Wall Street Journal Raises Allegations of Lab Fraud

Some labs doing tests for cardiac biomarkers are subjects of investigation, newspaper says

CEO SUMMARY: Federal investigators are looking into possible violations of the antikickback law by a number of labs offering cardiology tests. The labs under investigation are alleged to have paid physicians processing fees of up to $20 per patient, the Journal reported in a front page story. The labs under scrutiny deny that they violated federal and state antikickback laws. Additionally, there is the potential for federal prosecutors to bring enforcement action against physicians who accepted the processing fees.

THERE’S ANOTHER FEDERAL INVESTIGATION of certain lab business practices and news of this probe generated front page headlines in The Wall Street Journal. In a story published on September 8, the newspaper said that at least five lab companies offering cardiac testing services are under investigation for possible violation of the federal antikickback law.

Federal investigators are looking for violations of the antikickback law specifically related to instances where the clinical lab companies were said to have paid physicians to refer patient’s blood samples to the labs, reported the The Wall Street Journal. Lab companies named by the newspaper were:

  • Health Diagnostic Laboratory in Richmond, Virginia.
  • Atherotech Diagnostics Inc. in Birmingham, Alabama.
  • Berkeley HeartLab Inc., in Los Angeles, California.
  • Boston Heart Diagnostics Corp. in Framingham, Massachusetts.
  • Singulex Inc., in Alameda, California.

Each of the labs denied the allegations and each said it was cooperating with the investigators, the Journal reported.

The issue in question was the payments labs made to physicians above the $3 that Medicare pays for venipuncture, the WSJ wrote. The newspaper noted that Quest Diagnostics Incorporated, which owns Berkeley HeartLab, said Berkeley ended such payments in 2011 when Quest bought the lab. Atherotech, Boston, HDL, and Singulex all said they stopped making such payments after the federal Office of Inspector General issued a special fraud alert, “Laboratory Payments to Referring Physicians,” on June 25, 2014.

HDL was paying $20 for blood specimens, a fee that included the $3 Medicare fee for venipuncture and $17 that HDL said was for processing and handling of specimens for shipment, the Journal reported, citing a memo from HDL CEO Tonya Mallory. The additional $17 covered the costs for storage and maintenance of blood collection supplies, maintaining patient logs, obtaining patient information, labeling vials, filling out shipping forms, cooling, and packaging specimens in biohazard shipping containers, according to an article in TriCities Business News.

Payment as Inducement?

Federal investigators could interpret payments such as HDL’s $20 processing fee to a physician as an incentive to order unnecessary tests, the WSJ reported, citing a former federal prosecutor. In such a circumstance, the allegation of kickbacks turns on whether the money is intended as an inducement to get more patient referrals, the Journal explained, again citing the former prosecutor.

On the issue of intent, the fraud alert said: “OIG recognizes that the lawfulness of any particular arrangement under the antikickback statute depends on the intent of the parties. Such intent may be evidenced by the arrangement’s characteristics, including its legal structure, its operational safeguards, and the actual conduct of the parties to the arrangement.”

A spokesman for HDL told the Journal that the $20 fee compensates physicians fairly for the cost of handling and preparing blood specimens for shipment. HDL and the other labs under investigation said the payments were done at fair market value as compensation for handling blood and that such payments are widespread among clinical labs, the Journal reported.

The labs also said the special fraud alert represents new guidance on the issue, the newspaper added. Quest Diagnostics said Berkeley stopped making payments to physicians of $7.50 to $11.50 per patient in 2011, when Quest Diagnostics acquired the lab company, the WSJ reported. Atherotech, Boston, HDL, and Singulex all said they stopped making such payments after the OIG issued the special fraud alert.

HDL paid some physician practices more than $4,000 per week in fees for blood samples, the Journal reported, citing a former HDL employee. In a review of 2010 data from Medicare, the Journal reported that HDL’s client physicians were referring an average of 3.8 claims per patient. For 12 patients from one Mississippi physician, HDL submitted 140 claims to Medicare and was paid $14,780, the Journal wrote.

In addition to reporting on the fees paid for processing and handling specimens, the WSJ reported that HDL grew quickly after it was founded in 2008 and had $383 million in revenue last year. Of that amount, $157 million (or 41% of the total) came from Medicare, the Journal reported, adding that HDL collected $129 million from Medicare in 2012.

Bundled Cardiac Tests

When HDL performs tests for cardiac biomarkers, the lab may bundle 28 tests together and gets $1,000 or more for some bundles, the Journal reported.

When the WSJ reviewed Medicare spending for lab tests, it found that—for the nine lab processes that HDL runs— the company received 64% of what Medicare spent nationwide on those same lab processes, reported the newspaper.

For a process used to separate blood particles with an electric charge, HDL billed Medicare 262,308 times and collected $11.9 million in 2012, wrote the newspaper. That amount represented 93% of the total Medicare spent on that blood- separation process in 2012, the Journal wrote. By contrast, adding together what 35 other labs that use the same process charged Medicare, the Journal said these 35 labs billed Medicare for the process 19,621 times and collected $850,000.

Another element of the federal investigation could eventually ensnare physicians who accepted processing fees from the labs under scrutiny and may have ordered medically unnecessary tests. The WSJ wrote that “Some doctors stood out for heavy use of HDL’s services in 2010 Medicare data. The data, which the Journal obtained for a fee, include reimbursement claims for a random 5% sample of Medicare patients and are the most recent the Journal could obtain showing individual patient billings.”

The newspaper reported that “in that sampling, Charles ‘Sam’ Fillingane was the most prolific test prescriber among 296 doctors who referred patients to HDL. HDL submitted 140 Medicare claims in 2010 for the 12 patients in the sample referred by the Flowood, Mississippi, family practitioner—11.7 claims per patient. HDL collected $14,780 from Medicare for those 140 claims. Doctors in the HDL sampling averaged 3.8 claims per patient.”

The Journal went on to report that Dr. Fillingane “sent HDL 1,179 blood samples in 2010’s first half, which would have earned him $23,580 in [processing] fees.” Given the recent precedent of federal criminal prosecutions of physicians in the case of Biodiagnostic Laboratories of Parsippany, New Jersey, the potential exists for this federal investigation to result in prosecutions against some lab company executives and certain doctors who accepted the processing fees.

Ex-Berkeley HeartLab Executives Founded HDL, Upped Ante with More ‘Processing Fees’ to Docs

SINCE ITS FOUNDING IN 2008, Health Diagnostic Laboratory of Richmond, Virginia, has gotten plenty of attention because of its rapid growth. According to a recent story in The Wall Street Journal, the lab company had revenue of $383 million in 2013, just five years after its launch.

But the back story has gotten much less attention. As reported by the WSJ in its September 8 front-page story, some principals of HDL were former employees of Berkeley HeartLab, currently based in Los Angeles, California. The Journal wrote that Tonya Mallory, HDL’s CEO, “was Berkeley’s senior lab-operations manager in 2008 when she left to found HDL in Richmond, Va. Two Berkeley sales representatives, Cal Dent and Brad Johnson, later left to form BlueWave Healthcare Consultants Inc., which became HDL’s independent sales- and-marketing contractor.”

Knowledgeable observers tell THE DARK REPORT that, while Berkeley HeartLab was paying referring physicians a processing fee of up to $11.50 per patient, Mallory and her executive team decided to up that amount and were paying referring physicians a pro- cessing fee of as much as $20.

Cal Dent and Brad Johnson are rumored to have played a key role in this arrangement. Also former employees of Berkeley HeartLab, they are believed to have formed BlueWave Healthcare Consultants as a way to circumvent any non-compete agreements they had with Berkeley Heartlab. This allowed them to immediately go to work on behalf of Mallory and HDL.

However, Berkeley HeartLab took action after the departure of its employees. The WSJ wrote that “Berkeley sued HDL, accusing it of stealing Berkeley’s business after some doctors switched to ordering tests from HDL. In court filings, HDL denied the allegations. It settled the case for about $7 million, Celera said in 2010. Berkeley and HDL sued each other in 2011 and settled those suits under undisclosed terms. The companies declined to comment on the litigation.”



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