RURAL HOSPITALS AND REFERENCE LAB FRAUD

The Firm represents individuals and corporate entities as part of a nationwide investigation into suspected rural hospitals and reference lab fraud. The investigation is focused on rural hospital billing for drug testing of urine specimens performed by reference lab.s

The investigation involves more than $100 Million in supposed fraudulent claims for drug screen testing of urine specimens. The government’s theory of the reference lab fraud testing rural hospitals scheme is that  rural hospitals also known as critical access hospitals are reimbursed at a very high level for certain drug screen tests but the hospital can only bill for laboratory urine tests if (i) the hospital’s in house lab performs the test; (2) an outside reference lab performs the test on an urine specimen from an inpatient or outpatient of the rural hospital.

The Government’s investigation has resulted in several indictments. The rural hospital reference lab fraud investigation has also led to a bankruptcy proceeding in the Northern District of Florida involving adversarial actions to claw back certain monies the receiver believes were fraudulent transfers.

The investigation appears to involve the following:

Rural Hospital Control Group: The individuals and/or corporate entities involved in buying the assets of, or seizing control of, some of the distressed rural hospitals and who began developing relationships with reference laboratories for urine drug screen testing.

• Were urine drug screen tests performed by reference laboratories?
• Were urine specimens that were sent to a reference laboratory for testing derived from patients of the hospital (in-patient or out-patient)?
• Were urine specimens that were sent to the rural hospital performed by the laboratory at the rural hospital?

Laboratories: The reference laboratories that were performing urine drug screening (qualitative testing) and which were reimbursed by private payers such as Blue Cross Blue Shield.

• Were the urine drug tests, especially the qualitative testing, medically necessary tests or was the billing excessive?
• Did the laboratories enter into a “laboratory services agreement” and if so was the laboratory compensated by the rural hospital for tests performed by the laboratory?
• Were owners of the laboratories also owners of a drug treatment center (directly or indirectly)?
• Were owners of the laboratories also involved in the operations of the rural hospital sending the urine specimens to the reference laboratory?

Marketers: Marketing entities providing sales and marketing services for the laboratories by directing their sales efforts at sober homes or treatment centers with patients required to submit to urinalysis drug testing as part of their recovery.

• Were the marketers performing bona fide marketing services?
• Were the marketers paid based on the time devoted to marketing?
• Were they paid per test or paid a commission tied to the rural hospital or reference laboratories’ reimbursement from private payers?

Sober Homes and/or Treatment Centers: Owners and operators of treatment centers, drug rehabilitation and recovery organizations and sober homes.

• Was the treatment center sending urine specimens directly to the laboratory or were they sending the specimens to a rural hospital?
• If the treatment center was sending the specimens to a laboratory or a rural hospital was the laboratory or rural hospital located in the same state as the treatment center?
• Were the marketers paying the treatment centers to source patient urine specimens for laboratory testing?
• Was a sale force retained by the treatment center?
• Were the marketers hired as employees or retained as 1099 independent contractors?
• Were the marketers paid a commission or a per test fee?
• Who was the relevant decision-maker selecting the laboratory to which any of the urine specimens were sent?

Billing companies: Operators of billing companies performing the billing for claims submitted by the reference laboratories.

Despite the breadth of the investigation and the resources that the federal government has dedicated to the reference lab fraud investigation, there are numerous defenses to this investigation and there may be some jurisdictional obstacles also. Many of the claims were submitted to private payers which should not implicate the federal Anti-Kickback statute, but instead potentially implicates the wire fraud statute, the health care fraud statute, and the Travel Act. Any federal fraud statute requires proof beyond a reasonable doubt that the person specifically intended to defraud a health care benefit program. This is a heavy burden for the government to carry and clients can potentially raise several defenses including the good faith defense and/or an advice of counsel defense, where applicable. Moreover, if the case were to proceed to trial, federal courts often provide the jury with a specific defense instruction which is narrowly tailored to the specific client and the specific facts.

The Firm has substantial experience in representing individuals and corporations in health care fraud and kickback cases prior to an indictment and at trial.