By Jeffrey H. Brochin, J.D.
Even without pleading of who, what, where, and when details by relator, a phlebotomy company presumably knew how many blood tests were drawn by its independent contractor phlebotomists based on the per-patient draw fees paid to it under the scheme.
A federal district court in California has denied the motion to dismiss filed by a Florida phlebotomy company which did blood draws for a California cardio risk testing company. The court found that the relator’s allegations regarding a kickback scheme could be proven by way of the phlebotomy company’s own records of payments per blood draws. Furthermore, the company’s motion to dismiss claims that it violated California’s Insurance Fraud Protections Act (IFPA) were denied after the court found that the act did not apply only to conduct related to workers compensation insurance (U.S. v. Cardiodx, Inc., May 17, 2019, Orrick, W.).
Multi-pronged fraud scheme. A relator who was a salesman from 2010-2015 for Cardiodx, Inc. (Cardio), a cardiac disease risk testing company, filed a False Claims Act (FCA) (31 U.S.C. §3729 et seq.) complaint against his former employer as well as against Phlebotek Corporation, a Florida phlebotomy company that did blood draws for the testing, and several executives of the companies. The relator alleged that Cardio fraudulently sought reimbursement from the Medicare program for medically unnecessary, excessive, and ineffective cardiovascular tests known as Corus CAD tests. He asserted that Cardio developed and implemented several schemes to induce medical providers to refer business to it, including by way of: (1) fraudulently inducing Medicare Contractor Palmetto GBA to approve the Corus CAD test for Medicare payment by making false representations of Cardio’s “rule out” capability; (2) conspiring with Phlebotek to engage in an illegal kickback scheme by providing physicians and medical assistants illegal remuneration for submitting specimens to Cardio; (3) creating an illegal registry kickback scheme that provided physicians illegal remuneration for submitting patient data; (4) organizing unlawful “free screening days” for Medicare patients resulting in claims for medically unnecessary and excessive tests; and (5) providing unlawful kickbacks by waiving patients’ co-pays and deductibles.
Ineffective “rule out” statistics. The Corus CAD test was based on measuring the activity of specific genes in a patient’s blood that change when there is a significant narrowing or blockage of arteries. Cardio marketed the test as a “rule out” test used for CAD patients and it promoted use of the test for individuals to “rule out” the need for additional testing. It was billed to Medicare for upwards of $1,245.00, per test, however, only 20% of Medicare covered women were ever been ruled out for further tests by using Corus CAD and no man over 65 was ever been ruled out. Those statistics were not disclosed to the California Medical Association’s former Medical Administrator Contractor, Palmetto GBA, resulting in Palmetto GBA being fraudulently induced to extend Medicare coverage for the Corus CAD test.
Role of Phlebotek. Cardio allegedly conspired with Phlebotek to enter into sham phlebotomy contracts with physician offices where Phlebotek and Cardio sales representatives would sign up medical providers as independent contractors of Phlebotek so that they could receive compensation for every Corus CAD test they submitted. The relator contended that this was a sham designed to provide remuneration to physicians and their staff in exchange for Corus CAD orders: Phlebotek was paid a $25 draw fee per patient, from which it paid the independent contractors $19 for each test and kept the remaining $6. The scheme significantly increased Cardio’s business because Phlebotek draws accounted for 70% of Cardio’s business by 2014.
Company’s records “testify against them.” Phlobotek moved to dismiss claiming that the relator failed to allege sufficient facts as to the “the who, what, when, where, and how of the misconduct charged,” as required for pleading a claim. However, the court disagreed, finding that Phlebotek presumably knew how many Corus CAD tests its phlebotomists drew blood for because it was alleged to have been paid the above fees by Cardio. It also presumably knew the identities of its employees who signed up the phlebotomists and the identities of those who lined up at medical provider offices for purposes of drawing blood for the Corus CAD tests. Accordingly, the court ruled that there were numerous, plausible factual allegations that Phlebotek knowingly conspired with Cardio to violate the FCA through the alleged kickback scheme implemented through the actions of Phlebotek.
For the foregoing reasons, the court denied Phlebotek’s motion to dismiss the FCA claims against it.
The case is No.: 3:15-cv-01339-WHO.
Attorneys: Justin Theodore Berger (Cotchett, Pitre & McCarthy, LLP) for the United States and the State of California. Jeffrey Michael Berman (Jeffrey M. Berman, P.A.) for Phlebotek Corp.
Companies: Phlebotek Corp.; CardioDx, Inc.
MainStory: TopStory CMSNews AntikickbackNews FCANews FraudNews ProgramIntegrityNews QuiTamNews CaliforniaNews
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