In special issue, The Dark Report explains the details of what may be the biggest case of Medicare fraud and abuse in the history of the clinical laboratory business

Many clinical laboratory executives and pathologists know about the settlement last March by the Department of Justice (DOJ) of a whistleblower case involving Health Diagnostic Laboratory and Singulex. But that settlement is just one part of this major fraud case that continues to move forward and in which federal prosecutors alleged that a group of plaintiffs defrauded the federal Medicare and Tricare program out of half a billion dollars, in just 60 months!

In a court filing last summer, federal attorneys described how the lab companies and lab executives were paid $500 million between 2010 and 2014 from lab test claims submitted to the Medicare and Tricare programs. This federal lawsuit named three medical laboratory companies and three individuals as defendants. They are: Health Diagnostic Laboratory, Singulex, Berkeley HeartLab (no longer in business), BlueWave Healthcare Consultants, Tonya Mallory, Floyd Calhoun Dent, III, and Robert Bradford Johnson.

Fast Growth at Health Diagnostics Laboratory Followed by Fast Collapse

For seven years, Health Diagnostic Laboratory (HDL) reported exceptionally strong growth in revenue and lab test volume. From its founding in 2008 until the Bankruptcy Court approved the sale of what remained of the company’s assets last month, the story of HDL’s fast rise and faster fall is one that many in the clinical laboratory business watched closely.

Now that the HDL story is entering its final chapters, more details are emerging about how the lab company is alleged to have amassed more than $500 million illegally from two federal healthcare programs—Medicare and Tricare—according to a lawsuit filed Aug. 7, 2015, in the U.S. District Court of South Carolina, Beaufort Division. The court documents show that this amount was paid between 2010 and 2014.

The total collected illegally, however, could be more than $1.2 billion if the amount taken from private insurers is added to the amount collected from the federal government. The Dark Report is the only news source to call attention to this aspect of the HDL case.

Health Diagnostic Laboratory faced new troubles after health insurer Aetna sued the clinical laboratory company in Richmond, Virginia. In a lawsuit filed in the U.S. District Court for the Eastern District of Pennsylvania, Aetna seeks to recover "tens of millions in monetary damages and other appropriate relief.” In March, HDL reached a settlement agreement with federal prosecutors over federal fraud charges involving payments to physicians “to process” blood specimens collected in their offices, The Wall Street Journal reported. Cigna also filed a lawsuit against HDL and seeks $84 million in damages. (Photo source: RichmondBizSense.com.)

Health Diagnostic Laboratory faced new troubles after health insurer Aetna sued the clinical laboratory company in Richmond, Virginia. In a lawsuit filed in the U.S. District Court for the Eastern District of Pennsylvania, Aetna seeks to recover “tens of millions in monetary damages and other appropriate relief.” In March, HDL reached a settlement agreement with federal prosecutors over federal fraud charges involving payments to physicians “to process” blood specimens collected in their offices, The Wall Street Journal reported. Cigna also filed a lawsuit against HDL and seeks $84 million in damages. (Photo source: RichmondBizSense.com.)

Special Dark Report Issue Offers In-depth Coverage of HDL Fraud Case

In a special 24-page issue published last month, The Dark Report detailed the extent of the fraud. It also explained that two lab sales representatives founded BlueWave Healthcare Consultants, a sales company, that was paid an astonishing $242.8 million—nearly a quarter billion dollars—from 2010 to 2014! BlueWave then paid $116 million to its two founders in the same period.

A federal qui tam case that was filed by multiple whistleblowers started the lawsuit in which federal prosecutors asked for a jury trial to recover funds, including treble damages. The case includes the following defendants:

• Health Diagnostic Laboratory;
Tonya Mallory, HDL’s former CEO;
Singulex, Inc., of Alameda, California;
BlueWave Healthcare Consultants, Inc., of Hanceville, Alabama (the sales consulting company that marketed the testing services of HDL and Singulex);
• BlueWave’s cofounders Floyd Calhoun Dent, III, of Columbia, South Carolina, and Robert Bradford Johnson of Hanceville, Alabama; and,
• Berkeley Heart Lab (which is no longer in business).

In January, HDL ended its relationship with BlueWave.

HDL and Singulex Denied Guilt and Signed Settlement Agreements in April

In April, HDL and Singulex denied guilt and signed agreements to pay the federal government $47 million and $1.5 million, respectively, to settle claims of paying kickbacks and conducting unnecessary testing, federal prosecutors said.

The special report was published just as what was left of HDL was being sold at auction for $37.1 million to True Health Diagnostics of Frisco, Texas. The Bankruptcy Court in Richmond approved the sale Sept. 16. Some of the same individuals involved with HDL may be involved with True Health, The Dark Report and others reported.

What’s more, the two companies run many similar tests. On its website, True Health says it specializes “in the most advanced methods for identifying and reversing progression of health risks, including early stage cardiovascular disease, diabetes, and other chronic diseases.” HDL says its mission is, “to beat cardiovascular disease and diabetes—one patient at a time.”

Probably the Biggest Case of Fraud in the Clinical Laboratory Industry

In its special issue, The Dark Report explains the scale of this federal investigation into the activities of HDL, Singulex, and Berkeley and the three individuals Dent, Johnson, and Mallory. The case against the defendants in this lawsuit makes it among the biggest healthcare frauds in history. Further, this illegal activity was conducted in one of the shortest time periods on record.

As federal attorneys alleged in court documents, the scheme involved payments by the defendants to physicians for shipping and handling medical laboratory specimens, sham processing fees, kickbacks to physicians, an illegal sales agreement in which sales staff were paid a monthly fee plus 19.8% of lab revenue, and payments to induce physicians to order large multi-assay panels, including a significant number of medically unnecessary lab tests.

Federal prosecutors also explained that between 2010 and 2014, HDL and Singulex paid BlueWave $242.8 million for sales consulting services and Dent and Johnson accepted $116 million in distributions from BlueWave during this same time, making them perhaps the richest sales reps in the lab industry.

The case was first reported on page one of The Wall Street Journal on Sept. 8, 2014. Months later, Cigna Corporation sued HDL for $84 million. Then, within weeks of the DOJ settlement, Aetna Inc. sued HDL for “tens of millions of dollars.” In July, documents in the bankruptcy filing showed that UnitedHealthcare, the nation’s largest health insurer, had stopped paying HDL’s claims.

Creditors in Bankruptcy Court Want to Question HDL Executives and Others

In the latest news, HDL’s unsecured creditors asked the bankruptcy court for permission to question former HDL executives about how the company landed in bankruptcy and whether as much as $500 million could be recovered, according to an Oct. 3 article by John Reid Blackwell of the Richmond Times-Dispatch.

The creditors will ask about payments of $119 million that went to 16 HDL shareholders from 2011 to 2013; $81 million in sales, marketing, and advertising expenses paid to BlueWave in 2012; $223 million paid in commissions to BlueWave from 2010 to 2013; and $173 million paid to two HDL co-founders, the article said.

If some pathologists and clinical laboratory executives wonder why the coverage guidelines for many lab tests are becoming more restrictive, then it is recommended that they do their homework on this case of alleged massive fraud and abuse. Documents filed in this whistleblower case against HDL, Singulex, Berkeley HeartLab, and certain individuals associated with these medical laboratory companies provide important details about various schemes the plaintiff lab companies used to induce physicians to order medically unnecessary lab tests.

Given that The Dark Report believes that the overall total of alleged fraudulent lab test claims paid to the plaintiffs exceeds $1.2 billion (of which $500 million was paid by Medicare and Tricare) and that these payments were made over just a 60-month period, no one should be surprised that both government and private payers recognize the magnitude of this fraud. After all, if HDL, Singulex, and Berkeley HeartLab could generate payments of more than $1 billion in just five years with the kickbacks and inducements alleged in court documents, how many other labs might be using similar schemes to induce business?

Finally, if there was ever a case of alleged fraud and abuse by lab companies that cried out for criminal prosecution by the Department of Justice of the responsible individuals—and the physicians who willingly accepted the bribes and inducements—then this is it. The entire lab industry, as well as the Medicare program, would be best served by vigorous criminal prosecution of these lab executives and their client physicians.

—Joseph Burns

Related Information:

Judge Approves Sale of Health Diagnostic Laboratory to Texas-based Company

True Health Diagnostics Buys bankrupt Health Diagnostics Laboratory for $37.1 Million

The $37.1 Million Sale of Health Diagnostic Laboratory Inc. Still Leaves Many Questions

Two Cardiovascular Disease Testing Laboratories to Pay $48.5 Million to Settle Claims of Paying Kickbacks and Conducting Unnecessary Testing

A Fast-Growing Medical Lab Tests Anti-Kickback Law

Creditors Seek to Question Former HDL Executives about How It Ended in Bankruptcy

Aetna Files Lawsuit Against Health Diagnostic Laboratory

Cigna Sues Virginia Clinical Lab for $84 Million

HDL Fires Back at Insurer’s $84M Lawsuit

Aetna Second Big-Name Payer to Sue Health Diagnostic Laboratory

Lab Under Federal Investigation Cuts Ties with Sales Contractor

HDL Reaches Settlement Agreement with DOJ

Health Diagnostic Laboratory and Singulex to Pay $48.5M to Settle Fraud Charges Involving Kickbacks and Unnecessary Testing as Feds Sue Two More Medical Labs and Three Executives on Similar Charges