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Judge Allows Whistleblower Suit Against Myriad Genetics to Proceed

This story has been updated to correct Bryan Dechairo's title and to clarify Vectra's inclusion in clinical practice guidelines.

NEW YORK – A US federal court judge has denied Myriad Genetics' attempt to dismiss a whistleblower lawsuit alleging that the genetic testing company engaged in misconduct and fraud.

Filed in 2016 but sealed until January, the suit alleges that Myriad and its wholly owned subsidiary Crescendo Bioscience engaged in two schemes to improperly induce the ordering of the Vectra test for rheumatoid arthritis. According to the complaint, Crescendo overpaid medical practices for blood draws and promised them the company would limit the cost to patients and would not pursue collection if those fees went unpaid. Moreover, Myriad and Crescendo allegedly defrauded the US and California governments by submitting these tests for payment and allegedly violated the California Insurance Fraud Prevention Act.

Myriad filed a motion to dismiss the case in April, saying the complaint contained "only threadbare allegations," among other reasons. But on May 23, Magistrate Judge Thomas Hixson of the US District Court for the District of Northern California denied that motion.

"It's an anti-kickback violation," said Justin Berger, an attorney at San Francisco-based firm Cotchett, Pitre & McCarthy, who is representing the whistleblowers. "Any claim for reimbursement that's tainted by kickbacks is subject to recovery under the False Claims Act." As a lawsuit filed under the False Claims Act (FCA), the whistleblower would be entitled to up to 25 percent of any settlement or damages recovered.

"We can't comment on ongoing litigation," Jared Maxwell, a Myriad spokesperson, said in an email. "We refer you to our [US Securities and Exchange Commission] filings for disclosures."

The Crescendo suit adds another wrinkle to Myriad's uneven history in commercializing the test it spent $270 million to acquire in 2014. The test uses multiple biomarkers to indicate disease activity in rheumatoid arthritis. Myriad successfully fought back against a 2016 Medicare proposal to stop reimbursing for Vectra and scored a 45 percent increase in reimbursement for the test in 2018 as a result of the Patient Access to Medicare Act. However, Myriad has had difficulty getting Vectra broadly accepted by private payors and while some care guidelines have included the test, the endorsements have not always been strong. For example, the American College of Rheumatology's 2020 clinical practice guidlines called the test adequate, but did not include it among five "recommended" measures of disease activity. Myriad hasn't seen consistent quarterly revenue growth from the test, let alone the major growth it envisioned years ago.

And the lawsuit presents yet another legal challenge for the Salt Lake City-based testing company. Last year, the firm settled a False Claims Act lawsuit that had alleged improper Medicare billing for $9.1 million (Myriad has denied it did anything wrong, and the settlement did not include an admission of wrongdoing).

Some Myriad investors have also filed a class action securities fraud suit in the US District Court for the District of Utah, alleging that the firm and its officials overstated the evidence supporting the efficacy of the GeneSight psychotropic panel, and that the firm had overstated hereditary cancer testing revenues. Former Myriad President and CEO Mark Capone; current Executive VP of Clinical Development Bryan Dechairo; and current Interim President, CEO, and CFO Bryan Riggsbee are listed as individual defendants. Myriad also lost the famous 2013 US Supreme Court Case that put an end to patents on endogenous human genes.

FCA Suits, also called qui tam suits, can be filed by a whistleblower, also called a relator, on behalf of the government. In the Crescendo case, the relator is STF, a limited liability company formed in California in 2015. "It's a small group of people who are in the industry and have direct knowledge of these issues," Berger said.

"Some people are skeptical of professional relators, because they don't fit the classic whistleblower definition," said David Engstrom, a law professor at Stanford University who has empirically studied qui tam suits and the types of relators that bring them. But, often the industry-specific information they have gives them insight into "where the bodies are buried or where they might be buried" he said.

The complaint implies that the relators have obtained communications between Crescendo's employees and their clients. Crescendo allegedly paid doctors $15 per blood draw, while Medicare reimbursement for the same procedure is $3. The firm's contract for payments for blood draws "goes to great lengths to describe this fee as 'fair market value' for the physician's work," the complaint said. "This is false. A $15 fee for the draw, processing, packaging and handling is notfair market value." [Emphasis in the original.]

The complaint also alleges that a Crescendo employee went out of their way to not include the out-of-pocket maximum cost to the patient in an email and instead sent a separate text message to say that amount was $25. Promising to not collect from patients might also induce doctors to order a test, Berger suggested. "Doctors aren't going to order expensive tests if their patients get a big bill. Writing them off is a way to keep doctors happy and keep them ordering tests," he said.

In its motion to dismiss the case, Myriad said the relators failed to support their allegations and did not "identify a single physician or Crescendo sales representative who allegedly took part in such a transaction, let alone describe a specific transaction or alleged kickback. Nor does it name a single specific test, a date on which such a test was administered or where it was administered, or the dollar amount of any transaction or alleged false claim submitted to the government."

Berger said he was "precluded from discussing" other evidence that supported the allegations. But these practices were once a widespread problem in the clinical lab industry, he said, until the Department of Health and Human Services and the Department of Justice cracked down. In June 2014, the HHS Office of the Inspector General (OIG) issued a fraud alert about laboratory payments to referring physicians, which included the issue of payments for blood draws.

"Most, if not all, labs have ceased the practice," he said. "My understanding is [Crescendo is] no longer paying packaging and handling fees. I'm unaware whether they continue to cap or waive patient fees."

While the timeline of Crescendo's allegedly tainted reimbursement submissions is unclear, the complaint said Myriad "profited from, participated in, and has been aware of Crescendo's fraud."

"Generally speaking, practices such as these are what you would expect to come out in the course of due diligence of an acquisition of that size," Berger said. "And the practices continued post-acquisition."

Myriad's most recent quarterly report disclosed the qui tam lawsuit. "The Company was not aware of the complaint until after it was unsealed," Myriad stated. Previously, the firm had disclosed that the HHS OIG had subpoenaed Crescendo "relating to entities that received payment from [Crescendo] for the collection and processing of blood specimens for testing, including a named unrelated company, healthcare providers and other third-party entities."

Myriad "intends to continue to vigorously defend against this action," the firm wrote, adding, "Due to the nature of this matter and inherent uncertainties, it is not possible to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss, if any." The complaint said the damages sustained by the US and California governments remain to be shown at trial; it also asks for the court to award attorneys' fees and costs.

Since defeating the Medicare proposal to stop reimbursement for Vectra, Myriad has seen its reimbursement rates go up, beginning in 2018, from about $590 to about $840 per test. In the most recent quarter, Vectra accounted for $10.5 million in revenues, which is representative of revenues from the test that Myriad has received since acquiring Crescendo.

Relators are entitled to up to 25 percent of the recouped money. The percentage drops if the US government joins the case against the defendant; however, in this case the DOJ and the State of California have declined to intervene.

And while cases where the DOJ joins are much more statistically likely to succeed, the fact that DOJ did not join doesn't mean the case is doomed to fail. "DOJ has a finite number of lawyers, usually," Engstrom, the Stanford professor, said. "There's some set of unintervened cases that are perfectly good."

Berger declined to name most of the individuals behind STF, though he confirmed that one of the whistleblowers is Chris Riedel, a clinical lab industry veteran who has already had success with a similar case. In 2012 he filed an FCA suit against his former employer, Boston Heart Diagnostics, which settled the case in November 2019 for $26.7 million. Berger also represented Riedel in that case.  Boston Heart did not admit to wrongdoing in the settlement, "but they paid millions," Berger said. "The numbers don't lie." And the Myriad suit is "almost a mirror image" of the Boston Heart suit, he said.