Recent federal Justice Department memorandum issues guidance designed to seek accountability from individuals and combat corporate misconduct

Pathologists and clinical laboratory managers who want a tougher crackdown on labs and physicians that violate anti-kickback laws welcome the news that in the past year federal courts have sentenced 13 physicians to jail terms of 12 to 63 months for accepting bribes from a discredited medical laboratory company as part of a scheme to defraud the federal Medicare program.

These criminal convictions were part of the federal case prosecuted against Biodiagnostic Laboratory Services (BLS), in Parsippany, N.J..

In addition to those 13 jail sentences, one doctor got 10 months of home confinement, two doctors got 12 months probation, and sentencing for six other physicians is pending. Prosecutors expect more defendants will be sentenced in the coming months.

22 Doctors Pled Guilty to Criminal Charges of Accepting Bribes from Medical Lab Firm

In all, 35 individuals, including 22 physicians, have pleaded guilty in the case. To date, one BLS employee has been sentenced to 37 months in jail while sentencing is pending for 11 BLS employees, including an owner of the laboratory, according to the U.S. Attorney’s Office for the District of New Jersey. The bribes resulted in more than $100 million in payments from Medicare and private insurers to BLS. “To our knowledge, this is the largest number of medical professionals ever prosecuted in the same case,” U.S. Attorney Paul J. Fishman told The Bergen Record. “It shows how pervasive this practice can be. It has also made people in the profession sit up and take notice and made the deterrent message that much louder.”

Does the fact that Fishman mentioned the “deterrent message” in the BLS case mean that federal prosecutors in other jurisdictions may seek similarly harsh punishments, such as jail time, for defendants in other healthcare fraud schemes? If so, one example might be the case federal prosecutors have built against Health Diagnostic Laboratory Inc. (HDL) in Richmond, Va.

U.S. Attorney Paul J. Fishman oversees federal criminal investigations and prosecutions and the litigation of all civil matters in New Jersey in which the federal government has an interest. (Photo courtesy of the U.S. Department of Justice.)

U.S. Attorney Paul J. Fishman oversees federal criminal investigations and prosecutions and the litigation of all civil matters in New Jersey in which the federal government has an interest. (Photo courtesy of the U.S. Department of Justice.)

A separate development involving the U.S. Department of Justice  (DOJ) also might cause prosecutors to seek harsh penalties in both the BLS case (when the BLS executives come up for sentencing) and in the HDL Case. The health law firm Epstein Becker Green (EBG) reported in a health law alert that Deputy Attorney General Sally Q. Yates issued guidance in a memo last month on individual accountability for corporate wrongdoing.

Congress and Public Want More Convictions of Individuals Guilty of Corporate Crime

The guidance is designed to combat corporate misconduct and seek accountability from individuals, including C-suite level executives, EBG wrote. “The Yates memorandum derives, in large part, from congressional and public pressure on the federal justice system to ratchet up white-collar enforcement after the financial meltdown and a series of other headline settlements that were not considered sufficiently punitive. Thus, the healthcare and financial sectors, among others, are going to be firmly within the sights of the DOJ for the foreseeable future,” EBG explained.

Dark Report Special Issue Covers Details of Largest Lab Fraud in History

While the BLS and HDL cases are similar, the scale is different. The HDL case may be the biggest lab fraud scheme in history, as The Dark Report explained in a special Sept. 14 issue about the case.

In May, Peter J. Sampson, a staff writer for The Bergen Record catalogued the elements in the BLS case, saying 26 physicians and one physician’s assistant pleaded guilty to accepting bribes, and the bribes ranged from $10,500 to $1.8 million. In exchange, the physicians referred over $100 million worth of blood tests to BLS. In addition to the sentences, the court has fined the guilty individuals as much as $75,000 and is seeking restitution of more than $87 million, including $50 million from David Nicoll, BLS’ former owner and president, and $25 million from Nicoll’s brother, Scott Nicoll.

From 2006 through 2013, BLS executives and sales staff paid more than $4 million in bribes or $1,500 to $5,000 each month, Sampson reported. BLS also paid doctors in the form of sham leases or service and consulting agreements, he wrote. “Under the bogus lease and service agreements, BLS paid doctors inflated rates for space in their offices and for blood-drawing services,” he said.

No Criminal Charges against Lab Executives or Physicians in HDL Case

The federal case against Health Diagnostic Labs, Singulex, and Berkeley HeartLab is different in that federal prosecutors have not charged any physicians with crimes related to accepting bribes. Therefore, the number of participants in the scheme is much smaller. Federal prosecutors listed the defendants as:

• HDL;
• Tonya Mallory, HDL’s former CEO;
• Singulex, Inc., a clinical laboratory in 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 HeartLab (which is no longer in business).

In January, HDL ended its relationship with BlueWave. But the HDL scheme netted much more in illegal payments than the BLS scam. Federal prosecutors said that from 2010 to 2014, the defendants in the HDL case paid out $80 million in bribes and collected more than $500 million illegally from Medicare and Tricare, according to a lawsuit filed August 7 in the U.S. District Court of South Carolina, Beaufort Division. It could be, however, that HDL collected more than $1.2 billion if the amount taken from private insurers (and estimated at $500,000 to $700,000) is added to the amount collected from the federal government.

The case against these labs offering cardiology lab tests was first reported in The Wall Street Journal on September 8, 2014.

No Admission of Guilt as Defendant Lab Firms Agree to Government Settlement Offers

In April of this year, 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, prosecutors said.

Two months later, HDL filed for bankruptcy, and last month, HDL was sold at auction for $37.1 million to True Health Diagnostics of Frisco, Texas. The Bankruptcy Court in Richmond approved the sale September 16.

Meanwhile, federal prosecutors are moving forward with a jury trial against the defendants in the HDL case. The Department of Justice seeks recovery of the money paid to the defendants by the Medicare and Tricare Health programs, plus treble damages.

Will U.S. Attorneys Press Criminal Charges Against Lab Execs, Physicians?

The big question in the HDL case is whether the U.S. attorneys will pursue criminal charges against the lab executives and physicians involved in the alleged schemes to defraud federal health programs. Given the fact that these defendants are accused of stealing half a billion dollars in just 60 months, it would seem that the government would have plenty of motive to send those culpable, including the physicians who accepted illegal kickbacks, to jail.

In the meantime, the law-abiding community of pathologists and clinical laboratory managers will be watching to see if federal prosecutors finally decide to pursue criminal charges against the individuals who operated HDL, Singulex, and Berkeley HeartLabs, who sold the lab testing services of these companies, and the doctors who proved willing to accept what the government estimates to be $80 million in bribes to refer medically unnecessary lab tests.

Without criminal prosecutions in this case, two things are guaranteed to happen. First, more lab frauds will be committed because the cost of signing a civil agreement without admitting guilt and paying a fine doesn’t exceed the profits generated by these illegal activities. Second, medical labs that obey the law and are compliant will continue to lose lab testing business to those lab companies willing to break the law in the same manner as Biodiagnostic Laboratory Services, Health Diagnostic Laboratories, Singulex, and Berkeley HeartLab.

—Joseph Burns

Related Information:

President of New Jersey Clinical Laboratory, Six Salesmen Admit Bribing Doctors for More Than $100 Million in Test Referrals

New York Doctor Charged with Taking Bribes in Test-Referral Scheme with New Jersey Clinical Lab

N.J. Medical Bribe Scheme Reached Grand Scale

Justice Department Sets Sights on Wall Street Executives

DOJ Focuses on Individual Accountability: New Guidance for Corporate Investigations Places Pressure on Companies and Boards to Put Executives at Risk

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

Richmond-based HDL Sold to Texas Company for $37.1 Million

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

Lab Under Federal Investigation Cuts Ties with Sales Contractor

HDL Reaches Settlement Agreement with DOJ

Justice Department Sets Sights on Wall Street Executives

Clinical Pathology Laboratory Executives Indicted and Arrested by U.S. Attorney in New Jersey for Bribery, Inducement, and Other Crimes

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

How a Handful of Lab Companies Used Cardiology Tests to Scam $1 Billion from Government and Private Players (The Dark Report: Special Issue Volume XXII No. 13, September 14, 2015)

Federal Prosecutors Get Guilty Pleas from Three Clinical Laboratory Executives in Two Different Anti-Kickback Cases, One in New Jersey and one in North Carolina

Clinical Pathology Laboratory Executives Indicted and Arrested by U.S. Attorney in New Jersey for Bribery, Inducement, and Other Crimes

Wall Street Journal Writes about Federal Investigation of Health Diagnostic Laboratory and Certain Specialty Medical Lab Test Companies

Health Diagnostic Laboratory Puts Itself Up for Sale as Virginia Medical Lab Company Solicits Bids for Auction

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

DOJ Names Individuals in Suit against Health Diagnostic Laboratory, Sales Consultants, and Two Other Medical Laboratory Companies