Quest to Pay $13.1 Million to Settle Billing Allegations
Quest Diagnostics Inc. agreed to pay nearly $13.1 million to settle allegations that its Orange County subsidiary defrauded federal health-care programs with inflated billings, the Justice Department said Wednesday.
The questionable billing practices allegedly occurred at Nichols Institute, which Quest acquired in 1994. The government charged that the overbilling began in 1989 and ended in 1995, shortly after Quest, then part of Corning Inc., acquired the unit.
Nichols, based in San Juan Capistrano, operated in Alaska, California, Oregon, Texas and Washington. Today, it has facilities only in Orange County, where it employs 1,100.
Nichols labs perform so-called esoteric tests, which provide more in-depth information on certain cancers, hepatitis C and the AIDS virus.
The settlement resolves allegations that certain clinical laboratories operated by Nichols defrauded the Federal Employees Health Benefits Program, Medicare, Medicaid and Tricare, the Defense Department’s health-care program, by routinely billing for laboratory tests that were not medically necessary.
“We strongly deny the government’s contentions and are settling this case to put behind us a matter that traces its origins back to 1989,” Surya N. Mohapatra, Quest’s president and chief operating officer, said in a release.
Quest also decided to settle to avoid high litigation costs and the risk of being excluded from some government programs had it lost the fight, company spokeswoman Julie Clarkson said.
The practices in question were widespread but ended after Quest bought Nichols and instituted its own policies.
The government’s investigation of Nichols began as part of its Operation Labscam, which targeted labs accused of so-called unbundling. Under that practice, labs receive a higher reimbursement by billing separately for groups of lab tests that had been performed together. The government has recovered more than $850 million from the nation’s largest clinical laboratories as a result of Labscam and related investigations.
“We believe overbilling the U.S. government is serious,” Justice Department spokesman Charles Miller said in an interview. “This is money coming directly out of the pockets of taxpayers.”
The settlement money will be turned over to three states allegedly defrauded in doling out federal health-care funds. Oregon will get nearly $9 million, Texas will receive more than $3.7 million and California will pick up $420,000, according to court documents.
Clarkson said the settlement amount is covered under an agreement with Corning to reimburse Quest for any losses from then-pending accusations against Nichols. Corning spun off Quest in December 1996. The settlement will not affect Quest’s earnings, Clarkson said.
In May, the Teterboro, N.J., company paid $10 million to settle a class-action lawsuit alleging that its units, including Nichols, overbilled for lab tests between 1988 and 1995.
In August 1998, Quest paid $15 million to settle civil charges that it conspired with Transitional Hospitals Corp. and Vivra Inc. to overbill Medicare. The government alleged the companies billed Medicare for thousands of unnecessary blood tests for patients with chronic kidney disease.
Shares of Quest rose $4.69 on Wednesday to close at $39.63 on the New York Stock Exchange.
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Times staff writer Marc Ballon contributed to this report, which was compiled from Associated Press and Bloomberg News.
