Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Practice Management News

Ex Lab Exec, Marketing Partners Liable For $51M in Medicare Fraud

Former Health Diagnostic Laboratory CEO and the owners of the lab’s marketing partner are liable in a Medicare fraud case involving false claims and kickback payments.

Medicare fraud and false claims

Source: Thinkstock

By Jacqueline LaPointe

- A federal jury in South Carolina recently found the former CEO of Health Diagnostic Laboratory and the owners of the healthcare organization’s marketing partner liable in a Medicare fraud case brought on by three whistleblowers, the Department of Justice reported.

The former executive of the now-bankrupt healthcare organization, Tonya Mallory, as well as Floyd Calhoun Dent III and Robert Bradford Johnson, the owners of BlueWave Healthcare Consultants Inc., an Alabama marketing company, now owe the federal government over $51 million in damages.

The court may also impose penalties on the defendants, which can range from $5,500 to $11,000 for each false claim submitted.

The three whistleblowers, whose cases were litigated together, accused Health Diagnostic Laboratory of participating in a Medicare fraud scheme involving illegal kickbacks.

The healthcare organization allegedly charged excessive process and handling fees of up to $17 for blood draws and testing referrals. Providers would receive the kickback payment to encourage them to order expensive cardiovascular blood tests for Medicare patients regardless of medical necessity.

The defendants also allowed for routine waiving of patient co-pays and deductibles.

The federal jury found that Mallory, Dent, and Johnson liable for over 35,000 false claims that Health Diagnostic Laboratory submitted to Medicare. The damages for false claims totaled $16.6 million.

Additionally, the marketing company owners also reportedly paid physicians illegal kickback payments by charging $10 process and handling fees. Through the kickbacks, the defendants allegedly induced providers to order more tests from another specialty heart lab, Singulex Inc. in California.

As a result, Singulex Inc. submitted more than 3,800 false claims to federally insured healthcare programs. The claims totaled almost $450,000 and the jury found the defendants liable for $1.4 million in damages.

Singulex agreed to pay the federal government $1.5 million in 2015 to settle claims that the laboratory paid kickbacks to physicians for test referrals and increased test volume. Health Diagnostic Laboratory also agreed to pay $47 million to settle similar allegations, according to the same DoJ announcement.

The settlements prompted the federal government to intervene in lawsuits involving BlueWave Healthcare Consultants Inc. and its owners, as well as Health Diagnostics Laboratory CEO Mallory. The federal government also intervened in lawsuits involving similar claims against another laboratory, Berkley HealthLab. Inc., which is now owned by Quest Diagnostics.

The three defendants in the most recent case in South Carolina must repay significantly more for the claims because the False Claims Act states that a liable individual must pay three times the single damages. The provision ensures that the government collects for direct losses and the costs it incurs for investigating healthcare fraud, Phillips & Cohen explained.

Phillips & Cohen worked on the first whistleblower case against Health Diagnostic Laboratory. The law firm’s Partner and whistleblower attorney Peter W. Chatfield elaborated that the federal jury found the three defendants liable after realizing that the former healthcare executive and marketing company owners knew that the processing and handling fees and kickback payments were illegal.

“The jury apparently excused the defendants’ conduct for a certain time period, based on the defendants’ argument that they initially, perhaps innocently, were following bad advice from counsel,” he stated. “But the trial proved that the defendants continued to pay kickbacks even after they received a growing flood of warnings and corrected legal advice that showed defendants’ continuation of such payments was a knowing or reckless disregard of the law.”

“The defendants realized they would kill their golden goose if they stopped paying process and handling fees used to induce some doctors to order their tests,” he continued. “Kickbacks are a very effective way to get some doctors to order medical tests, but they are illegal.”

Chatfield also noted that only the owners of BlueWave Healthcare Consultants Inc. were found liable despite the marketing company being listed as a defendant in the trial.

“The jury’s finding that BlueWave wasn’t liable probably means that it thought that BlueWave’s owners were operating for their personal benefit, rather than for the benefit of their company, when engaged in the conduct at issue,” he explained.

While the jury found Mallory, Dent, and Johnson liable in the Medicare fraud case, the three defendants do have the opportunity to appeal the decision. 

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