Medical lab kickbacks cost ex-CEO, others $114 million in whistleblower case

May 24, 2018, CHARLESTON, SC – A federal judge in South Carolina issued an order of judgment Wednesday that imposes civil damages and penalties totaling more than $114 million on the former CEO of a medical testing lab and two owners of the lab’s marketing partner for violations of the False Claims Act.

The order follows a jury trial in Charleston, SC, that found the defendants guilty of civil fraud against Medicare and other federally funded healthcare programs. The verdict and the judge’s order were the outcome of three separate “qui tam” (whistleblower) cases brought and litigated together – including one brought by Phillips & Cohen LLP on behalf of Dr. Michael Mayes of Hilton Head, SC.

Judge Richard Gergel ordered the defendants – Tonya Mallory, the former CEO of Health Diagnostic Laboratory (HDL) in Richmond, VA, and Floyd Calhoun Dent III and Robert Bradford Johnson, who are the owners of BlueWave Healthcare Consultants Inc. (BlueWave), an Alabama marketing company – to pay more than $111 million in treble damages and penalties for fraud relating to HDL’s arrangement with BlueWave to market HDL blood tests in part by offering illegal kickbacks to physicians who ordered the tests.

The scheme involved paying doctors illegitimate $20 processing and handling fees for ordering the unnecessary tests. HDL submitted 35,074 false claims to the government as part of this scheme.

BlueWave owners Dent and Johnson were additionally found liable in a related kickback scheme, which paid a $10 processing and handling fee to physicians to encourage them to order unnecessary tests at another specialty blood lab, California-based Singulex Inc. That scheme resulted in the submission by Singulex of another 3,813 false claims to federally insured healthcare programs that cost the government $467,935. Dent and Johnson were assessed an additional $3 million in damages and penalties for this scheme.

The whistleblowers and government alleged that the three executives conspired to knowingly and willfully pay kickbacks to doctors in the form of unwarranted processing and handling fees for blood draws and testing referrals, incentivizing doctors to order unnecessary, expensive cardiovascular blood tests for federally insured patients.

The jury assessed the defendants single damages totaling in excess of $17 million. Under the False Claims Acts, those damages are automatically trebled, meaning the total combined liability of the defendants amounts to $51.2 million plus the approximately $78.5 million in civil penalties announced Wednesday. The amount of the penalties was calculated by imposing a $5,000 penalty, as assessed under the False Claims Act at the time of the earliest misconduct, to 11,600 of nearly 39,000 false blood lab claims for reimbursement that the defendants were found by the jury to have caused the government to pay.

Working together, the whistleblowers from all three qui tam cases and their respective counsel helped the government investigate their overlapping claims, reach settlements with other defendants, and ultimately bring them to trial.

Phillips & Cohen partner Peter Chatfield commended Dr. Mayes and the other whistleblowers for their efforts to stop the fraud.

“Dr. Mayes’s strong sense of ethics compelled him to speak up, at a cost to his relationships with other doctors who had been enriching themselves by accepting the unlawful payments,” Chatfield said. “Dr. Mayes brought this case out of concern for Medicare patients, knowing that healthcare fraud can drive up Medicare premiums and Medicare costs, putting patients at risk of cuts in Medicare-covered services.”

More information about this case and the jury trial is available here.

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