Two Testing Labs to Pay $48.5 Million to Settle False Claims Charge

Cardiovascular testing disease laboratories Health Diagnostics Laboratory Inc. (HDL), of Richmond, Virginia, and Singulex Inc., of Alameda, California, will pay $48.5 million to resolve allegations that they violated the False Claims Act by paying remuneration to physicians in exchange for patient referrals and billing federal healthcare programs for medically unnecessary testing.


Under the settlements, which stem from three related whistleblower actions filed under the federal False Claims Act, HDL will pay $47 million and Singulex will pay $1.5 million.

The government also intervened in the lawsuits as to similar allegations against another laboratory, Berkeley HeartLab Inc.; a marketing company, BlueWave Healthcare Consultants Inc., and its owners, Floyd Calhoun Dent and J. Bradley Johnson; and former CEO Latonya Mallory of HDL.

A South Carolina doctor who had ethical concerns about blood testing labs paying physicians extra fees allegedly to get their business was one of the leading whistleblowers in the case..

The government joined whistleblower claims that Health Diagnostic Laboratory Inc. and Singulex Inc. had allegedly routinely paid doctors, physician groups and hospitals kickbacks between $10 and $17 masked as “process and handling fees” to induce them to order expensive blood tests, many of which were medically unnecessary.

HDL, of Richmond, Virginia, will pay $47 million plus more than $3 million in interest to the government over the next three years for a total of more than $50 million.

Singulex Inc., a privately held lab company based in Alameda, California, will pay more than $1.5 million.

The settlements cover charges made in a qui tam lawsuit brought by Dr. Michael Mayes and filed by whistleblower law firm Phillips & Cohen, as well as two other qui tam complaints.

HDL was represented by Laura Hoey of Ropes & Gray.

Singulex was represented by Beth Moskow-Schnoll at Ballard Spahr.

“Dr. Mayes was quite concerned when he learned how much labs that were paying doctors process and handling fees were charging government healthcare programs for these specialized blood tests,” said Peter Chatfield, a whistleblower attorney with Phillips & Cohen in Washington, DC. “It seemed to him, as alleged in his qui tam lawsuit, that the blood tests often were unnecessary, and labs were paying doctors unwarranted fees simply to get more test referrals.”

Federal law prohibits kickbacks to doctors so that their decisions about medical treatment for their patients won’t be influenced by financial benefits.

The government also announced that it has joined the kickback claims against two other companies named in Dr. Mayes’ qui tam complaint.

One of those companies, Berkeley HeartLab Inc. is a medical testing lab company based in Burlingame, California. It offers cholesterol and other tests to identify those at risk for cardiovascular disease. It was acquired by Quest Diagnostics Inc. in 2011.

Dr. Mayes’ qui tam lawsuit alleges that Berkeley HeartLab paid kickbacks to doctors to get referrals for blood tests and charged Medicare and other government healthcare programs for blood tests that weren’t medically necessary and weren’t ordered by physicians.

The qui tam complaint says that Berkeley was offering physicians $11.50 and hospitals $25 as a “drawing fee” for each referral.

The other company is BlueWave Healthcare Consultants Inc., based in Hanceville, Alabama. It provides sales consulting services.

Working on commission, BlueWave marketed for HDL and Singulex a panel of blood tests from both labs by telling healthcare providers the panel should be used as a baseline for every patient.

The panel included tests that were beneficial only for a very limited group of patients, causing claims for unnecessary services to be submitted to Medicare and other government healthcare programs.

BlueWave was offering doctors up to $30 per blood test ($20 from HDL plus $10 from Singulex) as a “drawing fee.”

The government’s investigation of allegations made in Dr. Mayes’ qui tam lawsuit and two other lawsuits prompted the Office of Inspector General for the US Health and Human Services Department to issue a fraud alert last year.

OIG warned that “transfers of value from laboratories to physicians . . . present a substantial risk of fraud and abuse under the anti-kickback statute.”

Medicare already pays physicians for the work involved in processing lab specimens as a component of what they pay doctors for office visits.

“Paying doctors is a very effective – but illegal – strategy for medical testing labs,” Chatfield said. “When doctors can make thousands of dollars each month just by sending blood samples to certain labs, that extra money is hard to resist.”

The settlement amounts were limited to HDL’s and Singulex’s ability to pay, said Chatfield.

The two settlement agreements made public have contingency provisions that require each company to pay substantially more if its ability to pay improves in the next five years.

Phillips & Cohen filed the qui tam lawsuit against HDL, Singulex, Berkeley HeartLab and BlueWave on behalf of Dr. Mayes, an internist, in federal district court in South Carolina in 2011.

The lawsuit alleged violations of the False Claims Act – for  submitting claims for medically unnecessary services to government healthcare programs and claims that involved kickbacks – and the Stark Act, which prohibits referrals for medical services when there is a financial relationship between the doctor making the referral and the provider of the  services.

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