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Corning subsidiary pays $119 million and is barred from the Medicare program to settle fraud cases

Oct. 9, 1996 -- Damon Clinical Laboratories Inc., a wholly owned subsidiary of Corning Inc., has agreed to pay $119 million in criminal and civil fines to settle a case involving two whistleblower lawsuits and criminal charges. The whistleblowers and the government charged that the company had submitted false claims to Medicare and other federal insurance programs for laboratory tests that were not ordered and were not medically necessary.

Damon agreed to pay a criminal fine of $35.3 million and to pay the government $83.7 million to settle the whistleblower lawsuits.

As part of the settlement with the Justice Department, Damon, based near Boston, Mass., also has agreed to plead guilty to one count of conspiracy to defraud the government and has been permanently barred from participating in Medicare, certain other federal health insurance programs -- the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), the Railroad Retirement program and the Federal Employees Health Benefits Program -- and all state health-care programs.

Damon operated 13 regional laboratories around the country, and was alleged to have submitted fraudulent claims to Medicare and other programs from Jan. 1, 1998 to Sept. 1, 1993. It was acquired as a wholly owned subsidiary by Corning Inc. in August 1993. Corning consolidated Damon's operations into those of its subsidiary, Corning Clinical Laboratories Inc., which is not affected by Damon's exclusions from federal and state health-care programs.

The settlement wraps up a lawsuit that was brought by Jack Dowden and Kevin Spear against Damon, Corning (formerly known as MetPath) and Unilab Corp. of Tarzana, Calif. Dowden and Spear, who were sales representatives of a former MetPath subsidiary in California, charged the three national medical laboratories defrauded the federal and state governments by billing them for basically worthless and unnecessary tests. Corning paid $6.9 million last month to settle the case. Unilab agreed to pay $4.1 million.

"The national medical laboratories have been draining hundreds of millions of dollars from the Medicare program and federal treasury by billing the government for tests that doctors didn't want and patients didn't need," said John R. Phillips, a Washington, D.C. attorney who represented Dowden and Spear. "This and other False Claims Act cases will help slow the hemorrhaging of the Medicare program."

Dowden and Spear's lawsuit was tied to a separate one brought against Damon by another whistleblower alleging similar false billing claims. The $83 million settlement closes both cases. The lawsuits were filed under the False Claims Act, which allows individuals to sue companies that submit false claims to the federal government. The government is entitled to as much as three times the damages.

The False Claims Act encourages private citizens to report fraud by rewarding them with 15 percent to 30 percent of whatever money the government recovers. In this case, Dowden and Spear will split the minimum reward for the $9.8 million the government recovered as a result of their lawsuit and assistance.

The lawsuits had been under seal and not available to the public while the government investigated. Dowden and Spear's lawsuit was filed in California in January 1995 and transferred to New Jersey. The Damon portion of their case was then transferred to Boston.

Dowden and Spear alleged that whenever a doctor ordered a standard blood test, known as a "complete blood count" (CBC), Damon billed Medicare and other insurance programs for additional evaluations known as CBC indices. The government also charged that Damon routinely tacked on unnecessary tests when doctors ordered serial multichannel automated chemistry (SMAC) tests and billed Medicare and other insurance programs separately for them. The company did not bill doctors for these tests, and they were unaware that the federal government and state health programs were paying for them.

States that are participating in the case will split $2.8 million of the $83 million settlement for reimbursement of false Medicaid claims. Damon submitted false claims to Medicaid programs in 27 states: Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Maine, Massachusetts, Michigan, Missouri, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, and Wisconsin.

Damon's settlement is among the largest Medicare settlements ever made. The largest so far under the whistleblower provisions of the False Claims Act was paid by National Health Laboratories Inc., which paid $111.4 million in Dec. 1992 to settle a similar lawsuit also brought by Phillips' firm. NHL pleaded guilty to two felony counts, and its former president served three months in prison.

"NHL and other whistleblower lawsuits have sparked federal investigations that have helped clean-up the medical lab industry and strengthen the Medicare program," said Phillips. "Those lawsuits have proven how effective the False Claims Act can be in helping the government fight fraud."

For more information about Phillips & Cohen's record, see P&C's Successful Whistleblower Cases.

For more information, see the following news stories:

  • "Corning to pay $119 million to settle a case of Medicare billing by Damon," Paulette Thomas, The Wall Street Journal, 10/10/96.
  • "Needham lab fined $119 million for fraud," Kimberly Blanton, The Boston Globe, 10/10/96.
  • "Blowing the whistle has big rewards," Tina Cassidy, The Boston Globe, 10/10/96.
  • "Corning will plead guilty to Medicare fraud," Milt Freudenheim, The New York Times, 10/10/96.
  • "Whistleblowers were 'disgusted' by scam," The Boston Herald, 10/11/96.
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