On January 8, the Department of Justice announced the ex-owner and CEO of a Virginia-based medical laboratory agreed in Ohio federal court to pay up to $3.75 million to the federal government to settle allegations he directed facilities to bill Medicare and Medicaid for unnecessary cancer detection tests and provided kickbacks to physicians in violation of the False Claims Act. This settlement is a clear indication that the DOJ’s implementation of the policies outlined in the Yates Memo will be a significant piece of the enforcement landscape going forward.

Dr. David Bostwick, who served as owner and CEO of the Virginia based Bostwick Laboratories, was charged with directing his business to bill Medicare and Medicaid for unnecessary bladder cancer tests, among others, bringing in $456 to $966 per test. He is also accused of providing discounts or billing arrangements to physicians who would refer patients to the lab, in violation of the federal Anti-Kickback Statute. Dr. Bostwick did not admit liability as part of the settlement.

A qui tam suit was filed by the president of a competitor lab in 2008, alleging Bostwick directed the laboratories to bill the government health programs for bladder cancer tests known as Fluorescent In Situ Hybridization (“FISH”) tests, without the medical need and either consent or order from the patient’s treating physician. The relator alleged that the lab reflexively performed FISH tests on patients presenting for urine cytology and performed both the technical and professional components of the test but allowed physicians to bill for the professional component.  The lab also allegedly reduced the charges to physicians for the technical component of the FISH test and then billed Medicare for a higher amount and offered incentives for physician referrals. The government declined to intervene in 2011 but assisted with the settlement. Bostwick Laboratories agreed in August 2014 to pay more than $6.5 million to settle the lawsuit. Whistleblower Michael Daughtery received more than $2.5 million from the settlement.

“This case shows that the department will not hesitate to hold accountable both the companies and the individuals who order or perform excessive, non-patient specific tests and provide inducements to physicians that lead to unnecessary costs being imposed upon our nation’s health care programs,” Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, said in a statement.

For further information on the subject matter of this alert, please contact the following FisherBroyles attorneys:

Brian E. Dickerson

Nicole Hughes Waid

Anthony J. Calamunci