Legal Update

California Lab Company Closes After Negative Medicare Decision

WITH EACH NEW RULING about coverage for a proprietary diagnostic assay, Medicare officials send a message to the entire clinical laboratory industry that any lab company with a proprietary test needs to submit adequate clinical evidence that demonstrates two positive aspects of the test.

First, that the assay accurately measures the biomarkers that it says it measures. Second, that the results of the assay will help a physician make a decision that contributes to better care for the patient, compared with current clinical practice.

CardioDx, of Redwood City, Calif., is the latest example of what happens to a lab with a proprietary test that does not invest the resources to gather clinical data to make a compelling case for the test’s clinical utility. Questions about the clinical utility of CardioDx were an issue in two federal whistleblower cases filed against the company in 2015 and 2018.

Negative Coverage Decision

The final nail in the CardioDx coffin, however, is believed to be a negative ruling for coverage of the company’s Corus CAD test from the Medicare program. In November, Medicare Administrative Contractor Palmetto GBA issued a local coverage determination saying, “Since initial coverage of the assay, the manufacturer has failed to demonstrate that testing resulted in improved patient outcomes or that testing changed physician management to result in improved patient outcomes.”

A whistleblower who worked in sales at CardioDx brought the case to the attention of the federal Department of Justice, said Justin T. Berger, a partner with the law firm Cotchett, Pitre, and McCarthy in San Francisco. In an interview with THE DARK REPORT, Berger said the whistleblower, Bryan Barnette, had worked at CardioDx as a sales manager when he learned that the test did not identify patients that could be “ruled out” for heart disease, as the company had claimed.

In 2015, Berger filed the case under seal in the U.S. District Court for the Northern District of California. Since then, the DOJ has investigated the case, he added. A second whistleblower filed a similar case that corroborated Barnette’s claims, but that second case was dismissed because it was the second one filed, Berger said.

In the initial court filing, lawyers for Barnette said, “Since 2012, Defendant CardioDx has fraudulently sought reimbursement for medically unnecessary, excessive, and ineffective cardiovascular tests. Contrary to Cardio’s declarations to Medicare and private insurance companies, Cardio’s test provides no benefit to Medicare covered men and less than marginal benefit to Medicare covered women.

“Despite this reality, Cardio fraudulently induced Medicare to approve the Corus CAD test for Medicare reimbursement to the tune of $1,095 per test,” court documents showed. “Additionally, to further increase ordering of the Corus CAD test, Cardio developed and implemented several kickback schemes to induce physicians and their staff to refer business to it.”

CardioDx conspired with Phlebotek Corporation, a phlebotomy services company in Oakland Park, Fla., to implement a kickback scheme that caused thousands of false claims to be submitted to Medicare and private insurers, the court filing added.

CardioDx either submitted, or caused to be submitted, thousands of false claims to Medicare and private insurers in California by engaging in five schemes, the complaint alleged. Those schemes are as follows, the court documents showed:

  • “Fraudulently inducing Palmetto GBA to approve the Corus CAD test for Medicare payment by making false representations of Cardio’s “rule out” capability;
  • “Conspiring with Phlebotek to engage in an illegal kickback scheme by providing physicians and medical assistants illegal remuneration for submitting specimens to Cardio;
  • “Creating an illegal registry kickback scheme that provided physicians illegal remuneration for submitting patient data;
  • “Organizing unlawful ‘free screening days’ for Medicare patients, resulting in claims for medically unnecessary and excessive tests; and,
  • “Providing unlawful kickbacks by waiving patients’ co-pays and deductibles.”

A ‘Rule-Out’ Test

In the local coverage determination (LCD), Palmetto reproduced about five pages of evidence that CardioDx submitted to support its claims that physicians could use the assay “as a ‘rule out’ test for stable non-diabetic patients presenting to a primary care physician with the new onset of symptoms suggestive of coronary artery disease.”

Nevertheless, the LCD stated that “The vendor has provided no evidence that use of the test results in improved patient outcomes (clinical utility). Thus, this test does not meet Medicare’s reasonable and necessary criteria for coverage. A number of the published papers have stressed that physician behavior has changed on the basis of the test.

“However, clinical utility is not established by clinician referrals to cardiology or for further cardiac evaluation,” the LCD noted. “These articles provide no defined treatment protocol(s) to manage patients with a GES of any value. Furthermore, clinicians are left to interpret the test results as they see fit.

“The test is neither a ‘rule out’ or ‘rule in’ test and is marketed to primary care and cardiologists without providing value to the patient or physician management of the patient,” Palmetto GBA said. “Finally, the Corus CAD test is not included in any professional society management or treatment guidelines.”

In an article about CardioDx in The San Francisco Chronicle, staff writers Sophia Kunthara and Catherine Ho reported that their analysis of Medicare records showed CMS paid $52 million for the test since 2012. They also reported that the company notified state officials in December that closing the company would result in laying off 110 employees.

Since the company was founded in 2003, CardioDx raised about $297 million, they added. During its most recent pitch for venture funding in January 2017, it raised $22.5 million, they wrote. “Soon after it received the green light for Medicare coverage, the company brought in $58 million from prominent venture capital firms, including GE Capital, Intel Capital, and Kleiner Perkins, Kunthara and Ho reported. The three venture capital firms declined to comment for the Chronicle’s article.

CardioDx did not respond to multiple requests for comment, but attorney Jeffrey M. Berman who represents Phlebotek said, “Phlebotek vehemently denies that it violated any healthcare law or that it conspired with CardioDx, Inc. in any way, and believes plaintiff’s claims against Phlebotek in that action will fail under controlling law in the Ninth Circuit. Phlebotek is aggressively defending the lawsuit and looks forward to challenging plaintiff’s conclusory and baseless allegations.”

Contact Justin Berger at 650-697-6000 or jberger@cpmlegal.com.

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