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Settlement, Guilty Plea Reached in Separate Laboratory Fraud Cases

NEW YORK — The US Department of Justice announced during the past week developments in two laboratory fraud cases.

In one case, DOJ said on Friday that the owner of a defunct urine drug testing laboratory has agreed to pay more than $2 million to resolve the government's allegations that he violated the federal Anti-Kickback Statute (AKS).

In June 2019, the federal government filed claims asserting that Philip McHugh, a former owner of Charlotte, North Carolina-based Physicians Choice Laboratory Services (PCLS), had violated the AKS and caused PCLS to submit millions of dollars in false claims to Medicare.

The government alleged that between June 20, 2013 and October 26, 2015, McHugh participated in several kickback schemes including providing urine drug testing equipment to two physicians; paying volume-based commissions and a salary to an individual in exchange for that individual's influence over two physician practices; and the provision of loans to two doctors to induce the referral of urine drug testing to PCLS.

"This laboratory used prohibited financial instruments and giveaways to physicians for patient referrals," Derrick Jackson, special agent in charge at the US Department of Health and Human Services, Office of Inspector General in Atlanta, said in a statement. "Such quid pro quo arrangements are kickbacks that stifle competition and steer business to the company offering the inducements."

McHugh has agreed to pay $2,021,795.57 to resolve the government's allegations.

The settlement follows an announcement in December 2019 by the US Attorney's Office for the Western District of North Carolina, that Manoj Kumar, a former sales representative and manager at PCLS, paid $649,407 to resolve claims that he participated in schemes to induce doctors to refer patients to PCLS for medically unnecessary testing.

DOJ noted that the claims resolved were allegations only and that there had been no determination of liability.

On Monday DOJ also announced that Jeremy Richey, one of the operators of the Ark Laboratory Network, plead guilty to conspiracy to commit an offense against the United States in connection with a scheme to violate the AKS. Richey was charged as part of a case DOJ brought in 2019 against 35 people for allegedly billing Medicare over $2.1 billion for unnecessary cancer genetic tests.

The charges to which Richey plead guilty carry a maximum penalty of five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. His sentencing is scheduled for August 9, 2021.