News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

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News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

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Military’s Fifth Health System Market Cuts Costs by Keeping Pathology Services ‘On-base’

Even US military clinical laboratories strive to cut costs, protect quality, and improve outcomes

Defense Health Agency (DHA), a part of the federal Department of Defense (DOD), recently launched a plan to consolidate healthcare facilities within certain geographical regions and to unify and integrate the military’s clinical laboratory operations in those areas. The goal is to streamline efficiencies and lower costs while maintaining quality lab testing services. 

The DOD operates a nationwide network of medical treatment facilities (MTFs) that include state-of-the-art clinical and anatomic pathology laboratories serving military personnel and their families. These military labs face the same issues of cost, efficiency, and outcomes as do civilian clinical laboratories throughout the United States.

To address those challenges and bring together clinical laboratory services in specific regions, the DHA established the Tidewater Market in April of 2021 to serve select US Air Force, Army, and Navy MTFs in the Washington DC metro area, central North Carolina, Jacksonville, and coastal Mississippi.

Tidewater is the fifth Military Health System (MHS) market created to manage MTFs as they transition into the DHA.—a website maintained by the MHS as an informational resource for those it serves—describes the MHS as “one of America’s largest and most complex healthcare institutions, and the world’s preeminent military healthcare delivery operation.

“Our MHS saves lives on the battlefield, combats infectious disease around the world, and is responsible for providing health services through both direct care [at military hospitals and clinics known as ‘military treatment facilities’] and private sector care to approximately 9.6 million beneficiaries, composed of uniformed service members, military retirees, and family members,” notes.

With 9.6 million beneficiaries, MHS is one of the largest healthcare service organizations operating in the United States.

Navy Rear Admiral Darin Via, MD

“The establishment of this market provides a true opportunity to optimize healthcare for our beneficiaries by focusing on outcomes and access across the Tidewater market,” said Navy Rear Admiral Darin Via, MD, Tidewater market manager, in an MHS/DHA news release. “It also allows us to work towards standardization of processes, creating an easier environment for our patients to navigate within.” (Photo copyright: US Navy.)

Finding Efficiencies, Optimizing Clinical Laboratory Processes and Services

In an article outlining the Tidewater Market clinical laboratory initiative, noted that “A market is a group of MTFs in one geographic area working together with its TRICARE partners, Veterans Affairs hospitals, other federal healthcare organizations, private sector teaching hospitals and medical universities, as well as other healthcare partners. Markets operate as a system to support the sharing of patients, staff, budget, and other functions across facilities to improve readiness and the delivery and coordination of health services.”

The Tidewater Market provides integrated, affordable, high-quality healthcare services to active-duty service members, military retirees, reservists and national guardsmen, and their families. The market currently serves more than 390,000 beneficiaries.

In 2022, the Tidewater Market Laboratory/Pathology Integration Working Group was created to optimize services while reducing costs within the market. The group was created by US Navy Captain Stacie Milavec, who has more than 23 years of experience in military medicine.

Milavec is a clinical laboratory scientist certified through the American Society for Clinical Pathology (ASCP) and American Medical Technologists (AMT). She served on the board of directors for the Society of American Federal Medical Laboratory Scientists (SAFMLS) and is a member of the American College of Healthcare Executives (ACHE) and American Society for Clinical Laboratory Science (ASCLS).

“One of DHA’s goals with setting up a market structure is to find efficiencies and optimize and standardize processes and services wherever possible,” Milavec said in an MHS/DHA news release. “We’ve been able to do exactly that by collaborating within our working group.”

Resource Sharing between Military Clinical Laboratories

The MTFs that are geographically close to each other helped expedite turnaround times for testing results. By working together, they saved the Tidewater Market an estimated $80,000 during fiscal year 2022.

One of the methods they used to streamline testing and lower costs was to allow resource sharing between facilities within the market. For example, the full-service clinical laboratory located at the Naval Medical Center Portsmouth (NMCP) began performing head and neck pathology cases, breast biopsies, and PAP testing for some of the other facilities within the Tidewater Market. These services were previously performed by other means and in some cases were sent to commercially-contracted clinical laboratories for analysis at a high cost.

The NMCP also took on Human Papilloma Virus (HPV) testing for all MTFs within the market. 

In February of 2023, NMCP began taking on additional clinical chemistry tests from the 633rd Medical Group at Joint Base Langley-Eustis located in Hampton, Virginia. Prior to that collaboration, those tests were sent out to contracted labs off-base for analysis. 

“[Through collaboration between the MTFs] we’ve been able to successfully transition civilian marketplace send-out testing back into the military market by utilizing market resources,” said pathologist US Air Force Captain Dianna Chormanski, MD, Laboratory Medical Director with the 633rd Medical Group at Joint Base Langley-Eustis, in the press release. “I’m a big fan of cooperation and working together, and that’s what a market should be.”

The DHA established the market-based structure as part of the National Defense Authorization Act for Fiscal Year 2017. It’s an example of regional laboratory consolidation within one region of the US where a common effort brought together clinical laboratories operating on military bases of different services. The military’s goal was a unified, integrated medical laboratory operation that could deliver targeted cost savings while maintaining quality lab testing services. It appears to be successful.   

—JP Schlingman

Related Information:

Tidewater Market Saves by Integrating and Optimizing Pathology Services

Tidewater Set to Become Fifth Military Health System Market

New Tidewater Market Strengthens DOD’s Medical Readiness, Promises Better Patient Experience

Pandemic Spotlights the Vital Role of Military Lab Workers

Texas Dermatopathology Laboratory Under Fire for Genetic Testing Scheme Targeting Soldiers Near Fort Hood

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.)

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 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.

—Andrea Downing Peck

Related Information:

U.S. Military Members Duped to Help Pull Off Insurance Fraud

Feds Investigating Insurance Fraud That Duped U.S. Military Members

Department of Defense Press Briefing by Pentagon Press Secretary Peter Cook in the Pentagon Briefing Room

In Response to the CBS News Story That Aired on June 8, 2016

Report: Troops Duped in Alleged Tricare Fraud

Baylor Taps the Brakes On Replacing the Chairman of Its Dermatology Program

Lab Testing Scheme Targets Tricare

Baylor Delays Leadership Appointment for Dermatologist Linked to Scam Involving Vets

Is New Cycle of Laboratory Fraud Plaguing the Industry?

More Doctors to See Jail Time in Biodiagnostic Laboratory Services Case, but Question Remains: Will Federal Prosecutors Send Lab Executives and Doctors to Jail in the Health Diagnostics and Singulex Case?

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. (more…)

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

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. (more…)