Former executives at two different clinical laboratories pleaded guilty in two separate cases of fraud, but physicians who accepted illegal payments have yet to be named or charged
Three former executives at two clinical laboratory companies pleaded guilty recently in two separate cases of fraud brought by U.S. district attorneys in New Jersey and North Carolina.
It remains uncommon for federal prosecutors to take aggressive enforcement action against medical laboratories and pathology companies that openly engage in sales and marketing practices that most medical laboratory professionals consider in violation of federal and state laws.
Guilty Pleas by Clinical Lab Executives in Criminal Cases
Thus, the fact that two separate criminal prosecutions of clinical laboratory executives have yielded guilty pleas within days of each other is noteworthy. These guilty pleas are a reminder to pathologists and medical laboratory managers that there can be consequences for breaking federal anti-kickback laws.
First Case involves Biodiagnostic Laboratory Services
In one case, two former salesmen for Biodiagnostic Laboratory Services, LLC, (BLS) of Parsippany, New Jersey, pleaded guilty to conspiracy to violate the Anti-Kickback Statute and the Federal Travel Act while working at BLS, according to a statement from the U.S. District Attorney’s Office for the District of New Jersey.
The former BLS salesmen are William Dailey, 41, of Wall, New Jersey, and Peter Breihof, 42, of Nutley, New Jersey. Both men entered guilty pleas on May 2 before U.S. District Judge Stanley R. Chesler. Both defendants are cooperating with investigators, the statement said.
Second Case Centers Upon Wilkesboro Clinical Laboratory
In a separate case in U.S. District Court in Charlotte, North Carolina, Louis Francis Curte, 49, the former owner of Wilkesboro Clinical Laboratory (WCL), in Wilkesboro, North Carolina, pleaded guilty to four counts of health-care fraud and one count of filing a false tax return, according to a statement from U.S. Attorney Anne M. Tompkins in the Western District of North Carolina. Curte and the WCL billed Medicare for services not rendered. Curte admitted he filed false tax returns from 2007 to 2010, Tompkins announced. More details on this case are below.
In the BLS case, the former salesmen conspired with others to bribe doctors to refer patient blood samples to BLS, explained U.S. Attorney Paul J. Fishman in a public statement.
Federal agents had previously arrested three other BLS employees in the case. The public statement identified them as:
- BLS President and part-owner, David Nicoll, 39, of Mountain Lakes, New Jersey;
- BLS employee Scott Nicoll, 32, of Wayne, New Jersey. Scott and David Nicoll are brothers; and
- BLS employee Craig Nordman, 34, of Whippany, New Jersey. Nordman is CEO of Advantech Sales LLC, a company that BLS allegedly used to make illegal payments.
All three were charged with participating in a “long-running scheme to bribe doctors to refer patient blood samples to BLS and order unnecessary tests.” According to Fishman, this resulted in tens of millions of dollars in profit for the company.
Between 2006 and 2013, BLS and companies it funded paid millions of dollars to physicians in and around New Jersey to induce them to refer patient blood samples to BLS, the U.S. attorney charged. From these referrals, BLS received tens of millions of dollars from private insurers and Medicare, noted Fishman.
BLS Leased Space from Doctors at ‘Above-market’ Rates
One method used by BLS to steer money to physicians was to lease space from client physicians and pay above-market rates for that lease. Between 2006 and 2009, BLS operated under a guise of lease, service, or consulting agreements with physicians in which BLS paid the doctors thousands of dollars a month for space in medical offices to perform routine blood-drawing services that had little real dollar value, stated the U.S. attorney.
Breihof and Dailey admitted using phony lease and service agreements to bribe physicians to send their patients’ blood samples to BLS. They further admitted to paying physicians a fee per test on behalf of BLS to induce the physicians to order more blood tests than they would have otherwise.
Following their guilty pleas, Breihof and Dailey each face a maximum potential penalty of five years in prison and a maximum $250,000 fine, or twice the gross gain or loss from the offense, according to Fishman’s statement. Breihof agreed to forfeit $1,179,556, and Dailey agreed to forfeit $558,405, the statement said. Both defendants are scheduled for sentencing on Sept. 19, 2013.
Biodiagnostic Lab Services Pulled in $200 Million over Seven Years
As Dark Daily reported on April 15, “The U.S. Attorney noted that, in the seven-year period of 2006 through 2013, BLS 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.” (See Dark Daily, “Clinical Pathology Laboratory Executives Indicted and Arrested by U.S. Attorney in New Jersey for Bribery, Inducement, and Other Crimes.”
In the case involving Wilkesboro Clinical Laboratory, Curte entered his guilty plea before U.S. Magistrate Judge David C. Keesler on April 25 in U.S. District Court in Charlotte. Curte kept false books to mask a prohibited business relationship with an unidentified physician, causing a tax loss of $30,000 to $50,000, said the U.S. Attorney in a public statement.
Wilkesboro Clinical Laboratory’s Owner Violated the Stark Law
Curte violated the Stark Law by having a prohibited financial relationship with the unidentified doctor from Jan. l, 2006, through April 30, 2009, explained the U.S. Attorney. The case originated in the Western District of North Carolina, where the U.S. Attorney is Anne M. Tompkins The unidentified doctor owned and operated a now-defunct billing company that submitted all of WCL’s claims to Medicare. WCL paid the billing company on a per claim basis.
In its press release about the case, the federal prosecutor explained that investigators found that the unidentified doctor referred blood and tissue specimens to Wilkesboro Clinical Laboratory for testing and benefitted directly from WCL’s payments as an owner of the billing company.
The Stark Law prohibits any medical provider from billing Medicare or Medicaid for certain services referred by physicians who have a financial relationship with the medical provider.
WCL no longer operates in Wilkes County North Carolina. The company was sold to Laboratory Corporation of America (NYSE: LH) in June 2011, the statement said. (The statement actually said WCL was sold to Labcorp.)
Wilkesboro Clinical Laboratory Billed Medicare for Tests not Performed
From 2007 to 2009, Curte defrauded Medicare by submitting false and fraudulent claims for microbiology services never rendered when he owned and operated WCL, Tompkins’ statement said. The lab provided microbiology and other lab services. When the lab couldn’t do certain types of microbiology testing, WCL used another company that was not identified, the statement said.
Generally, WCL submitted specimens to the unidentified company to test for infection-causing bacteria, the statement said. Once an infection was found in a specimen, the unidentified company would run one or two more tests to identify the type of pathogen present and the type of antibiotic to which the pathogen was susceptible, the statement said. Curte routinely billed Medicare for identification and susceptibility tests that were not actually done, even when initial testing showed no pathogen, the statement said.
Medical Lab Owner Faces Up to 10 Years in Prison
According to his plea agreement, Curte’s intended loss to Medicare was $10,000 to $30,000, the statement added. He faces a maximum of 10 years in prison and a $250,000 fine for the healthcare fraud charges and a maximum of three years in prison and a $250,000 fine for the tax fraud charge, Tompkins’ statement said.
Curte agreed to pay full restitution to Medicare and to the IRS for any losses and to reimburse $300,000 for the amount he wrongfully received from Medicare in violation of the Stark Law, plus penalties, the statement said. Final restitution pay will be determined at sentencing. No date was set for sentencing, and Curte was released on bond.
Dark Daily observes that, in both criminal cases, the U.S attorneys have yet to identify the physicians who were on the receiving side of the alleged inducements and kickbacks paid by the clinical laboratory companies named as defendants these federal cases. Until these physicians are prosecuted and convicted, there will always be doctors who pressure medical laboratories to offer such illegal inducements in order get their lab test referrals.
After all, it takes a “willing buyer and a willing seller” for these illegal arrangements to happen. By issuing public indictments against medical laboratory companies and not indicting the physicians who accepted the inducements, federal prosecutors are sending a message to doctors that they are not likely to suffer any consequences from participating in these illegal sales and marketing schemes.