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.
Healthcare attorneys advise medical laboratory leaders to ensure staff understand difference between EKRA and other federal fraud laws, such as the Anti-kickback Statute
More than four years have passed since Congress passed the law and yet the Eliminating Kickbacks in Recovery Act of 2018 (EKRA) continues to cause anxiety and confusion. In particular are the differences in the safe harbors between the federal Anti-Kickback Statute (AKS) and Stark Law versus EKRA. This creates uncertainty among clinical laboratory leaders as they try to understand how these disparate federal laws affect business referrals for medical testing.
According to a news alert from Tampa Bay, Florida-based law firm, Holland and Knight, “EKRA was enacted as part of comprehensive legislation designed to address the opioid crisis and fraudulent practices occurring in the sober home industry.” However, “In the four years since EKRA’s enactment, US Department of Justice (DOJ) enforcement actions have broadened EKRA’s scope beyond reducing fraud in the addiction treatment industry to include all clinical laboratory activities, including COVID-19 testing.”
It is important that medical laboratory leaders understand this law. New cases are showing up and it would be wise for clinical laboratory managers to review their EKRA/AKS/Stark Law compliance with their legal counsels.
“Keeping in mind that [EKRA is] a criminal statute, clinical laboratories need to take steps to demonstrate that they’re not intending to break the law,” said attorney David Gee, a partner at Davis Wright Tremaine, in an exclusive interview with The Dark Report. “[Lab leaders should] think about what they can do to make their sales compensation program avoid the things the government has had such a problem with, even if they’re not sure exactly how to compensate under the language of EKRA or how they’re supposed to develop a useful incentive compensation plan when they can’t pay commissions.” David Gee will be speaking about laboratory regulations and compliance at the upcoming Executive War College in New Orleans on April 25-26, 2023. (Photo copyright: Davis Wright Tremaine.)
How Does EKRA Affect Clinical Laboratories?
The federal EKRA statute—originally enacted to address healthcare fraud in addiction treatment facilities—was “expansively drafted to also apply to clinical laboratories,” according to New York-based law firm, Epstein Becker and Green. As such, EKRA “applies to improper referrals for any ‘service,’ regardless of the payor. … public as well as private insurance plans, and even self-pay patients, fall within the reach of the statute.”
In “Revised Stark Law, Anti-Kickback Statute Rules Are Good News for Labs,” Dark Daily’s sister publication The Dark Report noted that EKRA creates criminal penalties for any individual who solicits or receives any remuneration for referring a patient to a recovery home, clinical treatment facility, or clinical laboratory, or who pays or offers any remuneration to induce a referral.
According to Epstein Becker and Green, EKRA:
Applies to clinical laboratories, not just toxicology labs.
Has relevance to all payers: Medicare, Medicaid, private insurance plans, and self-pay.
Is a criminal statute with “extreme penalties” such as 10 years in prison and $200,000 fine per occurrence.
Exceptions are not concurrent with AKS.
Areas being scrutinized include COVID-19 testing, toxicology, allergy, cardiac, and genetic tests.
“For many clinical laboratories, a single enforcement action could have a disastrous effect on their business. And unlike other healthcare fraud and abuse statutes, such as the AKA, exceptions are very limited,” Epstein Becker and Green legal experts noted.
“Therefore, a lab could potentially find itself protected under an AKS safe harbor and still potentially be in violation of EKRA,” they continued. “The US Department of Health and Human Services (HHS) and the DOJ have not provided any clarity regarding this statute (EKRA). Without this much needed guidance clinical laboratories have been left wondering what they need to do to avoid liability.”
EKRA versus AKS and Stark Law
HHS compared AKS and the Stark Law (but not EKRA) by noting on its website prohibition, penalties, exceptions, and applicable federal healthcare programs for each federal law:
AKS has criminal fines of up to $25,000 per violation and up to a five-year prison term, as well as civil penalties.
The Stark Law has civil penalties only.
AKS prohibits anyone from “offering, paying, soliciting, or receiving anything of value to induce or reward referrals or generate federal healthcare program business.”
The Stark Law addresses referrals from physicians and prohibits the doctors “from referring Medicare patients for designated health services to an entity with which the physician has a financial relationship.”
EKRA is more restrictive than AKS, as it prohibits some compensation that AKS allows, healthcare attorney Emily Johnson of McDonald Hopkins in Chicago told The Dark Report.
Recent enforcement actions may help lab leaders better understand EKRA’s reach. According to Holland and Knight:
Malena Lepetich of Belle Isle, Louisiana, owner and CEO of MedLogic LLC in Baton Rouge, was indicted in a $15 million healthcare fraud scheme for “allegedly offering to pay kickbacks for COVID-19 specimens and respiratory pathogen testing.”
In S-G Labs Hawaii, LLC v. Graves, a federal court concluded the laboratory recruiter’s contract “did not violate EKRA because the recruiter was not referring individual patients but rather marketing to doctors. According to the court, EKRA only prohibits percentage-based compensation to marketers based on direct patient referrals.”
In another federal case, United States v. Mark Schena, the court’s rule on prohibition of direct and indirect referrals of patients to clinical labs sent a strong signal “that EKRA most likely prohibits clinical laboratories from paying their marketers percentage-based compensation, regardless of whether the marketer targets doctors or prospective patients.”
What can medical laboratory leaders do to ensure compliance with the EKRA law?
In EKRA Compliance, Law and Regulations for 2023, Dallas law firm Oberheiden P.C., advised clinical laboratories (as well as recovery homes and clinical treatment facilities) to have EKRA policies and procedure in place, and to reach out to staff (employed and contracted) to build awareness of statute prohibitions and risks of non-compliance.
One other useful resource for clinical laboratory executives and pathologists with management oversight of their labs’ marketing and sales programs is the upcoming Executive War College on Diagnostics, Clinical Laboratory, and Pathology Management. The conference takes place on April 25-26, 2023, at the Hyatt Regency in New Orleans. A panel of attorneys with deep experience in lab law and compliance will discuss issues associated with EKRA, the Anti-Kickback Statutes, and the Stark self-referral law.
The Department of Justice steps beyond the law’s original focus on opioid-related lab testing fraud
An interesting aspect with enforcement of the Eliminating Kickbacks in Recovery Act of 2018 (EKRA) is the government’s willingness to go after charges tied to fraudulent COVID-19 testing.
The case U.S. vs. Malena Badon Lepetich provides a good example of this approach. A grand jury indicted Lepetich on various healthcare fraud charges last year, including that she allegedly offered to pay kickbacks for referrals of specimens for COVID-19 testing.
“The government had really only used EKRA in the context of addiction treatment space,” attorney Alexander Porter, a Partner at law firm Davis Wright Tremaine in Los Angeles, said in the latest issue of The Dark Report. “The Lepetich case shows that the government’s going to use EKRA beyond that context and go into other areas where they think that it can be useful—in particular, in the area of COVID-19 testing.”
Clinical laboratories and pathology groups should take note of this development.
Attorney Alexander Porter said EKRA enforcement now goes after fraudulent COVID-19 testing. (Photo: Davis Wright Tremaine)
Defendant Allegedly Filed $10 Million in Fraudulent Lab Claims
Lepetich was the owner of MedLogic, a clinical laboratory in Baton Rouge, La.
In addition to the fraudulent COVID-19 testing charges, she allegedly solicited and received kickbacks in exchange for referrals of urine specimens for medically unnecessary tests, according to the U.S. Department of Justice (DOJ).
EKRA Provisions Rose from the Opioid Crisis in the U.S.
EKRA is a criminal law that falls under the Communities and Patients Act, which lifted restrictions on medications for opioid treatment and sought to limit overprescribing of opioid painkillers. Originally, EKRA targeted fraudulent practices at sober homes and substance abuse treatment centers. However, the final draft of the bill added clinical laboratories to the list of providers under potential scrutiny.
At the time Congress passed EKRA, the law was primarily aimed at fraudulent activity in opioid treatment centers, including related lab testing.
Thus, the government’s use of EKRA in the COVID-19 charges against Lepetich case is newsworthy and establishes a precedent, noted Porter. He’ll speak about EKRA at the 2022 Executive War College on Laboratory and Pathology Management. The event takes place April 27-28 in New Orleans.
A contentious part of EKRA for clinical laboratories and pathology groups is that certain conduct protected under the federal Anti-Kickback Statute is treated as a criminal offense under EKRA. Some common lab practices come under that confusing designation, such as paying lab sales reps on a commission-based formula based on testing volumes they generate.
It did not take long for fraudsters to pursue hundreds of billions of federal dollars designated to support SARS-CoV-2 testing and it is rare when federal prosecutors bring cases only a few months after illegal lab testing schemes are identified
As if the COVID-19 pandemic weren’t bad enough, unscrupulous clinical laboratory operators quickly sought to take advantage of the critical demand for SARS-CoV-2 testing and defraud the federal government.
Unfortunately for the many defendants in these cases, federal investigations into alleged cases of fraud were launched with noteworthy speed. As a result of these investigations into alleged healthcare fraud by clinical laboratories and other organizations during fiscal year (FY) 2020, the US Department of Justice (DOJ) announced the US government has recovered $1.8 billion.
The federal prosecutions involved dozens of medical laboratory owners and operators who paid back “hundreds of millions in alleged federal healthcare program losses,” Goodwin Life Sciences Perspectives explained.
When combined with similar efforts starting in prior years, the program has returned to the federal government and private individuals a total of $3.1 billion, the DOJ noted.
“In its 24th year of operation, the program’s continued success confirms the soundness of a collaborative approach to identify and prosecute the most egregious instances of healthcare fraud, to prevent future fraud and abuse, and to protect program beneficiaries,” the report states.
According to the graphic above, which is based on analysis by B2B research company MarketsandMarkets, “North America will dominate the healthcare fraud analytics market from 2020–2025.” As clinical laboratory testing represents a significant portion of the fraud, medical lab managers will want to remain vigilant. (Graphic copyright: MarketsandMarkets.)
COVID-19 Pandemic an Opportunity for Fraud
The HHS report notes that the COVID-19 pandemic required CMS to develop a “robust fraud risk assessment process” to identify clinical laboratory fraud schemes, such as offering COVID-19 tests in exchange for personal details and Medicare information.
“In one fraud scheme, some labs are targeting retirement communities claiming to offer COVID-19 tests but are drawing blood and billing federal healthcare programs for medically unnecessary services,” the HHS report notes.
Still other alleged schemes involved billing for expensive tests and services in addition to COVID-19 testing. “For example, providers are billing a COVID-19 test with other far more expensive tests such as the Respiratory Pathogen Panel (RPP) and antibiotic resistance tests,” the report says.
“Other potentially unnecessary tests being billed along with a COVID-19 test include genetic testing and cardiac panels CPT (current procedural terminology) codes. Providers are also billing respiratory, gastrointestinal, genitourinary, and dermatologic pathogen code sets with the not otherwise specified code CPT 87798,” the report states.
Different Types of Healthcare Organizations Investigated in 2020
Beyond clinical laboratories, the HHS’ 124-page report also shares criminal and civil investigations of other healthcare organizations and areas including:
clinics,
drug companies,
durable medical equipment,
electronic health records,
home health providers,
hospice care,
hospitals and healthcare systems,
medical devices,
nursing home and facilities,
pharmacies, and
physicians/other practitioners.
According to the DOJ, “enforcement actions” in 2020 included:
1,148 new criminal healthcare fraud investigations opened,
440 defendants convicted of healthcare fraud and related crimes,
1,079 civil healthcare fraud investigations opened, and
1,498 pending civil health fraud matters at year-end.
“Federal Bureau of Investigation (FBI) investigative efforts resulted in over 407 operational disruptions of criminal fraud organizations and the dismantlement of the criminal hierarchy of more than 101 healthcare fraud criminal enterprises,” the DOJ reported.
Furthermore, the report said OIG investigations in 2020 led to:
578 criminal actions against people or organizations for Medicare-related crimes,
781 civil actions such as false claims, and
2,148 people and organizations eliminated from Medicare and Medicaid participation.
Implications for Clinical Laboratories
In 2020, OIG issued 178 reports, completed 44 evaluations, and made 689 recommendations to HHS divisions.
Clinical laboratory leaders may be most interested in those related to patient identification as a means to combating fraud and Medicare Part B lab testing reimbursement.
The HHS report says, “Medicare Advantage (MA) encounter data continue to lack National Provider Identifiers (NPIs) for providers who order and/or refer … clinical laboratory services,” adding that, “Almost half of MA organizations believe that using NPIs for ordering providers is critical for combating fraud.”
Additionally, the report states, “Medicare Part B spending for lab tests increased to $7.6 billion in 2018, despite lower payment rates for most lab tests. The $459 million spending increase was driven by:
“increased spending on genetic tests,
“ending the discount for certain chemistry tests, and the
“move to a single national fee schedule.”
Medical laboratory leaders may be surprised to learn that federal healthcare investigators were so vigorous in their investigations, even during the worst of the COVID-19 pandemic.
Vigilance is critical to ensure labs do not fall under the DOJ’s scrutiny. This HHS report, which describes the types and dollars involved in fraudulent schemes by clinical labs and other providers, could help inform revisions to federal compliance regulations and statutes.
Charges against this life science company executive include healthcare fraud as well as the first COVID-19 related securities fraud
In the first securities fraud prosecution involving clinical laboratory COVID-19 testing, the US federal Department of Justice (DOJ) charged the president of a Sunnyvale, Calif., life sciences biotechnology company with participating in a scheme to mislead investors and also to commit healthcare fraud, stated a DOJ press release.
The DOJ charged Mark Schena, PhD, president of Arrayit Corporation, with one count of securities fraud and one count of conspiracy to commit healthcare fraud related to submissions of more than $69 million in claims for allegedly unnecessary medical laboratory allergy and COVID-19 tests, the Associated Press (AP) reported.
“The defendant allegedly defrauded Medicare through illegal kickbacks and bribes, and then turned to exploiting the pandemic by fraudulently promoting an unproven COVID-19 test to the market,” said Brian Benczkowski, DOJ Assistant Attorney General, Criminal Division, in the DOJ press release.
According to the Washington Post, Arrayit allegedly bundled its finger-stick allergy test with the COVID-19 test kit.
Authorities Question Bundling of Tests, Claims
An affidavit in support of the criminal complaint stated that Arrayit was promoting “‘microarray technology’ for allergy and COVID-19 testing that allows for laboratory testing on a finger prick drop of blood that is placed on a paper card and sent by mail to Arrayit’s laboratory.”
The government’s investigation actually goes back two years to a time when Arrayit allegedly submitted or caused submission of $5.9 million in Medicare lab test claims and $63 million in lab test claims to private insurers through bribes and kickbacks, MedTech Dive reported.
The company’s clinical laboratory test for COVID-19 failed to receive US Food and Drug Administration Emergency Use Authorization (EUA), because it did not have the level of specificity and sensitivity required, MedTech Dive noted.
“Schena offered an Arrayit COVID-19 test in order to obtain Medicare beneficiary information that then was used to submit false and fraudulent claims for an unrelated and far more expensive allergy test for 120 allergens,” the DOJ complaint stated, adding, “Schena and others transmitted false and fraudulent e-mail communications and marketing materials about the Arrayit COVID-19 test and purported need to bundle the COVID-19 test with Arrayit’s allergy test, while never disclosing there were substantial questions about the accuracy of Arrayit’s COVID-19 test.”
Highlights of DOJ Charges
According to the DOJ press release:
Schena and others from 2018 through February allegedly “paid kickbacks and bribes” to recruiters and doctors to run a medical laboratory test for allergy screening (with 120 allergens) on patients “regardless of medical necessity and then make numerous misrepresentations to potential investors.”
News releases and social media promoted partnerships with companies and government agencies that either “did not exist” or were minor.
As the pandemic heated up, Arrayit representatives “made false claims concerning Arrayit’s ability to provide accurate, fast, reliable and cheap COVID-19 tests in compliance with state and federal regulations,” prosecutors said.
According to the DOJ’s complaint, Schena told investigators developing a test for COVID-19 was “like a pastry chef” who switches from selling “strawberry pies” to selling “rhubarb and strawberry pies.”
“The allure of cheap reliable alternatives to today’s standard blood tests panels has captured the imagination of the healthcare industry, making such alternatives a prime subject for fraudsters,” said David Anderson (above), US Attorney for the Northern District of California, in the DOJ press release, adding, “The scheme described in the complaint, in which the defendant allegedly leveraged this allure by appending the fear of the COVID-19 pandemic, amounts to a cynical multi-million-dollar hoax.” (Photo copyright: San Francisco Examiner.)
DOJ Prioritizing Coronavirus Fraud
US Attorney General William Barr earlier this year called for prioritization of investigation and prosecution of coronavirus fraud schemes, noted a DOJ statement, which pointed out that these types of fraud schemes leverage COVID-19 testing information generated by healthcare providers to fraudulently bill Medicare for other tests and procedures.
In April, Dark Daily’s sister publication, The Dark Report (TDR), covered one such kickback scheme in Georgia the DOJ was investigating. In that case, a Georgia man allegedly participated in a fraudulent kickback scheme in which clinical laboratory companies paid him on a per-test basis for referring cancer genetic, coronavirus, and respiratory pathogen panel tests to labs, TDR noted.
Clearly, the DOJ is stepping up its investigation into COVID-19 test fraud. Thus, medical laboratory leaders and pathologists should remain vigilant, as they are likely to observe more enforcement activity as the pandemic persists.
