Three laboratory bosses to pay $114-M for violations of False Claims Act, paying kickbacks

Cases separately brought to court by three whistleblowers in 2015 continue to generate significant financial recoveries for federal health care programs and considerable whistleblower awards for the relators that brought them. Last week, the United States District Court in the District of South Carolina entered judgment amounting to more than $111 million against LaTonya Mallory, Floyd Calhoun Dent III and Robert Bradford Johnson, plus more than $3 million against Johnson and Dent. As provided by the False Claims Act, the amount represented three times the amount the three individuals illegally profited by submitting their false claims. The Court trebled the damage amounts, offset settlement payments received from the laboratories that submitted the false same claims, and with the whistleblower award computations awarded $63.8 million in penalties as requested by the United States, for a total qui tam judgment of more than $114 million.

Last January, Mallory, Dent, and Johnson were found liable of violating the False Claims Act (FCA) when they paid physicians in exchange for patient referrals to their laboratories. The court found them in violation of the Anti-Kickback Statute and related to this, causing their laboratories to bill federal health care programs for medically unnecessary testing. This judgment followed at least two settlements separately inked in the case by other involved laboratories in recent years.

Based on government investigations and the cases brought by the whistleblowers, the government presented evidence showing these individuals paid physicians in exchange for referrals that benefited their laboratories through financial claims to Medicare and Tricare. The government said the remuneration came disguised as processing and handling fees of between $10 and $17 for each patient referred to the blood testing laboratories:  Health Diagnostics Laboratory Inc. (HDL), of Richmond, Virginia; and Singulex Inc., of Alameda, California.

Add to this, the government also showed evidence that the said kickback scheme resulted in physicians referring patients to HDL and Singulex for medically unnecessary tests, which were then billed to federal health care programs.

The judgment says Mallory, HDL’s former CEO, and Johnson and Dent, were liable for causing the HDL’s submission of 35,074 false claims, worth $16,601,591, to Medicare and TRICARE. The jury also found Dent and Johnson liable for an additional 3,813 false claims, worth $467,935, submitted by Singulex.

Also resolved through this court’s order were three lawsuits originally filed by Dr. Michael Mayes, Scarlett Lutz, Kayla Webster, and Chris Reidel under the qui tam, or whistleblower, provisions of the False Claims Act.  Under the FCA, private citizens can bring suit on behalf of the government for false claims and they can share in any recovery.

The False Claims Act permits the United States to intervene in and take over the whistleblower suit, as the United States partially did in the three consolidated actions against Mallory, Dent, Johnson, and others in August 2015.

How much of the recovery will go to the whistleblowers is not yet known as of this writing, but whistleblowers can recover up to 30% of the recovered funds, but generally settle in around 20% when the government intervenes.  A whistleblower recovery of 20% of $114 million still could be around $25 million dollars, a large whistleblower award for those that the courage to come forth and report these wrongdoings.

The government gave recognition to the whistleblowers and anyone who takes steps to help uncover similar cases of health fraud. In a statement from the Justice Department on Tuesday, May 29, Acting Assistant Director of the Criminal Investigative Division Chris Hacker vowed that “The FBI will continue to aggressively investigate allegations of criminal misconduct between companies and individuals who engage in kickback schemes at the expense of the U.S. government.”

“We recognize the importance of those who came forward and brought allegations to light and realize that we cannot do our work without the public’s help,” Hacker also said.

The cases are captioned United States ex rel. Mayes v. Berkeley HeartLab Inc., et al., Case No. 9:11-CV-01593-RMG (D.S.C.); United States ex rel. Riedel v. Health Diagnostic Laboratory, Inc., et al., Case No. 1:11-CV-02308 (D.D.C.); and United States, et al. ex rel. Lutz, et al. v. Health Diagnostic Laboratory, Inc., et al., Case No. 9:14-CV-0230-RMG (D.S.C.).