Drug Testing Company to Pay $27 Million for Unnecessary Drug Testing and Kickbacks

Maryland Attorney General Anthony G. Brown announced on October 15 that his office had reached a $27 million settlement with a drug testing company to resolve allegations that it billed government health programs for medically unnecessary urine drug tests and kickbacks to physicians in exchange for laboratory testing referrals. The company, headquartered in San Diego, California, is one of the nation’s largest urine drug testing laboratories.

The case originated with a Baltimore-area whistleblower complaint, prompting a complex state and federal investigation into a scheme operating within the drug testing industry, where profits—and fraud—have increased as the opioid epidemic has spread nationwide.

In the settlement agreement, Maryland, numerous other states, and the federal government alleged that the company billed government healthcare programs for excessive and unnecessary urine drug testing from January 1, 2013, through December 31, 2022. The government plaintiffs alleged that the company caused physicians to order excessive numbers of urine drug tests, partly through the use of blanket orders that led physicians to order a large number of tests without an individualized assessment of each patient’s needs. Under federal and state laws, government healthcare programs only pay for services that are reasonable and medically necessary.

The government plaintiffs also alleged that the company violated anti-kickback laws by providing free point-of-care urine drug test cups to physicians, contingent upon the physicians agreeing to return the urine specimens for additional testing. These laws prohibit laboratories from offering physicians any items of value in exchange for referrals for tests.

In addition to the monetary settlement, the company has agreed to enter into a five-year Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG), allowing the federal government to monitor the company’s operations over that period and mandate reforms and corrections as needed. Of the settlement amount, $18.2 million will be paid to the federal government. Maryland will receive $5.7 million. Other impacted states, including Illinois, Minnesota, Virginia, Georgia, and Colorado, will also receive a share.

Compliance Perspective

Issue

All laboratory tests performed for residents must be medically necessary to bill Medicare, Medicaid, or private insurance companies. A test or procedure is deemed medically necessary if its results are needed to diagnose or treat an illness, injury, condition, disease, or its symptoms. Unnecessary claims may violate the False Claims Act, leading to fines, criminal charges, and other sanctions. Under federal and state Anti-Kickback Statutes, it is illegal to offer, pay, solicit, or receive anything of value to induce or reward referrals for federal or state healthcare program business. While some industries allow referral rewards, in healthcare, this practice is a crime. The prohibition applies to both those who pay for referrals and those who receive them. Kickbacks can take many forms, including bribes or rebates, and may be given in cash or kind. Failing to report a kickback promptly can lead to lawsuits, fines, and other sanctions.

Discussion Points

    • Review and update your policies and procedures for laboratory testing services, including billing practices and protocols for preventing and reporting false claims and anti-kickback statute violations.
    • Train staff to ensure that all ordered tests are medically necessary. If a test is deemed medically unnecessary, clarify the order before proceeding. Involve your medical director to ensure proper determination of medical necessity. Provide training on the Anti-Kickback Statute, highlighting what constitutes a false claim or kickback. Include information on reporting concerns and emphasize the necessity of prompt reporting. Document all training sessions and maintain records in individual employee files.
    • Conduct regular audits to ensure that laboratory tests meet medical necessity criteria. Survey professional staff to assess their understanding of medical necessity. Additionally, periodically audit staff awareness regarding the appropriate actions to take if they suspect unnecessary services, false claims, or illegal kickbacks.

*This news alert has been prepared by Med-Net Concepts, Inc. for informational purposes only and is not intended to provide legal advice.*

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