How Can Healthcare Labs and Testing Companies Avoid Fraud Investigations?

The Department of Justice (DOJ) announced recently that it reached a $63.5 million settlement with pathology lab Inform Diagnostics related to allegations of False Claims Act (FCA) and Stark Law violations.  The government alleged that the company had illegally provided referral-source doctors with subsidies for electronic health records (EHR) systems and free or discounted technology consulting services.  The case, which developed out of a whistleblower complaint, was prosecuted as a civil matter with the coordination multiple DOJ offices, the Department of Health and Human Services (HHS) Inspector General, and the Federal Bureau of Investigation.

Healthcare fraud prosecution has unquestionably become big business for the government as well as private litigants/whistleblowers.  DOJ recovered $2.5 billion from healthcare-related FCA cases in FY 2018 alone, its ninth straight year exceeding the $2 billion mark.  In comparison, DOJ’s FCA recovery amount across all cases (that is, healthcare and others) in FY 2018 was $2.8  billion.  As in the Inform Diagnostics case, whistleblowers continue to play a major role in this area.  In FY 2018, whistleblowers filed 645 such actions, leading to $2.1 billion in recoveries.  What does this tell us?  The FCA has largely become a tool aimed directly and primarily at the healthcare industry, and private litigants increasingly play a leading role in this arena.

An important business component for most, if not all, healthcare labs and testing companies is physician-ordered testing.  What such companies can and cannot do within the various laws governing not just their businesses, but increasingly their business relationships, frequently feels like a moving target.  In discussing the Inform Diagnostics case, for example, DOJ noted that the Anti-Kickback Statute and the Stark Law restrict the financial relationships that labs and providers may have with referral-source doctors.  While regulations adopted by the HHS in 2006 allowed labs to provide EHR donations to physicians under certain conditions (which the government alleged Inform Diagnostics had not met), HHS withdrew those exemptions for labs in 2013.  As the line between good business and what the government labels “fraud” changes over time, lab and testing companies must remain well-advised in navigating the healthcare legal landscape.

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