Life Science Compliance Update

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May 18, 2017

Quest to Pay $6 Million to Settle Kickback and Unnecessary Testing Allegations

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On April 28, 2017, the United States Department of Justice announced a settlement with Quest Diagnostics, Inc., for $6 million to resolve a lawsuit by the United States alleging that Berkeley HeartLab Inc., of Alameda, California, violated the False Claims Act by paying kickbacks to physicians and patients to induce the use of Berkeley for blood testing services and by charging for medically unnecessary tests. Quest acquired Berkeley in 2011, and ended the conduct that gave rise to the settlement.

Physicians refer their patients to independent laboratories like Berkeley to conduct tests on blood samples. According to the government’s complaint, Berkeley paid kickbacks to referring physicians disguised as “process and handling” fees. The complaint also alleged that Berkeley paid kickbacks to patients by routinely waiving copayments owed by certain patients who were legally required to pay for part of their tests. Allegedly, Berkeley paid the kickbacks to induce both the physicians and patients who received them to choose Berkeley over other laboratories. The government’s complaint further alleged that these illegal practices resulted in medically unnecessary cardiovascular tests being charged to federal healthcare programs.

The lawsuit was initially filed by Dr. Michael Mayes under the qui tam, or whistleblower, provisions of the False Claims Act. The United States partially intervened in this and two related actions on March 31, 2015, and is continuing to pursue claims against the remaining defendants: Latonya Mallory, the former CEO of Health Diagnostics Laboratory Inc., and marketing company BlueWave Healthcare Consultants Inc. and its owners, Floyd Calhoun Dent III and Robert Bradford Johnson. Dr. Mayes’ share of the settlement with Quest has not been determined.

“The South Carolina U.S. Attorney’s Office has dedicated considerable resources to pursuing fraud cases that divert federal tax payer dollars from important programs, like health care and defense contracting,” said U.S. Attorney Beth Drake of the District of South Carolina. “The goal for our qui tam unit is to protect taxpayers, patients, and soldiers by ensuring that important decisions are made according to medical science and engineering, and not based on dollar signs.”

“This settlement is part of the government’s ongoing efforts to address conduct that allows medical decisions to be influenced by money rather than the best interests of patients,” said U.S. Attorney Channing D. Phillips of the District of Columbia. “Our office is pleased to defend the integrity of our healthcare system and to demand the return of ill-gotten gains.”

“We will not allow laboratories to provide financial incentives to induce physicians to steer patients their way,” said Special Agent in Charge Derrick L. Jackson of the U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG) in Atlanta. “The Office of Inspector General will continue to work aggressively to eliminate this type of behavior which ultimately drives up healthcare costs and eliminates fair competition.”

Similar Settlements

On April 9, 2015, the DOJ announced settlements with two other laboratories - Health Diagnostics Laboratory Inc. of Richmond, Virginia, and Singulex Inc., of Alameda, California - for engaging in conduct similar to that resolved in the settlement with Quest.

The government’s intervention in this matter illustrates the government’s emphasis on combating health care fraud. One of the most frequently used tools in this effort is the False Claims Act.

 

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