NEW YORK – The US Attorney's Office for the Eastern District of Kentucky said last week that a hospital, a laboratory, three lab employees, and a referring physician and his office manager have agreed to collectively pay more than $7.2 million to resolve lab fraud allegations.
The government alleged that New Albany, Indiana, hospital Physicians' Medical Center (PMC) operated a lab managed by now defunct United States Medical Scientific Indiana and that, through its lab manager's conduct, PMC violated the False Claims Act by submitting false claims for lab testing to Medicare, Kentucky Medicaid, and TRICARE from December 2016 to September 2018.
According to the government, PMC billed these payors 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 but used them only to monitor patient compliance with the conditions of their programs and with court orders. PMC submitted a total of nearly $3 million in false lab claims.
Lab employees Bobby Sturgeon and Derrick Arthur also entered settlement agreements to resolve their False Claims Act liability stemming from allegations that they arranged for test orders despite knowing that the tests were for nonmedical purposes.
Sturgeon is also alleged to have submitted similar false claims for medically unnecessary urine drug tests as a sales representative for Bluewater Toxicology, a Kentucky lab he worked for from October 2018 to July 2019. The government alleged that Bluewater submitted nearly $450,000 in false claims to Medicare and Kentucky Medicaid for urine drug tests referred by nonmedical entities. Bluewater and Sturgeon have entered into settlement agreements to resolve these claims, as well.
The government also alleged that Steve Moore, a laboratory sales representative for PMC and Bluewater Toxicology, paid a physician, Pablo Merced, and his wife and office manager, Theresa Merced, for referrals of lab tests to PMC and Bluewater Toxicology. Moore also paid additional salary to lab specimen collectors who worked at their office, and PMC also employed specimen collectors in Pablo Merced’s medical practice who were alleged to perform office work unrelated to their specimen collection duties. PMC, Moore, and the Merceds have entered settlement agreements resolving their liability for his scheme.
PMC’s settlement agreement also resolves its False Claims Act liability for claims for lab tests referred by medical providers at Kentucky medical practice Prescribe Recovery. According to the government, PMC’s lab manager, United States Medical Scientific Indiana, owned Prescribe Recovery and directed its medical providers’ referral of laboratory tests to PMC’s lab.
These civil settlements return more than $7.2 million to the Medicare, Kentucky Medicaid, and TRICARE programs. For their roles in the scheme as the laboratories submitting the false claims, PMC agreed to pay $5.2 million and Bluewater Toxicology agreed to pay $895,952. Sturgeon and Moore agreed to pay $713,466 and $40,000, respectively. Arthur agreed to pay $5,500, and Pablo and Theresa Merced collectively agreed to pay $450,000. Moore’s, Arthur’s, and the Merceds’ settlements included factoring in their inability to pay, based on financial disclosures.