Lab to Pay $182 Million in Fraud Case

The world’s largest clinical laboratory company agreed Thursday to pay a $182-million penalty for billing for unnecessary blood tests--the biggest settlement yet in the federal government’s crackdown on fraud in the multibillion-dollar medical laboratory industry.

Laboratory Corp. of America, based in Burlington, N.C., agreed to the payment to settle accusations that the three laboratories that merged to form LabCorp had defrauded Medicare, Medicaid and insurance programs for military dependents and federal employees by billing for millions of tests that were not needed for diagnosis or treatment.

Also Thursday, the San Diego laboratory of Allied Clinical Laboratories Inc., owned by LabCorp., agreed to pay a $5-million criminal fine to settle similar charges.

Among the unneeded tests were those to check the blood for levels of cholesterol, iron, magnesium, various enzymes and a thyroid-stimulating hormone.

Alan Bersin, U.S. attorney for San Diego, said the two settlements are indications that, at the order of Atty. Gen. Janet Reno, federal prosecutors have made medical fraud their second-highest priority, after violent crime.

Prosecutors are “determined to root out and prosecute the widespread corporate fraud that has so burdened our nation’s health care system,” Bersin said.

Dr. James B. Powell, president and chief executive officer of LabCorp, said the settlement “firmly closes the door on past issues of law and regulation involving industrywide billing practices.”

Assistant U.S. Atty. Carol C. Lam, who prosecuted the Allied case and a $111-million settlement with La Jolla-based National Health Laboratories in 1992, said fraudulent billing was widespread in the late 1980s and early ‘90s.

“There is no question there was a prevailing corporate culture [in the medical laboratory industry] that the more ways you could find to get money out of Medicare the better,” Lam said.

For example, Allied did 22 cholesterol tests in 11 months for a patient dying of AIDS, according to court documents. Each test cost Allied $5 to perform but brought $13 from Medicare.

Lam said doctors ordering blood tests for their patients were duped into authorizing additional tests after being assured by lab representatives that the added tests could be done at the same time as the original blood analysis.

In fact, that was not always the case. Cholesterol tests, for example, are done separately from the overall blood analysis. Labs billed the insurance companies directly so physicians were unaware that there was an extra cost.

In June 1989, Allied supervisors sent a memo ordering its technicians to add a test for high-density lipoprotein cholesterol (the so-called “good” cholesterol) to all blood tests. The memo said the added tests would mean an extra $1.1 million in just seven months.

The prosecutorial effort aimed at medical testing fraud is increasing. Bersin said additional federal prosecutors and FBI agents are being assigned to such cases.

Last month, Damon Clinical Laboratories of Massachusetts agreed to pay $119 million in criminal fines and civil payments. Corning Clinical Laboratories of New Jersey has paid about $62 million to settle civil claims on fraudulent billings.

There have also been published reports that SmithKline Beecham Clinical Laboratories of Philadelphia is negotiating a medical fraud settlement that will be bigger than LabCorp’s. Prosecutors declined to confirm or deny the reports.

LabCorp was formed in 1995 when National Health Laboratories merged with Roche Biomedical Laboratories, a division of a Swiss-based pharmaceutical firm, and bought Allied.

LabCorp took a special pretax charge to earnings of $185 million, about $1.19 per share, during the quarter ending Sept. 30, in anticipation of the settlements reached Thursday. The stock price, which was once upward of $6, closed unchanged Thursday at $3.

LabCorp, which had annual revenues of $1.6 billion last year, also agreed to an oversight plan with the government to validate future billings to Medicare and the other public insurance companies.

Medical fraud cases are complex because of overlapping state and federal jurisdictions and because most laboratories do testing for patients in numerous states.

The LabCorp case involved federal and state officials in California, North Carolina, New York, Virginia, Pennsylvania, New Mexico and the District of Columbia. The $182-million settlement will be distributed to the Medicare fund and to state Medicaid funds, with a share going to “whistle-blowers” who provided inside information.

The LabCorp and Allied settlements were made in federal court in Greensboro, N.C., for the convenience of LabCorp executives and attorneys.

“This is your hard-earned money we’re protecting,” said North Carolina Insurance Commissioner Jim Long.