A multimillion dollar settlement paid by a Massachusetts drug test laboratory for an illegal kickback scheme is the latest chapter in an industry bedeviled by criminal investigations, lawsuits, finger pointing and ruthless competition. Calloway Laboratories agreed last week to pay $20 million to settle state charges that it defrauded Medicaid with a kickback scheme that included sham companies, fake doctor signatures, and excessive urine tests for drug addicts.
Calloway Labs was indicted by a Massachusetts grand jury in 2010 on charges that it bribed managers of sober living homes to have their tenants undergo excessive drug tests. The lab work went to Calloway Labs and was paid for by Medicaid, even though many of the claims were not authorized by physicians or used falsified doctor signatures. Massachusetts Attorney General Martha Coakley called it “one of the most egregious abuses of the Medicaid program our office has handled.”
Calloway Labs did not admit guilt in the settlement and a statement released by the company claimed the case grew out of “outdated practices” that it no longer uses.
Some of Calloway’s competitors would disagree.
“Certain companies continue to do it even though they know the rules, even though some companies were issued cease-and-desist letters, others received statements of deficiencies. And even though they know this is prohibited behavior, they continue to do it,” said Howard Appel, president of Millennium Laboratories, who says many labs use “smoke and mirrors” to skirt regulations and grab their share of a growth industry he estimates is worth $5 billion dollars.
Kickback Schemes “Rampant”
The Calloway settlement is the seventh resulting from Massachusetts’ investigation of drug test labs. Another national laboratory, Ameritox, agreed to pay $16.3 million in fines to the federal government to settle claims that it gave kickbacks to doctors. A whistleblower lawsuit filed by an Ameritox sales representative alleged the company made cash payments to physicians for drug test referrals and also placed personnel in doctors’ offices to collect urine samples for drug tests that were then billed to Medicare. Ameritox says its business practices have changed since the settlement.
According to a recent study, the number of drug screening tests billed to Medicare by family practice doctors soared from a few dozen in 2000 to over a quarter of a million tests by 2009. Many doctors who treat chronic pain patients require them to submit to random drug screens as a condition for receiving prescription pain medications.
“It’s rampant. What you see is a proliferation of labs opening up that in trying to get a foothold in the business will offer anything, say anything and do anything to try to induce physicians to getting their business. And what’s happened is that you have a lot of unsuspecting physicians being drawn into these fraudulent and illegal schemes unknowingly,” Millennium’s Appel told American News Report.
Ironically, Millennium itself was accused of using fraudulent billing codes in a whistleblower lawsuit filed by Calloway Labs. Millennium countersued Calloway for defamation. Calloway’s lawsuit was dismissed by a federal judge in February.
Nowhere is the competition between laboratories more intense than in Florida, where a state crackdown on pill mills and prescription drug abuse has turned urine test vials into a valuable commodity — “liquid gold” as some have called it.
In 2011, seven Floridians a day were dying of prescription drug overdoses. Over the past year, Florida’s Drug Enforcement Strike Force has made 2,150 arrests and seized nearly half a million pills. As a result, doctors and pharmacies in the state have drastically cut back on prescriptions for oxycodone and other painkilling opioids.
Millennium Laboratories, along with two other national drug test companies, Quest Diagnostics and LabCorp, want the state crackdown to go even further. They’re urging Governor Rick Scott to sign a bill passed by the Florida legislature that would toughen the rules against kickback schemes. Labs that lease space in a doctor’s office or pay “rent” to a physician in return for better access to patients would face fines of $5,000 and have their state licenses revoked after two violations.
“This legislation sends a clear message. Whether you are based in Nashville TN, Baltimore MD or Woburn MA, when you conduct business in Florida, you must play by the rules,” Millennium’s Appel said in a press release. “With this passage, flagrant violators are out of options. No longer will reckless laboratories be able to use these particular tactics in Florida to mislead unsuspecting physicians and put honest doctors and their patients at risk.”
Appel didn’t identify the “flagrant violators” by name, although there’s little secret who he is talking about. Calloway Labs is based in Woburn, Ameritox is based in Baltimore and Aegis Sciences Corporation is headquartered in Nashville. Aegis Sciences is under investigation in Florida for leasing space and placing its personnel in doctors’ offices, a violation of kickback rules set by the state Agency for Health Care Administration.
Quest and LabCorp are also under congressional investigation for a multi-billion Medicare scam, as recently reported in the trade publication The North Report. Quest and LabCorp allegedly gave kickbacks to insurance companies in the form of discounted lab fees. In return, the insurers encouraged doctors in their networks to refer all of their patients’ lab work to Quest and LabCorp, which then billed excessive charges to Medicare and Medicaid.
“These schemes are across a wide range of topics. It’s not just in Florida. It’s not just in California. It’s all over,” says Appel, who claims that unscrupulous labs around the country charge excessive fees, bill for tests not performed, give kickbacks to doctors and use false billing codes.
Appel is trying to clean up the industry by challenging his competitors to take the Clinical Laboratory Responsibility Pledge, a declaration of support for ethical business practices in the medical monitoring industry. Millennium is also promoting a “stakeholder summit” of pain management associations, regulators and other stakeholders. The summit will be chaired by Dr. Richard Payne, a Professor of Medicine at Duke University, who served as past chairman of the American Pain Society.
Appel says there’s more at stake than market share in a highly competitive industry — patient health care is also at risk.
“As you see an abundance of labs, the quality of the work varies… and that quality of work can impact patient reports and it could impact patient care. To think that every lab has the same quality is a fallacy,” says Appel.