Multimillion-Dollar False Claims Act Settlement Reached in Complex False Claims Act Case Involving Hospital, Clinical Lab and Individuals

Five individuals, a hospital, and a clinical lab will pay $7.2 million to resolve allegations they defrauded Medicare, Kentucky Medicaid, and TRICARE in a complex patchwork of laboratory schemes that violated the False Claims Act.

Two whistleblowers filed the original qui tam whistleblower case – former lab employees Tawnya Clark and Michele Hunter. The whistleblower law allows a private person, known as a qui tam relator, to prosecute a lawsuit for the government. If the government intervenes in the qui tam case and is successful, the whistleblower can collect 15 percent to 25 percent of the amounts collected by the government.

The False Claims Act Allegations

The case alleged that between December 2016 and September 2018, United States Medical Scientific Indiana, LLC, a now-defunct clinical lab, violated the False Claims Act by submitting false claims for laboratory services. Physicians’ Medical Center (PMC), a hospital in New Albany, Indiana, had a 22 percent ownership interest until October 2018, when it was sold.

The new owners were Bobby Sturgeon, previously a sales representative for PMC’s laboratory, Tyler Burke, Jennifer Bolus, and some silent investors. The lab’s name was changed to U.S. Medical Laboratory LLC. After PMC closed its laboratory in October 2018, Sturgeon became a sales representative for Bluewater Toxicology, a laboratory in Mount Washington, Kentucky.

The federal government alleged that the hospital (PMC) billed Medicare, Kentucky Medicaid, and TRICARE for urine drug tests referred by various entities – including a homeless shelter and peer-to-peer recovery centers – that did not use the test results for medical diagnosis or treatment.

These nonmedical entities only used the test results to monitor clients’ compliance with the conditions of their programs and with court orders. It was alleged that PMC submitted nearly $3 million in false claims to Medicare, Kentucky Medicaid, and TRICARE, for urine drug tests referred by these nonmedical entities.

It’s important to note that federal healthcare programs only pay for laboratory services for medical diagnosis or treatment.

Previous Settlement Agreement

Two lab employees also entered settlement agreements to resolve their False Claims Act liability, for causing PMC’s submission of false claims for lab tests from these nonmedical entities.

It was alleged that Sturgeon, a sales representative for PMC’s laboratory, knew these entities did not provide medical services, yet he pursued and worked with them as clients. Sturgeon benefited from these fraudulent sales practices because his salary was based, in part, on how much insurers paid PMC for his clients’ tests, including those from nonmedical entities.

Another Player

The government also alleged that alleged that another man, Derrick Arthur, one of the peer-to-peer recovery center’s directors, worked as a specimen collector for PMC’s lab and helped arrange for a volunteer doctor to order urine drug testing, even though he knew that the doctor did not provide medical treatment to the center’s clients. In doing this, Arthur facilitated the improper billing of laboratory tests to federal healthcare programs.

After PMC closed its lab in October 2018, Sturgeon became a sales representative for Bluewater Toxicology, a laboratory in Mount Washington, Kentucky. He then caused Bluewater to submit false claims for medically unnecessary urine drug tests, from the same peer-to-peer recovery centers and homeless shelter, through July 2019.

Like PMC, Bluewater knew that federal healthcare programs would not pay for urine drug tests used for nonmedical purposes but still submitted the claims for payment. In total, it was alleged that Bluewater submitted nearly $450,000 in false claims to Medicare and Kentucky Medicaid for urine drug tests referred by the nonmedical entities.

Bluewater, Sturgeon, and Arthur previously entered into settlement agreements resolving their liability.

Related Scheme

In a related scheme, Steve Moore, a laboratory sales representative for PMC and Bluewater Toxicology, allegedly paid a physician, Pablo Merced, and his wife and office manager, Theresa Merced, to induce referrals of laboratory tests to PMC and Bluewater Toxicology.

Moore paid cash to the Merceds as well as an additional salary to lab specimen collectors who worked at their office. PMC, through its lab manager, also employed specimen collectors in Dr. Merced’s medical practice, who were alleged to perform office work unrelated to their specimen collection duties.

Moore’s cash payments and the PMC lab manager’s in-kind payments to the Merceds violated the Anti-Kickback Statute. PMC and Bluewater submitted millions of dollars of claims to federal healthcare programs for the lab tests. PMC, Moore, and the Merceds have entered settlement agreements resolving their liability for the submission of the false claims tainted by kickbacks. In 2023, Merced lost his license to practice medicine.

PMC’s Settlement Agreement

PMC’s settlement agreement also resolved its False Claims Act liability for claims for lab tests referred by medical providers at Prescribe Recovery, a medical practice in Paris, Kentucky. The government alleged that PMC’s lab manager, U.S. Med Sci Indiana, actually owned Prescribe Recovery, and directed its medical providers’ referral of laboratory tests to PMC’s lab. As PMC’s lab manager, US Med Sci Indiana received 78 percent of the laboratory claim reimbursements paid to PMC, including the reimbursements from Prescribe Recovery.

PMC’s payment of 78% of laboratory reimbursements to US Med Sci Indiana induced them (as the lab manager) to direct Prescribe Recovery’s lab referrals to PMC, and violated the Anti-Kickback Statute.

The Defendants’ Share of the Settlement

For their roles in the laboratory False Claims Act scheme, PMC agreed to pay $5,219,000 and Bluewater Toxicology agreed to pay $895,952. Sturgeon and Moore agreed to pay $713,466 and $40,000, respectively, to resolve their liability. Arthur agreed to pay $5,500 to resolve his liability; and Dr. and Mrs. Merced collectively agreed to pay $450,000 to resolve their liability, under the False Claims Act and Dr. Merced’s liability for separate conduct under the Controlled Substances Act.

How We Can Help

This laboratory False Claims Act scheme involved a complex web of numerous players. Having an experienced team of healthcare fraud attorneys on your side is critical in such cases.

The Health Law Offices of Anthony C. Vitale has more than 30 years of experience handling whistleblower actions, False Claims Act violations, and matters relating to the Anti-Kickback Statute.

Call us at 305-358-4500 or email info@vitalehealthlaw.com to schedule your confidential consultation.