Diagnostic Testing Company Settles False Claims Act Case Filed by Whistleblower

Exposing fraud in diagnostic companies

Exagen, a California-based life sciences company that makes diagnostic tests for the treatment of autoimmune conditions, recently settled allegations, filed by a whistleblower, that it violated the False Claims Act by paying physicians to use its laboratory tests.

The Settlement Agreement

The agreement called for Exagen to pay $653,143. The case was brought under the qui tam provisions of the False Claims Act. Qui tam allows private citizens to file lawsuits on behalf of the government if they know of an individual or company defrauding the government. The case, United States, et al., ex rel. Omni Healthcare, Inc. v. Exagen, Inc., was filed in June 2021.

Whistleblowers Play Important Role

Whistleblowers are eligible to receive between 15 and 30 percent of the government’s recovery. In this case, the whistleblower is set to receive 16% or approximately $104,000. This case, and other such qui tam cases, highlight the vital role that whistleblowers play in holding healthcare companies accountable.

According to the settlement agreement, Exagen agreed to factual admissions that it paid some referring physicians to complete blood draws for patients as part of specimen processing agreements that Exagen entered into with those physicians.

Exagen’s Actions Led to FCA Claims

Exagen billed federal healthcare programs, including Medicare, for tests that it performed after receiving orders from the referring physicians to whom it paid the specimen processing fees. Exagen did so even after becoming aware of a June 25, 2014 Special Fraud Alert from the Department of Health & Human Services’ Office of the Inspector General that warned laboratories that paying referring physicians specimen processing fees could present a substantial risk of fraud and abuse.

The Special Fraud alert focused on two types of payment arrangements: blood-specimen collection, processing, and packaging arrangements and registry arrangements.

Characteristics of a Specimen Processing Arrangements

Characteristics of Specimen Processing Arrangements that may be evidence of such unlawful purpose include, but are not limited to, the following:

  • Payment exceeds fair market value for services rendered by the party receiving the payment.
  • Payment is for services for which payment is also made by a third party, such as Medicare.
  • Payment is made directly to the ordering physician rather than to the ordering physician’s group practice, which may bear the cost of collecting and processing the specimen.
  • Payment is made on a per-specimen basis for more than one specimen collected during a single patient encounter or on a per-test, per-patient, or other basis that takes into account the volume or value of referrals.
  • Payment is offered on the condition that the physician order either a specified volume or type of tests or test panel, especially if the panel includes duplicative tests (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information), or tests that otherwise are not reasonable and necessary or reimbursable.
  • Payment is made to the physician or the physician’s group practice, despite the fact that the specimen processing is being performed by a phlebotomist placed in the physician’s office by the laboratory or a third party.

What is a Registry Arrangement?

Registry Arrangements may take various forms. However, they typically involve payments from laboratories to physicians for certain specified duties, including, by way of example only, submitting patient data to be incorporated into the Registry, answering patient questions about the Registry, and reviewing Registry reports.

Registry Arrangements may induce physicians to order medically unnecessary or duplicative tests, including duplicative tests performed for the purpose of obtaining comparative data, and to order those tests from laboratories that offer Registry Arrangements in lieu of other, potentially clinically superior, laboratories.

OIG recognizes that whether any particular Registry Arrangement violates the Anti-kickback statute depends on the intent of the parties to the arrangement. Payments from a laboratory to a physician to compensate the physician for services related to data collection and reporting may be reasonable in certain limited circumstances. However, the Anti-kickback statute prohibits the knowing and willful payment of such compensation if even one purpose of the payments is to induce or reward referrals of federal healthcare program business.

Characteristics of a Registry Arrangement that may be evidence of such unlawful purpose include, but are not limited to, the following:

  • The laboratory requires, encourages, or recommends that physicians who enter Registry Arrangements perform the tests with a stated frequency (e.g., four times per year) to be eligible to receive, or to not receive a reduction in, compensation.
  • The laboratory collects comparative data for the Registry from, and bills for, multiple tests that may be duplicative (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or that otherwise are not reasonable and necessary.
  • Compensation paid to physicians pursuant to Registry Arrangements is on a per-patient or other basis that considers the value or volume of referrals.
  • Compensation paid to physicians pursuant to Registry Arrangements is not fair market value for the physicians’ efforts in collecting and reporting patient data.
  • Compensation paid to physicians pursuant to Registry Arrangements is not supported by documentation, submitted by the physicians in a timely manner, memorializing the physicians’ efforts.
  • The laboratory offers Registry Arrangements only for tests (or disease states associated with tests) for which it has obtained patents or that it exclusively performs.
  • When a test is performed by multiple laboratories, the laboratory collects data only from the tests it performs.
  • The tests associated with the Registry Arrangement are presented on the offering laboratory’s requisition in a manner that makes it more difficult for the ordering physician to make an independent medical necessity decision regarding each test for which the laboratory will bill (e.g., disease-related panels).

Physicians Can be Liable Too

It’s important to note that not only are laboratories at risk, but because the Anti-kickback statute ascribes criminal liability to parties on both sides of a “kickback” arrangement, physicians who enter specimen processing arrangements with laboratories also may be at risk under the statute. Incentivizing physicians to refer patients for laboratory tests can compromise the integrity of healthcare decisions and may result in fraudulent billing practices.

In Need of Help?

When a healthcare company faces such charges, it can be viewed as an opportunity to review and strengthen compliance policies, so that in the future its operations comply not only with the law, but also with ethical standards.

The Health Law Offices of Anthony C. Vitale can assist clients in developing compliance policies to avoid violations of healthcare laws and regulations. We also extensive experience in the areas of fraud and abuse defense and can assist you in the event you find yourself at the other end of a healthcare fraud investigation. Give us a call at 305-358-4500, or send an email to info@vitalehealthlaw.com and let’s discuss how we might be able to assist you.

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