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Clinical Laboratories and Pathology Groups

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Federal Prosecutors Charge a California Executive with Misleading Investors and Payers about Company’s Clinical Laboratory COVID-19 Test

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.”

David Anderson, US Attorney for the Northern District of California
“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.

—Donna Marie Pocius

Related Information:

Medical Technology Company President Charged in Scheme to Defraud Investors and Healthcare Benefit Programs in Connection with COVID-19 Testing

California Tech Executive Charged in Coronavirus Testing Fraud

California Biotech Executive Charged with Fraud Over Coronavirus Test Plans

Criminal Complaint: Affidavit in Support of Criminal Complaint

DOJ Charges Arrayit Executive with $69M in COVID-19 Test Fraud

Attorney General William Barr Urges American Public to Report COVID-19 Fraud

DOJ Says Georgia Man Got Kickbacks for COVID-19 Tests