Pathology Firm Pays $63M to Settle Qui Tam Case

Inform Diagnostics faced three whistleblower lawsuits alleging illegal inducements to clients

CEO SUMMARY: Inform Diagnostics, formerly Miraca Life Sciences, settled the federal qui tam case while denying wrongdoing. The $63.5 million settlement will by paid by the former owner, Miraca Holdings, a Japanese company. The federal Department of Justice alleged that the company—then known as Miraca Life Sciences—violated the False Claims Act by engaging in what federal lawyers called “improper financial relationships with referring physicians.”

On Jan. 30, federal prosecutors announced an agreement with Inform Diagnostics of Nashville, (formerly known as Miraca Life Sciences) to settle allegations that the company violated the False Claims Act by engaging in what Department of Justice (DOJ) lawyers called “improper financial relationships with referring physicians.”

Inform Diagnostics agreed to pay $63.5 million to settle the claims in the case, but did not admit to any wrongdoing There are two twists in this case. The first twist is that the current owners of Inform will not pay the settlement amount. Instead, it will be paid by the company’s previous owner, Miraca Holdings.

The second interesting twist in this case is that pathology laboratory companies competing against Inform Diagnostics and its earlier owners complained about business practices that violated the federal anti-kickback statute. These claims commenced within years of the company’s launch in the late 1990s.

Founded in 1998 in Nashville as a venture capital-funded physician practice management company named Pathology Partners, the company moved to Dallas shortly thereafter. In 2005, Caris acquired a majority interest and renamed the company Caris Life Sciences. In 2011, Miraca Holdings, a Japanese firm, bought the company and changed the name to Miraca Life Sciences.

After its move to Dallas in 2000, lab competitors of Pathology Partners began to claim that the company was illegally inducing physicians by subsidizing, in various ways, how client physicians purchased and used EHR systems. These allegations continued as the company was renamed Caris and then Miraca Life Sciences and operated by new owners.

Avista Acquired Miraca

In 2017, the company changed hands once more when Avista Capital Partners acquired Miraca and changed the name to Inform Diagnostics. In a statement to The Dark Report, Inform Diagnostics said Miraca Holdings will pay the settlement of $63.5 million and Inform will not be subject to a corporate integrity agreement. Inform also said it was pleased to reach the agreement with the DOJ to settle the dispute and admitted no wrongdoing.

In announcing the results of its investigation, the DOJ added this important caveat: “The claims asserted are allegations only, and there has been no determination of liability.”

In November 2017, Miraca Life Sciences amended its merger agreement with Avista Capital Partners after the pathology company lost value in the two months since the agreement was signed in September 2017, The Dark Report reported. Among the factors that led to the revision were a significant decline in reimbursement rates, stiff competition from physician-office labs, and a loss of specimen volume to POLs and hospital labs, Miraca said. (See, “Value of Miraca Falls by 92% from 2011 to 2017,” TDR, Dec. 11, 2017.)

In the announcement, the DOJ said the allegations in the case stem from three lawsuits filed under the qui tam, or whistleblower, provisions of the federal False Claims Act. The first of these cases was filed in 2013 and amended twice. The second was filed in 2016 and the third was filed last year. A former Caris employee is believed to have filed the lawsuit in at least one of the whistleblower lawsuits.

When the government reaches such settlements, plaintiffs can share in the proceeds. In this case, the whistleblowers’ share of the settlement has yet to be determined.

Claims of Illegal Subsidies

U.S. Attorney Don Cochran for the Middle District of Tennessee and U.S. Attorney Maria Chapa Lopez for the Middle District of Florida announced the settlement, saying it resolves allegations that the company violated the Anti-Kickback Statute and the Stark Law by providing subsidies for electronic health record (EHR) systems, and free or discounted technology consulting services to referring physicians and physician groups.

The Anti-Kickback Statute and the Stark Law restrict the financial relationships that healthcare providers, including laboratories, may have with doctors who refer patients to them, the DOJ said.

In 2006, the federal Department of Health and Human Services adopted regulations allowing laboratories to provide EHR donations to physicians under certain conditions, the DOJ said. But the DOJ alleged the pathology company violated the conditions of the regulations. In 2013, HHS withdrew those exemptions for laboratories, the DOJ added.

Pathology Service Menu

Inform Diagnostics provides AP services primarily in the fields of GI pathology, dermatopathology, hematopathology, and GU pathology. The company has some 1,000 employees and laboratories in Irving Texas, Boston, New York, and Phoenix.

Regarding steps the company will take toward compliance, Inform said new senior executives and board members have taken over the management and made compliance a priority. “A full-time chief compliance and ethics officer reports to the board and manages a new team of compliance staff,” the company said. “External consultants perform regular compliance and billing audits. As we move forward, we are committed to meeting and exceeding the expectations of our clients and other stakeholders.”

When commenting on the case, Assistant Attorney General Joseph H. Hunt of the DOJ’s Civil Division said the settlement may deter similar conduct. “The Department of Justice has longstanding concerns about improper financial relationships between healthcare providers and their referral sources, because those relationships can alter a physician’s judgment about the patient’s true healthcare needs and drive up healthcare costs for everybody,” he added.

Court documents and public statements make it clear that the new owners of Inform Diagnostics have had strict compliance programs in place since the date when they acquired the company.

Contact David Boling at the DOJ at 615-736-5956 or david.boling2@usdoj.gov.

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