Clinical Laboratory to Pay $43 Million to Resolve FCA Liability for Medically Unnecessary Tests; Settlement Demonstrates Importance of Addressing Employee Compliance Concerns

A specialty laboratory recently agreed to pay up to $43 million to resolve FCA claims based on allegations raised internally and later in a whistleblower complaint filed by its former Chief Medical Officer (CMO). The defendant, Genova Diagnostics Inc. (“Genova”), provides laboratory testing services focused on potential interactions between the environment and the gastrointestinal, endocrine, and immune systems.  The tests are used by functional medicine specialists to help develop treatment regimens.

The settlement resolves relator’s claims that Genova caused claims to be submitted for lab tests that were medically unnecessary, both because there was a lack of clinical evidence to support the validity of the tests and because the requisition forms the lab used required physicians to order a battery of tests without allowing only the medically necessary tests to be selected. The complaint also alleged that the lab used improper or misleading Current Procedural Terminology (CPT) codes, as the tests were ultimately experimental or investigational, and were not actual testing for an infectious agent. As alleged in the complaint, the whistleblower submitted a memo summarizing his concerns to Genova’s Board members and the Compliance Hotline in December 2016, a full year before he ultimately filed his complaint in the matter.  Notably, the settlement agreement states that the Covered Conduct nonetheless persisted until 2019.

The settlement also resolves allegations, not raised in the qui tam complaint, that the lab improperly billed for certain unbundled services and that it violated the physician self-referral prohibition of the Stark Law through three phlebotomy agreements that created compensation arrangements between Genova and the referring physicians and immediate family members of referring physicians who owned the phlebotomy vendors.

The settlement factors in Genova’s ability to pay, requiring Genova to pay approximately $17.4 million of the $43 million total now and up to $26 million over the next five years, based on a percentage of Genova’s annual revenue.

The Department of Justice long has prioritized enforcement against laboratories and other providers that bill for services deemed medically unnecessary, and this settlement is a reminder of this focus – one that is sure only to intensify as the Department’s COVID-19-related enforcement efforts ramp up.  It also is a reminder that internal compliance concerns should be diligently investigated and concerns remediated.

A copy of the unsealed complaint can be found here.