SmithKline pays $325 million to settle whistleblower lawsuits involving Medicare fraud

WASHINGTON, DC – SmithKline Beecham PLC has agreed to pay a total of $325 million to the federal government to settle three whistleblower lawsuits, brought by Phillips & Cohen, that charged the company’s clinical-laboratory unit defrauded the Medicare and Medicaid programs through various schemes, including deliberately overcharging the federal programs for blood tests, the government announced today.

The settlement is one of the largest ever paid involving Medicare fraud. It is also the latest in a string of settlements involving fraudulent billing practices by clinical laboratories. As a result of False Claims Act lawsuits and investigations, clinical laboratories have paid more than $800 million to settle various Medicare fraud cases in the past four years.

“Had these lawsuits not been brought, these fraudulent practices by the clinical labs industry would have continued and cost the U.S. Treasury billions of dollars,” said John R. Phillips, a Washington, D.C. attorney whose firm represented two whistleblowers who jointly filed a lawsuit against SmithKline.

The three whistleblower lawsuits against SmithKline were filed under the False Claims Act, which allows private citizens to sue companies that are defrauding the government. If a False Claims case is successful, the court can order the defendant to pay the government as much as three times the government’s losses plus $5,000 to $10,000 for each false claim.

In their lawsuits, the whistleblowers alleged that SmithKline Beecham Clinical Laboratories engaged in many fraudulent practices. These included billing Medicare for unnecessary blood tests that were not ordered by doctors and “unbundling” blood tests that Medicare requires be sold as a package and billing for them separately.

“These practices only served to enrich SmithKline at the expense of the Medicare program, which is going broke,” Phillips said.

The three lawsuits were filed under seal in separate federal courts and were consolidated in Philadelphia, where SmithKline has its U.S. headquarters. The False Claims Act requires that lawsuits be filed under seal, which means they aren’t available to the public, to give the government time to investigate and decide whether to join the case.

Jack Dowden and Kevin Spear, who formerly worked for another clinical laboratory in California, filed their lawsuit in San Francisco and were represented by Phillips & Cohen. Also named as a plaintiff in their lawsuit was Boalt Community Law Center, a nonprofit entity affiliated with the University of California Law School at Berkeley.

The False Claims Act encourages private citizens to report fraud by rewarding them with a share of whatever money the government recovers. In the SmithKline case, the whistleblowers’ share has not yet been determined by the court. Boalt will use its share to train law students to represent the interests of poor and minority residents of Berkeley and Oakland.

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

For more information, see the following news stories:

  • “SmithKline to pay $325 million to settle federal claims of lab-billing fraud,” Elyse Tanouye, The Wall Street Journal, 2/25/97.
  • “Drug firm to pay $325 million for overbilling,” The New York Times, 2/25/97.
  • “Lab pays U.S. $325 million for overbilling,” Roberto Suro, The Washington Post, 2/25/97.
  • “SmithKline to pay $325 million in whistleblower suit,” Shannon P. Duffy, The Legal Intelligencer, 2/25/97.
  • “Laboratory firm settles fraud case,” Mark Johnson, The Richmond Times Dispatch, 2/25/97.
  • “Drug firm pays $325m in fraud case,” Steven Findlay, USA Today, 2/25/97.
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