Printer Friendly

Tighter lab scrutiny foreseen after fraud settlement of $111 million.

EXACTLY what constitutes "commonly accepted" laboratory marketing practices is undergoing close analysis following a record settlement in a diagnostic testing fraud suit.

In December, La Jolla, Calif.-based National Health Laboratories (NHL) pleaded guilty to two felony counts of presenting false claims to the Civilian Health and Medical Program for the Uniformed Services (CHAMPUS), for which it will pay a $1 million fine. To settle a civil suit also brought by the Justice Department, the referral lab chain also agreed to pay $100 million to Medicare and $10.4 million to various Medicaid programs. The total of more than $111 million is the largest recovery ever to come from a health care fraud settlement.

One of the most striking aspects of the case is that the two-year investigation in San Diego was set in motion by the former sales manager of a competing California laboratory. That employee, C. Jack Dowden, claims he went to the Government in order to stop his own company from engaging in the same practices that landed NHL in trouble. His tipoff will have repercussions far beyond the NHL case because Federal investigators are now hot on the trail of what they perceive to be an industrywide problem.

At issue in the case was whether NHL defrauded the Government by maneuvering doctors into automatically ordering two additional blood tests as part of the frequently requested SMAC chemistry profile.

According to Justice officials, NHL revised its order forms in 1987 to include the high-density lipoprotein (HDL) cholesterol test in the SMAC series. In 1989 it added the serum ferritin test. Prosecutors say doctors were told they could not order the profile without the extra tests, even if they were not wanted or needed.

The lab company charged doctors only about 65 cents each for the additional tests, and in some instances waived even that small amount if the physicians or their patients protested. What doctors apparently did not know was that the company was billing Medicare and Medicaid separately for the cholesterol and ferritin tests, roughly tripling the charge for a SMAC to about $54.

Federal officials said that by 1989 NHL was performing about seven million of the test packages per year. They report that in 1988 Medicare paid the company about $500,000 for ferritin tests. By 1990, program payments topped $31 million.

Despite the guilty pleas and agreement to settle, NHL denies interfering with the discretion of physicians who ordered the tests. A statement from the company said it performed the tests "believing they are necessary for a full diagnostic evaluation, are medically sound, and are supported by a wide and growing consensus of the medical and scientific communities."

Indeed, the company maintains it was only following "the common industry practice of marketing a combination of tests as one basic profile." And that's what has Federal investigators up in arms.

Officials said they are continuing to investigate the billing and marketing practices of other laboratories as part of an ongoing crackdown on health care fraud and abuse. According to William Braniff, the U.S. Attorney for the Southern District of California who handled the case, practices similar to those engaged in by NHL are "industrywide."

Such marketing schemes, he said, are "a primary reason" for the escalation in lab and other health costs. "This is not a case where National Health billed for tests that were not performed or tests performed in a fraudulent manner," Braniff explained. "Instead, National Health sought to subvert the medical judgment of doctors who were ordering the tests."

In conceding that separate pricing levels for physicians and third-party payers or patients is not illegal, the Government's case hinges on an implied misrepresentation of the physician order form. In this instance, Government programs paid the lab charges believing the physicians had ordered all of the tests for sound medical reasons.

As part of the NHL settlement, company President and Chief Executive Robert E. Draper pleaded guilty to two counts of presenting false claims. He has resigned his position and now faces a $500,000 fine and a maximum of 10 years in prison. Last July, a San Diego news report ranked Draper second among the area's highest paid executives, with a 1991 compensation package reported to be $1.4 million.

For its part, NHL, one of the nation's largest lab chains with recorded earnings of $104 million in 1991, said the settlement would not have "a material adverse impact" on future operations. Under the agreement, the company is not barred from being reimbursed by publicly funded insurance programs.

In a statement, NHL announced it would take a "special one-time after-tax charge to earnings of approximately $82 million, or $0.87 per share" for the fourth quarter of 1992. NHL is a former unit of Revlon, Inc., and is still 22%-owned by Revlon Chairman Ronald O. Perelman.

NHL will also be able to spread out its repayments. The Justice Department said $35 million was due at the end of last year, another $30 million by March 31, and the balance by the third quarter of 1995. An NHL spokesman further said the $110.4 million in combined state and Federal repayments are believed to be tax deductible, and therefore may cost the company only $82 million.

The NHL case was virtually as compelling for its human drama as for the size of the landmark settlement. And it suggests that crime does pay--at least for the whistle-blower who detects it.

Dowden, the former sales manager of the competing California lab, first became suspicious when he found himself losing business to NHL. At a loss to explain how NHL could offer HDL cholesterol and serum ferritin at little or no extra charge, Dowden asked his doctor to draw a sample of his blood and send it to NHL.

The bill from NHL charged Dowden for the additional tests, which he said confirmed his suspicions that, unknown to doctors, NHL was billing some private customers and the Government separately. Dowden deduced that by earning extra money from Medicare and Medicaid, NHL was able to cut the price of blood tests to physicians who were billed directly, thereby gaining a bigger market share.

Dowden, who has left the lab industry, first reported his discovery to the Health and Human Services Department in early 1990. He subsequently filed a civil suit, which was taken up by the Justice Department, under the False Claims Act. That Federal statute was strengthened by Congress in 1986 to allow individuals with knowledge of fraud against the Government to file such suits.

The law also entities the whistle-blower to collect 15% to 25% of a settlement, in this case $15 to $25 million. Dowden's attorney, John R. Phillips, has successfully filed three other such cases, though he says the money is sometimes hard to collect and is uncertain how much his client might eventually receive.

Dowden says he sought help in Washington because he was under pressure from his supervisor and didn't want to see his own company match NHL's practices. Ironically, the company, which the Justice Department declines to identify, eventually did so over Dowden's protests.

"I went to the Government investigators myself to stop my own company from doing it," Dowden told the New York Times. "I thought it was wrong. It's fraud. I had arguments with my supervisor that we would be crazy to do it."

There was no word as to whether Dowden's ex-employer is currently the subject of Federal investigation.

Death knell for HCFA?

It's being speculated that changes sought by the Clinton Administration could spell the end of the agency that many in the laboratory community love to hate. Based on President Clinton's campaign statements and past initiatives by Congressional Democrats, observers say a major shakeup at HHS is possible.

The first involves Medicaid, the program with $85 billion in Federal outlays supplemented by state funds. The architects of Clinton's health care policy hope the program is abolished in favor of enrolling the poor in the competitive medical plans envisioned for other citizens.

The second change calls for abolishing the Health Care Financing Administration (HCFA) as principal authority over the $145 billion Medicare program. Again, it is hoped more beneficiaries will be enrolled in competitive medical plans for basic health care coverage, perhaps leaving Medicare free to focus on long-term care insurance. It has been suggested that the program itself could be administered by some other agency outside HHS.

The changes, if any, will come on the watch of Donna Shalala, former chancellor of the University of Wisconsin-Madison. At this writing, it was expected Shalala would survive Congressional questioning and be confirmed as Secretary of HHS.

Analysts have praised Shalala as a strong administrator, although some question her depth of experience in health issues. It does appear she will initially be involved more with poverty and welfare than health care finance. Her short-term agenda includes an expansion of the Head Start preschool program, child immunization and health services, AIDS research, and national science and technology policy.

In the meantime, HCFA continues to plod ahead with such tasks as implementing CLIA '88. Among recent activities, the agency has expanded its list of approved private and state proficiency testing programs.

The list now includes the American Association of Bioanalysts, American Society of Internal Medicine, College of American Pathologists, American Association for Clinical Chemistry, American Academy of Family Physicians, American Proficiency Institute, American Thoracic Society, and California Thoracic Society. Also approved are the state health department programs in New York, New Jersey, and Idaho.
COPYRIGHT 1993 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Washington Report; National Health Laboratories Inc.
Author:Albertson, David
Publication:Medical Laboratory Observer
Article Type:Column
Date:Feb 1, 1993
Previous Article:Templates for generating Levey-Jennings and Westgard QC charts.
Next Article:Patient records: what to save, how to save it, how long to save it.

Related Articles
Congress expanding scrutiny of clinical labs.
The growing crackdown on laboratory fraud and abuse.
Judge rejects key IG arguments in kickback case.
A look at physician-owned labs.
Familiar issues await lab industry in '97.
HCFA marshals CLIA surveyors in anti-fraud campaign; FDA hands out CLIA waivers.
Lab industry and others take on False Claims Act.
Medicare, government regulation, and competency certification.
A brief history of medical diagnosis and the birth of the clinical laboratory.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters