CBS News investigation alleges Cockerell Dermatopathology used service members to bill military health insurance system for millions of dollars of unnecessary screening tests
Following its investigation, CBS News reported allegations that a Texas dermatopathology laboratory has bilked the military healthcare system out of millions of dollars by enticing service members to sign up for unnecessary genetic and drug screening tests in exchange for $50 gift cards.
This latest incident adds to the growing number of investigations and health insurer lawsuits in recent years alleging fraudulent business practices within the clinical laboratory industry. Although only a handful of companies have been prosecuted by the federal government for fraud and abuse, The Dark Report last year noted that the hundreds of millions of dollars involved in these cases represent just a portion of the fraudulent clinical laboratory test claims that federal officials believe have been submitted in recent years by a much larger number of lab companies performing toxicology, pain management, and cardiology tests.
Clinical Laboratory Allegedly Committed Insurance Fraud According to CBS News
In its June 8, 2016, broadcast, CBS News exposed this latest alleged insurance scam involving Cockerell Dermatopathology Laboratory in Dallas. CBS News claims soldiers and their family members were drawn to makeshift clinics near Fort Hood Army base in Texas by a marketing campaign that offered a $50 Walmart gift card in exchange for providing DNA, a urine sample, and a copy of their military identification card. CBS said screening tests were then conducted and billed to Tricare, the health insurance program for military members, retirees, and their family members.
Linda Bozeman, wife of a service member, stated in the CBS News report that she visited a Fort Hood area clinic several times last year to earn extra money during the Christmas holiday season.
“They said they had this clinical research going and that they paid you by Walmart cards, so you’d give your urine,” said Bozeman, whose photocopied ID card was found by CBS News in a shed filled with discarded DNA specimens, medical information, Social Security numbers, and other paperwork.
CBS News reported that Cockerell Dermatopathology used Bozeman’s samples to bill Tricare 418 separate times for unneeded screenings for dozens of drugs such as PCP, cocaine, and methadone at a cost of nearly $7,000.
Accused Lab Received Millions in Payments from Tricare
According to CBS News, Cockerell Dermatopathology received more than $5 million in Tricare payments last year for allegedly unnecessary lab tests performed by Origen Laboratories in Dallas. The lab conducts molecular, genomics, and toxicology testing for Cockerell Dermatopathology, and also is owned by Clay Cockerell, MD, who is past President of the American Academy of Dermatology. Origen Laboratories is managed by ProGen Lab Systems, an independent laboratory management organization.
Retired 2-star General Richard Thomas (left), former head of Tricare, speaks with Jim Axelrod (right) of CBS News, about the investigation into Cockerell Dermatopathology of Dallas. The investigation was sparked by a CBS News story that alleged the clinical laboratory was part of a scheme to entice service members near Fort Hood Texas to provide DNA and urine samples that were used to bill the military health insurance system for millions of dollars of unnecessary genetic and drug screening tests. (Photo copyright: CBS News.)
During a briefing with reporters that took place the day after the CBS News report aired, Pentagon Press Secretary Peter Cook did not confirm a Pentagon investigation was under way to determine who made money at Tricare’s expense, but noted, “Reports like this are obviously of concern to us and something we want to address.”
Cockerell Lab Responds to Allegations of Wrongdoing
An estimated 2,000 soldiers may have been duped, CBS News stated in its report.
In response to the CBS broadcast, Cockerell Dermatopathology posted a statement on its website in which the lab stated it would be refunding money received from the tests in question, which was reported by Military.com. The clinical laboratory company did not provide details on the amount being refunded or indicate who would receive reimbursements. Cockerell Dermatopathology stated that the lab would “vigorously defend [itself] against allegations of wrongdoing.”
“When Origen became aware that certain individuals were operating outside of the organization’s strict compliance requirements regarding the manner in which laboratory services are marketed, we took immediate action, including terminating individuals and relationships with those that acted in violation of the laboratory’s compliance policies,” Cockerell Dermatopathology wrote in that statement. “We are also voluntarily refunding monies resulting from these activities. In no case did Origen or Cockerell profit from these activities as suggested by the CBS story.”
The original statement is no longer available to be read on the Cockerell Dermatopathology website. However, in a “Clarification of Facts,” statement posted on July 11, Cockerell admitted to having a “relationship” with Origen Laboratories, which is managed by ProGen. He also claims that “months prior to the airing of the CBS story” ProGen learned of “individuals operating outside of the company’s compliance policies and requirements” and immediately terminated those individuals.
In July, following the CBS broadcast, Baylor University Medical Center announced that Alan Menter, MD, would remain as the university’s Chairman of Dermatology indefinitely. According to Dallas/Fort Worth Healthcare Daily, Clay Cockerell had been scheduled to take over Menter’s post on July 1. In a statement, Baylor praised Cockerell, stating, “Dr. Clay Cockerell is a well-regarded dermatologist who has an excellent clinical reputation. We were previously in discussions with Dr. Cockerell about a leadership position at Baylor University Medical Center. However, both parties have formally paused the talks.”
The article also reported that, in an e-mail, Cockerell stated, “While I work to correct the misinformation in the story, we thought it best to delay my appointment temporarily and mutually agreed to a short term pause.” Cockerell also wrote, “I do not own a lab in Killeen. The lab that is managed by ProGen performed tests on specimens that were sent to us that were induced by dishonest individuals. We learned about it over nine months ago. ProGen terminated relationships with all individuals involved, notified the payer, and began voluntarily returning all monies garnered by the tests associated with the scheme.” The amounts of the refunds have not been disclosed, however, CBS News did confirm in its report that an investigation by the federal government has begun.
Tricare is managed by the Defense Health Agency and is divided into three regions in the United States and multiple regions overseas, with each region served by a health insurance contractor. The Tricare South region, which includes Texas, is administered by Humana Military. A Humana media relations manager did not respond to Dark Daily’s request for a response to the CBS News report.
Over the past year, Dark Daily and its sister publication, The Dark Report have been contacted by numerous individuals claiming knowledge of businessmen, often located in Texas, who are organizing clinical enterprises designed to remunerate physicians for clinical laboratory test referrals in ways that would be recognized by experienced medical laboratory professionals as illegal inducements and kickbacks under federal law.
In several cases, these scammers have approached established clinical labs, such as hospital labs, to ask for an agreement wherein the established labs would perform testing on specimens referred by the clinical enterprises being organized by these individuals. Where such agreements have been negotiated, the scammers then use the credibility of their “reference lab” to persuade physicians to send patient lab test samples to their shell companies. Anyone with knowledge of similar arrangements is encouraged to contact the editors of The Dark Report in confidence.
The newly approved legislation will “eliminate regulations preventing patients from learning about diagnostic testing and services provided by local clinical laboratories,” according to a press release issued by the Pennsylvania Senate Republicans.
Republican state Senator Rosemary Brown was the bill’s primary sponsor. She was joined as co-sponsors by a bipartisan group of colleagues.
“The regulations prevent patients from learning about clinical laboratories and the services they provide,” Brown said in the press release. “Patients deserve to know about their options when they are selecting a clinical laboratory to perform these important tests and procedures.”
The press release noted that Pennsylvania is the only state that prohibits clinical laboratories from advertising to residents.
“It’s time for Pennsylvania to catch up with the rest of the nation and enable patients to have access to this information,” said co-sponsor of the bill Republican Senator Tracy Pennycuick (above) in a press release. “Our bill would enable advertising while maintaining the important consumer protection provisions that ensure tests and procedures can only be performed based on a doctor’s order.” Once enacted into law, clinical laboratories in Pennsylvania will be able to advertise their services just like labs in other US states. (Photo copyright: Montgomery County Republican Committee.)
Details of Senate Bill 712
The bill applies to clinical laboratory tests ordered by licensed healthcare practitioners and performed by the medical laboratories themselves. Labs are prohibited from making claims “about the reliability and validity of the testing that is inconsistent with the testing proficiency standards” in federal law, the bill states, and labs must disclose that the test “may or may not be covered by health insurance.”
Brown, Pennycuick, and co-sponsor Republican Senator Lynda Schlegel Culver, discussed the need for the new legislation in a March 2023 memo, observing that 70% of healthcare decisions are influenced by clinical laboratory tests.
“As our state and the nation’s healthcare system continues to grow and evolve, consumers are demanding greater transparency and to be more engaged in how healthcare is delivered to them,” they wrote, adding that the state’s current restrictions are “outdated.”
“We believe permitting outreach to Pennsylvania consumers with accurate, scientifically based diagnostic information can be a source of personalized, highly relevant insight to help foster better, more informed dialogue with licensed healthcare providers, which enables Pennsylvania consumers to take action to improve their health,” they wrote.
“Patients should have access to information about the services and procedures available at their local clinical laboratories,” said Senator Culver in the press release. “I want to make sure patients can make informed decisions about where and how to obtain these important health services. Our bill would remove the gag order on this specific set of healthcare services.”
Similar legislation, HB1558, sponsored by Republican Representative Paul Schemel, is currently pending in Pennsylvania’s House of Representatives.
Larger Push for Healthcare Consumerism
Dark Daily and our sister publication The Dark Report have reported extensively about the rise of consumerism in healthcare—including factors such as price transparency—as it applies to medical laboratories.
And in “Millennials Set to Reorder Healthcare and Lab Testing,” The Dark Report advised clinical laboratories on the need to reconfigure key aspects of their services to accommodate the rising numbers of Millennials in the workforce. For example, these consumers are accustomed to using mobile devices to interact with retailers and want the same convenience when obtaining healthcare services from doctors and labs.
Global management consulting firm McKinsey and Company addressed many of these issues in report titled, “Driving Growth through Consumer Centricity in Healthcare.” The authors suggested that healthcare providers need to “redefine the consumer experience” by emulating “consumer-focused companies in other sectors” with “personalized offerings and services, value-based pricing, and an elevated experience—all from distinctive, high-quality brands.”
The report also noted that providers still have a lot of work to do. “Many consumers believe that the health system does not support their care needs, and they perceive that the quality of their healthcare is negatively affected by their personal attributes, including income, insurance coverage, weight, and age, among other factors,” the authors wrote.
Huron, a healthcare consulting company, identified five current trends in healthcare consumerism based on a survey of US consumers, Healthcare Dive reported. They are:
Greater digital functionality, including telehealth, wearable devices to report health data, and mobile apps for scheduling, communication, and payment.
Affordability, shorter wait times, and online ratings as factors driving consumers to choose providers.
Accurate diagnoses and effective treatment plans as drivers of consumer satisfaction.
Increasing demand for technology-enabled conveniences such as virtual care.
More price transparency in response to concerns about affordability.
Pennsylvania’s decision to join the rest of the nation and allow clinical laboratories to advertise their services may be evidence that the growing number of consumers who want direct access to medical care and the ability to choose their provider—be it hospital, physician, or clinical laboratory—are encouraging the pathology and medical laboratory professions to lobby their state lawmakers to make it easier to advertise their services to the public.
US Department of Justice sends a strong message that it will continue to root out fraud involving clinical laboratory owners and operators
Arkansas clinical laboratory owner/operator Billy Joe Taylor has been sentenced to 15 years in federal prison and ordered to pay nearly $30 million in restitution, according to a June 8 press release from the US Attorney’s Office for the Western District of Arkansas.
Taylor pleaded guilty in October of 2022 to conspiracy to commit fraud and money laundering. He and his accomplices submitted $134 million in false or fraudulent claims to Medicare before and during the COVID-19 pandemic.
The claims came from five laboratory companies owned and operated by Taylor and his co-conspirators. All claims centered around respiratory illness tests or urine drug tests that were either not medically necessary or not ordered by medical providers, the DOJ’s press release states.
Taylor’s 15-year sentence in federal prison and huge restitution reinforces the fact that the federal Department of Justice (DOJ) will indict—and convict—owners and managers of clinical laboratory companies accused of healthcare fraud.
Billy Joe Taylor, owner/operator of five clinical laboratories in four states, was sentenced in June to 15 years in prison and ordered to repay nearly $30 million in fraudulent test claims made to Medicare prior to and during the COVID-19 pandemic. This conviction is part of an ongoing campaign against healthcare fraud being conducted by the US Department of Justice. (Photo copyright: Arkansas Democrat-Gazette.)
Details of Taylor Fraud Case
Taylor allegedly obtained private personal and medical data from Medicare beneficiaries and then used that information to submit and resubmit claims to Medicare for diagnostic tests. More than $38 million was received from Medicare on those fraudulent claims, the DOJ noted.
In 2021, Taylor claimed innocence and told Arkansas Business that the accusations were “sensationalism-type claims from the government that were completely erroneous and false.”
As a young man, Taylor planned to go into the clinical laboratory field when he was still in high school. He got started by volunteering at his hometown hospital in Stigler, Oklahoma, the Free Library reported. Eventually hired by the hospital to draw blood, run tests, and keep quality control and inspection data, Taylor later moved to other hospitals before partnering in 2009 to start Advanced Laboratory Services (ALS) of Oklahoma City, Oklahoma.
A pulmonary embolism and stroke forced Taylor to sell his share in ALS, and not long after returning as a consultant, his business partner sold the lab company. Taylor joined two people from a Tulsa laboratory to start a new company, acquiring Medtest Laboratories LLC of Hurricane, West Virginia, and Vitas laboratory LLC in 2017. He hoped to compete with national laboratories, earning up to $2 million per month, the Free Library reported.
Other Clinical Laboratory Testing Fraud Schemes
The DOJ’s aggressive efforts to crack down on healthcare fraud over the past years have produced multiple court cases against clinical laboratory owners, managers, and the doctors who conspire with them. Dark Daily has covered such fraud cases in numerous ebriefings over the years.
In 2021, the DOJ’s Healthcare Fraud Unit brought “criminal charges against 14 defendants, including 11 newly-charged defendants and three who were charged in superseding indictments, in seven federal districts across the United States for their alleged participation in various healthcare fraud schemes that exploited the COVID-19 pandemic and resulted in over $143 million in false billings,” a DOJ press release announced.
In a statement to the press, Deputy Attorney General Lisa O. Monaco said, “The multiple healthcare fraud schemes charged today describe theft from American taxpayers through the exploitation of the national emergency … These medical professionals, corporate executives, and others allegedly took advantage of the COVID-19 pandemic to line their own pockets instead of providing needed healthcare services during this unprecedented time in our country.
“We are committed to protecting the American people and the critical healthcare benefits programs created to assist them during this national emergency, and we are determined to hold those who exploit such programs accountable to the fullest extent of the law,” she added.
Monaco’s statement emphasizes the DOJ’s expanding focus on healthcare fraud. The DOJ formed the Health Care Fraud Strike Force in 2007 to handle cases like Taylor’s. The program is composed of 15 teams operating out of 25 federal districts. During the 15 plus years the Strike Force has been active, the DOJ has charged more than 5,000 defendants who collectively billed over $24 billion to both private insurers and federal healthcare programs.
Therefore, it behooves clinical laboratory managers to ensure all lab operations are well-within the bounds of legality. The DOJ is taking its hunt for healthcare fraudsters quite seriously.
Federal prosecutors build the new healthcare-related fraud cases on previous nationwide enforcement actions from 2022
Federal charges have once again been brought against a number of physicians and clinical laboratory owners in what the US Department of Justice described as the “largest ever” coordinated nationwide law enforcement effort against COVID-19 pandemic-related healthcare fraud.
In total, the DOJ filed criminal charges against 18 defendants in five states plus the territory of Puerto Rico, according to an April 20 press release.
The highest dollar amount of these frauds involved ENT physician Anthony Hao Dinh, DO, who allegedly defrauded the Health Resources and Services Administration (HRSA) COVID-19 Uninsured Program for millions of dollars, and Lourdes Navarro, owner of Matias Clinical Laboratory, for allegedly “submitting over $358 million in false and fraudulent claims to Medicare, HRSA, and a private insurance company for laboratory testing” while performing “COVID-19 screening testing for nursing homes and other facilities with vulnerable elderly populations, as well as primary and secondary schools,” the press release states. Both court cases are being conducted in Southern California courtrooms.
The DOJ’s filing of charges came rather speedily, compared to other cases involving fraudulent clinical laboratory testing schemes pre-pandemic. The amount of money each defendant managed to generate in reimbursement from the fraud represents tens of thousands of patients. If feds were paying $100 per COVID-19 test, then the $153 million represents 153,000 patients, in just 18 to 24 months.
“Today’s announcement marks the largest-ever coordinated law enforcement action in the United States targeting healthcare fraud schemes that exploit the COVID-19 pandemic,” said Assistant Attorney General Kenneth A. Polite, Jr. (above), in an April 20 DOJ press release. “The Criminal Division’s Health Care Fraud Unit and our partners are committed to rooting out pandemic-related fraud and holding accountable anyone seeking to profit from a public health emergency.” Clinical laboratory managers may want to pay close attention to the DOJ’s prosecution of these newest cases of alleged COVID-19 fraud. (Photo copyright: Department of Justice.)
Prosecutors allege that Navarro and her husband, Imran Shams, who operated Matias—also known as Health Care Providers Laboratory—perpetrated a scheme to perform medically unnecessary respiratory pathogen panel (RPP) tests on specimens collected for COVID-19 testing, even though physicians had not ordered the RPP tests and the specimens were collected from asymptomatic individuals.
In some cases, the indictment alleges, Navarro and Shams paid kickbacks and bribes to obtain the samples.
The indictment notes that reimbursement for RPP and other respiratory pathogen tests is generally “several times higher” than reimbursement for COVID-19 testing. Claims for the tests were submitted to Medicare and an unidentified private insurer, as well as the HRSA COVID-19 Uninsured Program, which provided support for COVID-19 testing and treatment for uninsured patients.
Claims to the HRSA falsely represented that “the tested individuals had been diagnosed with COVID-19, when in truth and in fact, the individuals had not been diagnosed with COVID-19 and the tests were for screening purposes only,” the First Superseding Indictment states.
The indictment further states that both Navarro and Shams had previously been barred from participating in Medicare and other federal healthcare programs due to past fraud convictions. Navarro, the indictment alleges, was reinstated in December 2018 after submitting a “false and fraudulent” application to the HHS Office of Inspector General.
It also alleges that Navarro and Shams concealed their ownership role in Matias so the lab could maintain billing privileges.
More Alleged Abuse of HRSA Uninsured Program
In a separate case, Federal prosecutors alleged that Anthony Hao Dinh, DO, an ear, nose, and throat physician in Orange County, California, engaged in a scheme to defraud the HRSA COVID-19 Uninsured Program as well.
Dinh, prosecutors allege, “submitted fraudulent claims for treatment of patients who were insured, billed for services that were not rendered, and billed for services that were not medically necessary.”
The criminal complaint, filed on April 10, alleges that Dinh submitted claims for approximately $230 million, enough to make him the program’s second-highest biller. He was paid more than $153 million, prosecutors allege, and “used fraud proceeds for high-risk options trading, losing over $100 million from November 2020 through February 2022,” states the US Attorney’s Office, Central District of California press release.
Dinh was also charged for allegedly attempting to defraud the federal Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program. He faces a maximum sentence of 50 years in federal prison, the press release states.
Dinh’s sister, Hang Trinh Dinh, 64, of Lake Forest, California, and Matthew Hoang Ho, 65, of Melbourne, Florida, are also charged in the complaint, the Los Angeles Times reported.
Both of these cases are notable because of the size of the fraud each defendant pulled off involving COVID-19 lab testing. Clinical laboratory managers may want to review the original court indictments. The documents show the brazenness of these fraudsters and detail how they may have induced other doctors to refer them testing specimens.
Novel scheme by medical laboratory company to induce patients to collect and return their own specimen for testing is central to a federal whistleblower case alleging violations of the Anti-Kickback Statute
Handing out gift cards only to patients who return a specimen to a clinical laboratory company for colorectal cancer screening is a unique approach that is now at the center of a federal qui tamcase filed by a retired Indiana pathologist.
The defendant in this whistleblower lawsuit is Exact Sciences Laboratories and its parent company Exact Sciences Corporation (NASDAQ:EXAS). Last month, a federal judge ruled the court case will proceed following attempts by the defendant’s attorneys to have the case dismissed.
The plaintiffs (United States of America ex rel. Niles Rosen, MD) allege Exact Sciences Laboratories violated the Federal Anti-Kickback Statute (AKS) and False Claims Act by offering $75 gift cards to induce patients to return self-collected fecal samples for the lab’s Cologuard at-home colon cancer screening kit through its Patient Compliance Program.
Exact Sciences refuted the allegations and moved to have the case dismissed claiming it “had a good faith belief that its [Patient Compliance Program] complied with the law and thus lacked the requisite intent for a violation of the AKS,” according to court documents. The court denied Exact Sciences’ motion to dismiss.
“We are grateful for the hard work and courage of those private citizens who bring evidence of fraud to the Department’s attention, often putting at risk their careers and reputations,” said Brian Boynton, JD (above), Principal Deputy Assistant Attorney General and head of the federal Department of Justice (DOJ) Civil Division in a February 7, 2023, DOJ statement. “Our ability to protect citizens and taxpayer funds continues to benefit greatly from their actions.” Clinical laboratory managers will want to follow this and other qui tam cases claiming violation of anti-kickback laws. (Photo copyright: Department of Justice.)
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Was Exact Sciences’ Patient Compliance Program a Kickback?
Cologuard is a non-invasive testing kit utilized by people to screen for colorectal cancer in the privacy of their own homes. It is intended for those over the age of 45 who are at low or average risk for the disease. Exact Sciences regularly runs television advertisements urging individuals to be screened for colorectal cancer using the Cologuard test.
Following a physician’s order, and after receiving the testing kit in the mail, individuals collect a stool sample using the specimen container in the kit and return the sample to Exact Sciences Laboratories (ESL) for analysis. The test works by looking for certain DNA markers and blood in the stool sample.
According to Report on Medicare Compliance from the Health Care Compliance Association (HCCA), in 2017, a gastroenterologist ordered the Cologuard kit for Rosen, the whistleblower, but Rosen chose not to return a stool sample to ESL. A few months later, ESL sent Rosen a letter offering him a $75 Visa gift card if he performed the at-home specimen collection and then returned it to ESL by March 22, 2018. Persuaded by the offer, Rosen collected a sample, returned it to ESL, and received the gift card.
As part of its Patient Compliance Program, ESL analyzed Rosen’s sample and received $499 from Medicare for performing the test. The complaint filed against Exact Sciences states Medicare paid Exact Sciences more than $160 million for a total of 334,424 Cologuard tests in 2018 while the company offered “unlawful cash equivalent inducements directly to Medicare beneficiaries,” COSMOS reported.
“It was a straight-up kickback,” Rosen’s attorney Marlan Wilbanks, JD, Senior Partner at Atlanta law firm Wilbanks and Gouinlock, told COSMOS. “You can’t offer cash or cash equivalents to anyone to induce them to use a government service.”
DOJ Elects to Not Intervene in Lawsuit
In February 2020, Exact Sciences received a civil investigation demand by the US Department of Justice (DOJ) regarding the gift card incentive. The DOJ later filed a notice that it had elected to decline intervention in the lawsuit. This action did not prevent Rosen from continuing with the lawsuit. Accordingly, in April of 2021, he filed an amended complaint against Exact Sciences alleging violations of the Federal Anti-Kickback Statute and False Claims Act.
Rosen is seeking a monetary award for himself, and on behalf of the US government, for civil penalties, treble damages, fees, and costs.
According to Report on Medicare Compliance, Exact Sciences “refuted the allegations and asserted, among other things, that the arrangement qualifies for the preventive care safe harbor to the anti-kickback statute (AKS) and that the complaint fails for many reasons.”
Exact Sciences also noted in its motion to dismiss that “encouraging a patient to have a medical service that was already ordered by a provider isn’t an inducement under the AKS.”
At this time, the case remains unresolved and continues in federal court.
DOJ Recovers Billions of Taxpayer Dollars from AKS Violations
A qui tam lawsuit or action is a method available for individuals to help the government circumvent fraud and recover money for taxpayers. Types of fraud included in these cases often pertain to Medicare and Medicaid services, defense contractor fraud, and procurement fraud.
According to the DOJ, over $1.9 billion was recovered as a result of qui tam lawsuits pursued by either the government or whistleblowers during fiscal year 2022. The number of these types of lawsuits has increased dramatically over the years with a total of 652 qui tam cases filed in 2022 alone.
Thus, clinical laboratory professionals should be aware that this type of novel scheme to generate more patients could possibly lead to legal issues. Dark Daily would like to credit Laboratory Economics for calling attention to this fascinating case of alleged illegal inducement involving a medical laboratory company.
