2 Labs Agree to Pay $39.8 Million in Fraud Case

Two of the nation’s largest clinical laboratories, including a unit of Tarzana-based Unilab Corp., have agreed to pay the federal government $39.8 million to settle charges that the labs filed thousands of false Medicare claims for unnecessary blood tests, the Justice Department announced Monday.

The settlement, under which the Unilab unit will pay $4.8 million, is the latest development in the federal government’s heightened crackdown against health care fraud. Several firms--including Unilab, Southern California’s largest medical testing firm--announced last month that they might receive subpoenas as part of a federal probe of Medicare fraud.

The settlement resolves a whistle-blower lawsuit originally filed under seal in Los Angeles federal court 2 1/2 years ago by a former employee of one of the two companies. Last December, it was disclosed that La Jolla-based National Health Laboratories, also a target of the suit, had agreed to pay the government $111.4 million to resolve allegations that it billed Medicare and Medicaid for unnecessary tests, including one that measures HDL, a form of cholesterol.

At that time, the government did not divulge that fraud suits were still pending against Tarzana-based Metwest, a subsidiary of Unilab, and Metpath of Teterboro, N.J., a unit of Corning Inc., the two companies that settled Monday.

Attempts to reach attorneys for the companies for comment were unsuccessful.

The suit was filed by C. Jack Dowden, a former sales manager for Metwest. Dowden, while competing for accounts against National Health Labs and Metpath, discovered that both labs were including an HDL test in their basic blood chemistry screening exam but were billing Medicare separately for it without telling doctors, according to the case filed by Hall & Phillips, a West Los Angeles law firm.

When Metpath acquired parts of the Metwest system in early 1990, Dowden became concerned that his lab would soon be forced into fraudulent conduct as well, said Mary Louise Cohen, one of his attorneys.

“In an attempt to prevent his employer from forcing him to engage in fraudulent marketing practices, Dowden contacted criminal investigators with the U.S. Department of Health and Human Services and told them that National Health Laboratories was charging the U.S. for thousands of unnecessary tests daily, at a cost of millions of dollars,” she said.

Shortly thereafter, Metwest added the HDL test to its basic blood chemistry panel of tests, without a corresponding price increase for most doctors. However, Medicare paid about $12 more for the added test. Additionally, the company’s new order forms, like those of the other firms, made it difficult for doctors to order only the basic blood series, known as a SMAC, or serialized multichannel automated chemistry.

Soon, the number of HDL tests ordered by doctors for Medicare patients served by Metwest’s Tarzana facility skyrocketed. In the past, doctors ordered them only 8% of the time a SMAC was ordered; that figure rose to 89%.

Dowden resigned and filed suit under the Federal False Claims Act, which permits a private party to act on behalf of the government. Under terms of the settlement, Dowden will receive 15% of the total $150 million recovered from the three companies--about $21 million.

“The successful resolution of this case shows once again that the False Claims Act is a powerful weapon in the war against health care fraud,” said John R. Phillips, Dowden’s co-counsel.

Assistant Atty. Gen. Frank W. Hunger, who heads the Justice Departments’s civil division, said the case is part of “the government’s continuing effort to investigate and vigorously prosecute independent blood laboratories and other health care providers that abuse or defraud the federal health care system.”