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Federal Court Issues $114M Judgement Against Lab Ex-CEO, Consulting Firm Founders in Kickback Case

NEW YORK (360Dx) – A South Carolina court has entered a $111 million judgement against the former CEO of a blood testing lab and two consultants accused of paying kickbacks to physicians disguised as lab processing and handling fees. An additional $3 million judgement was entered against the two consultants.

The defendants, LaTonya Mallory, ex-CEO of Health Diagnostics Laboratory (HDL), and Floyd Calhoun Dent III and Robert Bradford Johnson, owners of Alabama-based BlueWave Healthcare Consultants, were all found liable in January of Medicare fraud for violating the False Claims Act (FCA).

A jury found Mallory, Johnson, and Dent liable for causing the submission of 35,074 false claims, worth about $16.6 million, submitted to Medicare and Tricare by HDL. The jury also found Johnson and Dent liable for an additional 3,813 false claims, worth $467,935, submitted to Medicare and Tricare by Singulex. As provided by the FCA, the court trebled those damages and offset settlement payments from HDL and Singulex. The court also awarded an additional $63.8 million in penalties, for a total judgement of about $114.1 million. The judgment was entered by the United States District Court in the District of South Carolina.

During a two-week jury trial in Charleston, South Carolina, the government argued that defendants paid kickbacks of $10 and $17 to physicians for each patient they referred to the two labs. Prosecutors also presented evidence that the kickbacks resulted in physicians referring patients to HDL and Singulex for medically unnecessary tests, which were then billed to federal health care programs.

"The court's damages award in this case recognizes the seriousness of what these defendants did," US Attorney for the District of South Carolina Sherri Lydon said in a statement.

FBI Acting Assistant Director of the Criminal Investigative Division Chris Hacker said the FBI will continue to "aggressively investigate" such cases.

The claims resolved by the court's order originated from three lawsuits filed by Michael Mayes, Scarlett Lutz, Kayla Webster, and Chris Reidel under the whistleblower provisions of the FCA. BlueWave was also a defendant in the trial. The jury found the company not liable, while its two owners were found liable.

In 2015, HDL agreed to pay a total of $48.5 million and Singulex agreed to pay more than $1.5 million. HDL filed for Chapter 11 protection in June 2015, shortly after reaching the settlement agreement and subsequently sold its assets to True Health Diagnostics for $37.1 million.

Singulex filed a submission last November seeking 510(k) clearance for its single molecule counting Sgx Clarity system. Recent studies have highlighted the potential of high-sensitivity troponin testing using the system for the clinical care of patients in the acute setting as well as for risk assessment of more stable patients.