Clinical Pathology Laboratory Executives Indicted and Arrested by U.S. Attorney in New Jersey for Bribery, Inducement, and Other Crimes
Biodiagnostic Laboratory Services’ president takes $33 million out of his medical company during the seven years of 2006-2013
Few clinical laboratory professionals were surprised at last week’s news that another medical laboratory company and a referring physician were hit with criminal indictments for violating Medicare anti-kickback statues and other federal and state laws.
The announcement was made by U.S. Attorney Paul J. Fishman of New Jersey. Defendants in this case are Biodiagnostic Laboratory Services LLC (BSL), of Parsippany, New Jersey, three of its executives, and one physician who referred medical laboratory tests to BSL.
Few laboratory professionals will be surprised at news of this case. After all, a substantial number of clinical laboratory professionals regularly see, within their service areas, examples of medical laboratory companies willing to interpret federal and state compliance laws quite aggressively and cross the line into illegal actions. What is uncommon is to have federal prosecutors build a criminal case against a lab company accused of having violated anti-kickback laws.
$200 Million in Clinical Laboratory Testing Revenue Over Seven Years
If there is any aspect of this federal case that will raise the eyebrows of pathologists and clinical laboratory managers, it is the scale of the dollars involved in this case. The U.S. Attorney noted that, in the seven-year period of 2006 through 2013, Biodiagnostics pulled in revenue of more than $200 million and its president personally took $33 million in cash distributions out of the medical laboratory company during that period of time.
The criminal charges were filed against privately owned Biodiagnostic Laboratory Services, LLC. Arrests were made in the case. The individuals named in the indictment are:
- David Nicoll, 39, of Mountain Lakes, New Jersey; President and part-owner of BLS.
- Scott Nicoll. 32, of Wayne, New Jersey; executive at BLS (and brother of David Nicoll)
- Craig Nordman, 34, of Whippany, New Jersey, employee of BLS and CEO of Advantech Sales LLC.
- Frank Santangelo, M.D., 43, of Boonton, New Jersey, customer of BLS.
The indictments were originally filed under seal. In announcing the arrests, Fishman, the U.S. Attorney, held a press conference on April 9, 2013. He also issued a press release, titled Clinical Laboratory President And New Jersey Doctor, Others Charged With Company in Multimillion-Dollar Cash For Referral Scheme.” Fishman made available a PDF of the now-unsealed court indictments.
The U.S. Attorney wrote that the BLS employees engaged in a “long-running scheme to bribe doctors to refer patient blood samples to BLS and to order unnecessary tests, resulting in tens of millions of dollars in profit for the company.”
Biodiagnostic Lab Services’ Executives Used Well-Known Inducements
These types of inducement arrangements are well-known to honest clinical laboratory executives, who constantly see competing labs cross the compliance boundaries with different inducement and kickback schemes. Fishman described how BLS conducted its alleged criminal activity, noting, “Numerous physicians were bribed under the guise of lease, service, and/or consulting agreements. Under the lease and service agreements, between 2006 and 2009, physicians were frequently paid thousands of dollars a month by BLS for space in medical offices that BLS did not need or actually use and to perform routine blood drawing services that had little real dollar value.”
Court documents allege that Frank Santangelo, M.D., was one physician who received some of these inducements. What is noteworthy is the size of alleged bribes paid to him by BLS. Fishman noted that Santangelo “is charged in the Complaint for allegedly accepting bribes to refer patients to BLS and violating his duty of fidelity to his patients. Santangelo allegedly received more than $700,000 in bribe payments from BLS and sent the company more than $4.2 million in blood referrals.”
These numbers indicate the scale of the alleged fraud. It seems that, in exchange for $4.2 million in test referrals by one physician, BLS was willing to kick back $700,000. Most regional independent clinical lab companies operate on thin operating margins and would be hard-pressed to kick back almost 17% of net collected revenue, as it appears BLS was willing to do.
Clinical Lab Company President Bought Fast Cars, Paid Strippers
Of course, U.S. Attorneys like to play up the more salacious details of their indictments. In the case of the president of Biodiagnostic Laboratory Services, he was definitely a colorful character. As described in the press release, he spent money extravagantly. “David Nicoll received more than $33 million in distributions from BLS during that same time period, during which he also spent millions on personal items:
- more than $5 million on high-end and collectible automobiles, including approximately $580,000 for a Yenko Nova and approximately $365,000 for a Yenko Chevelle;
- approximately $300,000 for a Ferrari and approximately $291,000 for a Corvette;
- more than $700,000 to purchase a Manhattan apartment for a female companion;
- $600,000 on private jet charters;
- $392,000 on tickets to sporting events;
- $216,000 at electronics stores; and,
- $154,000 at a gentleman’s club and restaurant.
Described in the court filings as a “massive physician bribery operation,” the indictment states that, in order “to effectuate the conspiracy and disguise their bribe payments, the BLS defendants utilized sham lease agreements, and sham consulting agreements, among other methods, to induce physicians to refer patient blood samples to BLS and induce them to order unnecessary tests.”
Kickback to Physicians in Form of an Overmarket Lease for Office Space
In particular, it is claimed that BSL would often sign a lease with a physician for much more space than was needed by the laboratory. This was one way to boost the regular payments to that physician compared to what would otherwise be true if the lease agreement was negotiated at arms-length and at market rates.
One of the several examples of sham leases provided in the court documents stated the following: “During the 2006-2009 period, defendant BLS entered into a sham lease agreement with AC, a physician practicing in New Jersey, in order to induce AC to refer blood specimens from AC’s patients to defendant BLS. Although defendant BLS paid AC $2,200 per month for the purported lease of 676 square feet (plus ‘exclusive use’ of the ‘lab area’ and half of all ‘common areas’) in AC’s office, the space allocated to defendant BLS at AC’s office was actually approximately 100 square feet. In addition, the defendant BLS paid AC [an additional] $2,400 per month pursuant to a sham service agreement.”
These indictments and arrests represent mixed news for the clinical laboratory industry. From one perspective, it is good that the bad apples and rotten eggs within this industry are ferreted out and prosecuted by federal and state law enforcement agencies. From another perspective, the actions of those willing to break the law while putting patients at risk in order to generate greater profits for themselves does tarnish the entire clinical laboratory industry.
On that last point, it is important that a U.S. Attorney is willing to prosecute this case, which involves bribery and kickbacks by a medical laboratory in exchange for lab test referrals. Those lab executives who are all too willing to push compliance boundaries for corporate and personal gain can take this as a sign that there is risk of prosecution and criminal sanctions.
Federal Attorney to Get Guilty Pleas from Individuals Who Cooperated
That is aptly illustrated by the penalties to come in the case. U.S. Attorney Fishman stated that two co-conspirators were not charged as defendants, but will plead guilty as part of this case. They are Peter Briehof and William Dailey, who cooperated during the investigation and have admitted that they committed illegal acts. There are two physicians, as yet unnamed, who admitted to accepting bribes in return for lab test referrals and will plead guilty.
With the counts lodged against the defendants David Nicoll, Scott Nicoll, Nordman, and Santangelo, they each face a maximum of five years in prison on each count, if convicted and sentenced. There is a maximum fine of $250,000 for each count, or twice the gross gain or loss from the offense. BLS, as a corporate entity, is charged with the conspiracy and faces a maximum penalty of five years of probation and $500,000, or twice the gross gain or loss from the offense.
But that’s not the end of it. U.S. Attorney Fishman is working to indict other physicians who accepted kickbacks from BSL. During his press conference to announce the indictments and the arrests, Fishman did not mince words on this point, declaring, “If you were one of those doctors who was participating in this scheme, it would be a really good idea for you to call us before we call you!”
—By Robert L. Michel
Editor’s Note—readers are advised not to mistake Biodiagnostic Laboratory Services LLC for another clinical lab company that is publicly traded and headquartered in New Jersey. Similarly, readers should not mistake David Nicoll of Mountain Lakes, New Jersey, for another well-known lab industry executive of a similar name who works out of New England.