Did “processing fees” paid by certain clinical laboratory companies to physicians represent an inducement that violated federal anti-kickback laws?

Once again, allegations of fraudulent practices at a fast-growing clinical laboratory company have made national headlines. This time it was a front-page story in The Wall Street Journal (WSJ) that last week discussed the controversy surrounding Health Diagnostic Laboratory (HDL) of Richmond, Virginia.

According to the WSJ story, federal healthcare authorities are looking into a practice by HDL and other medical laboratory companies of paying physicians “to process” blood specimens collected in their offices. As described by the WSJ, this “processing fee” was as much as $20 and included a $3 portion for the venipuncture.

Majority of Medical Laboratories Don’t Pay Processing Fees to Doctors

Such a processing fee is uncommon in the medical laboratory testing profession because many lab professionals view this payment as a possible inducement that could violate federal anti-kickback laws. In fact, the WSJ reported that the Health and Human Services Office of Inspector General (OIG) had issued a special fraud alert in June that explained how this practice violates federal law. HDL told the WSJ that, after the release of the fraud alert, it had stopped paying processing fees to physicians.

As to whether HDL is under investigation by the federal government, the WSJ wrote: “The fraud alert is part of an investigation the health agency’s Office of Inspector General is conducting with the Justice Department (DOJ) into doctor payments by HDL and several other labs specializing in cardiac-biomarker testing, people familiar with the investigation say. The agencies declined to comment.”

The Wall Street Journal also noted that HDL commonly bundled its cardiac biomarker tests.  “HDL bundles together up to 28 tests it performs on a vial of blood, receiving Medicare payments of $1,000 or more for some bundles,” it wrote. The WSJ did not address HDL’s policies on how it billed patients for lab tests, particularly in situations where HDL was out-of-network for a patient’s health insurer.

WSJ Reporters Did Not Write about Patient Billing Practices at HDL

Many lab competitors of HDL have observed that, along with questions raised about the policy of paying a “processing fee” to physicians, the policies of HDL and a handful of other clinical laboratory companies about when they do and do not bill patients could be the source of other compliance issues, should federal and state regulators decide to investigate those billing practices.

The main medical laboratory facility of Health Diagnostics Laboratory is in Richmond, Virginia. The fast-growing laboratory company found itself the subject of a story in The Wall Street Journal on September 8 over certain business practices that have attracted the attention of federal healthcare investigators. Health Diagnostics Laboratory issued a statement in response to the WSJ story declaring that it “has been cooperating fully with the government investigation and has consistently complied with all applicable legal and regulatory requirements.” (Photo copyright the Richmond Times-Dispatch.)

The main medical laboratory facility of Health Diagnostics Laboratory is in Richmond, Virginia. The fast-growing laboratory company found itself the subject of a story in The Wall Street Journal on September 8 over certain business practices that have attracted the attention of federal healthcare investigators. Health Diagnostics Laboratory issued a statement in response to the WSJ story declaring that it “has been cooperating fully with the government investigation and has consistently complied with all applicable legal and regulatory requirements.” (Photo copyright the Richmond Times-Dispatch.)

On September 8, HDL issued a press release, stating: “Today’s Wall Street Journal story on Health Diagnostic Laboratory, Inc. (HDL, Inc.) paints a highly distorted picture of our company and our work. In particular, HDL, Inc. vehemently disagrees with any insinuation that payments to doctors were an inducement, or that the payments were illegal or known to violate any law.”

HDL went on to say, “The [WSJ] story inaccurately characterizes the HDL, Inc., of 2010 and totally ignores the world-class 2014 HDL, Inc., laboratory practices of today, relying on misleading accounts from two former disgruntled employees who have not been with the company in more than three years—one speaking anonymously and the other dismissed for cause, including her opposition to HDL, Inc.’s, zero-tolerance drug policies.”

HDL’s Annual Revenue Topped $383 Million in 2013

Since its founding in 2008, the remarkable growth rate at HDL has been discussed widely in the clinical laboratory industry. The WSJ reported that HDL’s 2013 revenue topped $383 million. Often, such spectacular growth has been associated with business practices that clinical laboratory experts consider to violate federal and state anti-kickback laws.

Competing labs have complained about certain such business practices. In the absence of effective action by federal and state regulators, however, labs willing to push compliance boundaries can continue such practices for years. Furthermore, in those cases when the DOJ has taken action against an offending clinical laboratory, the result often is a civil settlement in which the company, while not admitting it violated the law, agrees to abide by the terms of the agreement and pays a fine or penalty.

The fine or penalty, however, is generally just pennies on the dollar for all the profits it generated from such behavior in the years leading up to that civil settlement.

Of equal frustration to many in the clinical laboratory industry, civil settlements such as these mean that the executives and laboratory scientists directly involved in illegal behaviors do not face criminal charges for their actions. Moreover, since they do not face criminal indictments, they often are later hired to work at other lab testing companies, where their brand of ethics can continue to skirt anti-kickback laws to help their companies generate lab test referrals from physicians.

Criminal Charges Filed in Last Year’s BioDiagnostic Laboratories Case

Of course, this is not what happened in one high profile case of clinical laboratory fraud that became public news last year. The U.S. Attorney for New Jersey did prosecute Biodiagnostic Laboratory Services, LLC, (BDL) of Parsippany, New Jersey, for violating Medicare anti-kickback statues and other federal and state laws. Not only did 11 lab executives and employees plead guilty to criminal charges, but, of greater importance, at least 15 doctors have pleaded guilty to their roles in accepting the inducements offered by BDL, and some of these physicians face prison time. (See Dark Daily, “Clinical Pathology Laboratory Executives Indicted and Arrested by U.S. Attorney in New Jersey for Bribery, Inducement, and Other Crimes,” April 15, 2013.)

However, the prosecution of individuals as part of the BDL case is not the observed norm, as the DOJ more frequently proves willing to enter into a civil settlement with a high-profile laboratory company and not pursue criminal charges against executives at that company. One must go back nine years to find a legal case of a high-profile laboratory company fraud that resulted in multiple lab executives being criminally indicted and found guilty. That was the Impath, Inc., case. In 2005, a grand jury issued criminal indictments of CEO Anu Saad, M.D., and COO Richard Adelson. Several other Impath employees were also found guilty of criminal charges.

In her case, Saad eventually pleaded to lesser charges and was given a three-month prison sentence plus penalties. Adelson was convicted after a court trial and was sentenced to three-and-a-half years in prison. This information was described in a story published by CFO.com.

Clinical Lab Professionals Will Be Watching This Federal Investigation

The potential for federal and state prosecutors to file criminal charges associated with violations of anti-kickback laws against both the employees of a clinical laboratory company and physicians who received the inducements is always a closely watched aspect of these types of cases.

HDL’s leadership understands the high stakes nature of this situation. In its press release on September 8, HDL stated: “As we confirmed to The Journal, the Department of Justice (DOJ) is conducting what we understand to be an industry-wide review of certain clinical laboratory practices, many of which have been longstanding within the industry. HDL, Inc., has been cooperating fully with the government investigation and has consistently complied with all applicable legal and regulatory requirements. In the event that the DOJ investigation results in legal action against HDL, Inc., we are prepared to defend our business practices vigorously.”

Are Other Lab Business Practices Under Investigation?

Many unknowns remain about how federal investigators intend to develop this case. Knowledgeable individuals tell Dark Daily that FBI agents have been in the field conducting interviews for several years now. There is a belief that it was a whistleblower lawsuit that brought the “processing fee” issue to the attention of federal officials.

Further, there are several related issues of possible inducement and anti-kickback activities carried on by companies believed to be under investigation by federal authorities. That is another reason why this story is likely to contain more surprises as it unfolds and if federal prosecutors and regulators decide to enforce laws and regulations.

Related Information:

A Fast-Growing Medical Lab Tests Anti-Kickback Law: Firm Paid Doctors Who Sent Blood for Tests; ‘One Word Makes It Legal’

HDL, Inc. Responds to The Wall Street Journal Story

WSJ exposé puts HDL on the defensive

Special Fraud Alert: Laboratory Payments to Referring Physicians

BioDiagnostics Laboratories Case: Madison doctor admits part in $100 million bribery scheme

“Failure to Question” Snags Impath Exec: An appeals court ruled that the former president knew the cancer-data company was not performing well, but gave the SEC a different story