Wednesday, September 23, 2020

DOJ Settles $11M Case Against Lab; Focus on Software Expenses between Lab and Providers

On September 22, 2020, DOJ announced a settlement of $11.5M against Bio-Reference laboratories which "admits to improperly billing government."  Part of the billing was for inpatient tests not segregated from outpatient tests during the billing process.   Both Medicare and Tricare and discussed.  note that since about 2014, Medicare also bundles many outpatient lab tests (but not genetics) under a complex and regularly changing set of rules.

The much larger part of the case relates to payments and values exchanged related to software used in the provider's systems.   I don't know the details of the law, but this must be a complex area because of the increasing reliance of the modern health system on electronic transactions, electronic pre-authorization through shared records and software, collating and integrating EHR and lab data, imaging, appropriate use criteria, electronic orders, etc.    

I note CMS issued a proposed rule to modernization anti kickback and value sharing regulations, in February 2020 (here).  As I understood it (and I'm not an expert here), the rule excluded labs from the modernized value-based or shared savings rules which are required to integrate and cooperate in modern health systems and reduce healthcare fragmentation.  In August 2020, CMS announced it was delaying that final rule due to complexities in its structure (here). 


Tuesday, September 22, 2020

Acting Manhattan U.S. Attorney Announces $11.5 Million Settlement With Biotech Testing Company For Fraudulent Billing And Kickback Practices

Bio-Reference Laboratories, Inc. Admits to Improperly Billing Government for Hospital Inpatient Testing and Donating Cost of Medical Software to Physicians Based on Volume of Business

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, Scott J. Lampert, Special Agent in Charge of the New York Regional Office of the U.S. Department of Health and Human Services, Office of Inspector General (“HHS OIG”), and Leigh-Alistair Barzey, Special Agent in Charge of the Northeast Field Office of the U.S. Department of Defense - Office of Inspector General’s Defense Criminal Investigative Service (“DCIS”), announced today an $11.5 million settlement of a False Claims Act case against BIO-REFERENCE LABORATORIES, INC. (“BRL”), a New Jersey-based biotechnology company that provides molecular and diagnostic tests.  The settlement resolves claims that from 2009 to 2012, BRL fraudulently billed federal healthcare programs for testing conducted on hospital inpatients that should have been billed to the hospitals instead, and that BRL knowingly donated the cost of electronic medical records software to physicians’ offices throughout the country based solely on the volume of business generated by those practices, in violation of the False Claims Act and the federal Anti-Kickback Statute.  
Under the settlement approved by U.S. District Judge George B. Daniels, BRL will pay $11,500,960.00 to the United States to resolve the fraudulent billing and kickback claims.  BRL also made extensive admissions regarding the company’s conduct.  

Acting U.S. Attorney Audrey Strauss said:  “Bio-Reference Labs received millions of dollars from federal healthcare programs through its fraudulent billing and kickback schemes.  The company knowingly and recklessly billed the government for tests it should have billed to the hospitals instead, and provided kickbacks to doctors in order to induce them to order more tests.  Our Office will continue to hold healthcare providers accountable when they engage in fraud and other illegal conduct.” 

HHS Special Agent in Charge Scott Lampert said:  “The irresponsible behavior by Bio-Reference Labs compromised the integrity of the Medicare program, and wasted millions of taxpayer dollars.  Working with our law enforcement partners, HHS-OIG will continue to ensure that healthcare providers that do business with federally funded health care programs do so in an honest fashion.”

DCIS Special Agent in Charge Leigh-Alistair Barzey said:  “Fraudulent billing and kickback schemes threaten the integrity of TRICARE, the Defense Department's healthcare system for military members and their families.  Today’s settlement is the result of a joint effort and it demonstrates the DCIS’s ongoing commitment to work with the USAO-SDNY and HHS-OIG to investigate and prosecute companies that seek to fraudulently profit at the expense of federal health care plans.” 

As alleged in the Complaint filed in Manhattan federal court:

Fraudulent Billing Practices & Kickback Scheme

From 2009 through 2012, BRL knowingly and willfully billed Medicare and Tricare for certain testing performed for hospital inpatients that should have been paid by the hospitals themselves.  As a result, BRL received reimbursement from Medicare and Tricare for tests that the federally funded programs had already paid for, because hospitals receive payments for all items and services provided to the patient under the inpatient prospective payment system (“IPPS”), unless an exemption applies, which is inapplicable here.

In addition, in violation of the Anti-Kickback Statute, BRL knowingly and willfully offered and paid remuneration, in the form of a percentage of the cost of electronic medical records software, to physicians based on the volume of business generated by those physicians in order to induce them to use BRL’s services.  The Anti-Kickback Statute prohibits medical service providers, such as testing facilities, from paying any remuneration to providers in order to induce them to refer medical services.

As part of the settlement approved today, BRL admitted, acknowledged, and accepted responsibility for the following conduct:

            Inpatient Testing Claims

  • From 2009 through 2012, BRL billed Medicare and Tricare for certain testing (i) listed on the Clinical Lab Fee Schedule (“CLFS”) and (ii) performed on beneficiaries who were hospital inpatients at the time of service. 
  • Specifically, from 2009-2012, approximately 2.51% of all of BRL’s Medicare and Tricare billing originating from hospitals consisted of testing performed on hospital inpatients and listed on the CLFS.
  • For example, from 2009-2012, BRL did not bill Triad of Alabama/Flowers Hospital in Dothan, Alabama (“Triad”), for any inpatient testing.  As a result, from 2009-2012, BRL improperly billed Medicare and Tricare for approximately 2.51% of all testing BRL performed for Triad and its associated pathology practices on behalf of Medicare or Tricare beneficiaries.
  • In 2009, BRL’s requisition form – the form BRL provided to hospitals to order tests for their patients – did not contain any place for a hospital to indicate whether the patient was an inpatient or an outpatient.  But as of at least January 2010, BRL management had a clear understanding of the necessity to bill hospitals – and not Medicare or Tricare – for testing performed on hospital inpatients and listed on the CLFS.  Indeed, on January 27, 2010, the Director of Genpath Accounts Receivable wrote to management, “I’m afraid that we can end up billing Medicare for hospital patients.”  Nevertheless, the requisition forms remained the same, and through at least 2012, BRL billed Medicare and Tricare for hospital inpatient testing listed on the CLFS.

            Software Cost Donations

  • In addition, from 2009 through 2012, BRL provided a percentage of the cost of electronic medical records transition software (“EMR Software”) to physicians’ offices based on the volume of business generated by those offices. 
  • Specifically, from 2009 through 2012, BRL engaged in a practice – at the direction of its management – entitled the “3 to 1 calculation,” meaning that BRL conditioned the provision of payment for EMR Software to physicians’ offices on whether a physician’s office would generate revenue equal to three times the value of the EMR Software BRL provided. 
  • For example, on January 24, 2009, a BRL employee, in an email to BRL management, applied the 3 to 1 calculation to a particular physician’s office and suggested that BRL provide the payment for EMR Software, but noted, “You find the legal way to say that.  I don’t feel they will make us put it in writing.” 
  • Similarly, on January 7, 2011, BRL management evaluated a BRL salesperson’s request for payment for EMR Software to a particular physician’s office, and directed that salesperson to “[b]uild volume to meet 3x rule.”
  • During this timeframe, BRL provided payment for EMR Software based on this formula to 69 separate physicians’ offices. 


*                *                *

BRL agreed to pay a total of $11,500,960.00 to resolve these claims: $1,396,386 to resolve the Inpatient Testing Claims and $10,104,574 to resolve the Software Cost Donation claims.  OPKO Health Inc. (“OPKO”), which merged with BRL in 2015, will serve as guarantor of BRL’s obligation to pay the settlement amount.

In connection with the filing of the lawsuit and settlement, the Government joined two private whistleblower lawsuits that had previously been filed under seal pursuant to the False Claims Act. 

Ms. Strauss thanked HHS-OIG and DCIS for their assistance with the case. 

The case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorneys Michael Byars and Ellen Blain are in charge of the case.

Health Care Fraud
James Margolin, Nicholas Biase (212) 637-2600
Press Release Number: