages. At this time, there is no indication that the DOJ intends to press criminal charges against the individual executives named in this case.

The court documents reveal, for the first time, exactly how big the alleged fraud is. In the stories which follow in this issue of THE DARK REPORT, you’ll learn that Medicare and Tricare paid $500 million to HDL, Singulex, and Berkeley, most of it in the years 2010 through 2014. In the lawsuit, the Department of Justices claims that the three labs paid $80 million to physicians in the form of inducements, kickbacks, and other forms of illegal remuneration in exchange for these lab test referrals.

THE DARK REPORT is the first national news source to understand and publish the ramifications of these disclosures. Assume that Medicare was 40% of HDL’s business, for instance. That’s a generous estimate. Medicare revenue is less than 20% of the payer mix for the national labs.

If HDL/Singulex/Berkeley were paid $500 million by the federal government, then it is probable that the three lab companies were paid $500 million to $700 million by private payers.

Add the two numbers up: It means the three labs were paid a total of between $1 billion and $1.2 billion by government and private payers-and most of that was during the 60 months beginning in 2010! Based on the allegations in the whistleblower lawsuit, this would be the single largest case of lab fraud in the past 30 years.

But the amazing news doesn’t stop there. On pages 12-13, you’ll read about the two richest sales reps in the lab industry. The federal lawsuit says that, between 2010 and 2014, HDL and Singulex paid BlueWave a total of $242.8 million for its sales consulting services. Dent and Johnson, the two owners, personally accepted $116 million in distributions from BlueWave during this same time!

Big Case of healthcare Fraud

In the simplest analysis, the defendants named in this qui tam lawsuit appear to have committed one of the biggest healthcare frauds in history, in one of the shortest time periods on record.

All of this matters to every pathologist and clinical laboratory profession in the United States. One of the biggest challenges in the lab industry today is getting payers-both government and privateto issue coverage guidelines and set reasonable reimbursement for new clinical laboratory tests.

Can the administrators of the nation’s healthcare programs be blamed for acting slowly in their approval of new lab tests, when they see a handful of lab companies marketing tests in an abusive and fraudulent manner? A small number of bad players can give the entire profession of laboratory medicine a black eye.

The numbers do tell the story. There are 5,000 hospitals with labs in the United States. There are 3,200 anatomic pathology groups, most associated with a community hospital. Seldom are any of these laboratory organizations accused of fraud and abuse. One reason why is that the attorneys at their parent hospitals take a conservative approach to compliance with laws governing kickbacks and inducements.

Over the past 25 years, it has typically been lab companies funded by investors that have crossed the compliance line and found themselves facing enforcement action by a federal agency. However, as THE DARK REPORT has pointed out regularly over the years, both federal regulators and federal prosecutors have been both slow to take enforcement action and reluctant to bring criminal charges against the individual executives and physicians of lab companies widely-viewed by competitors as engaged in illegal sales and marketing practices.

HDL and Singulex paid BlueWave a total of $242.8 milion for its sales consulting services. Dent and Johnson, the two owners, personally accepted $116 million in distributions from BlueWave during this same time!

More details and analysis of this whistleblower case and associated developments are covered in the stories that follow. Lab professionals with insights and information about these companies and these matters are encouraged to contact our editor in confidence.

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