Health Diagnostic Laboratory Inc.’s likely settlement of a U.S. Department of Justice review will relieve uncertainty for the company, but likely will result in tighter government oversight of its business practices for at least five years.
The Richmond-based blood-testing company confirmed Tuesday it is close to reaching a deal with the federal government that would end a lengthy investigation into its reimbursement practices when doctors order blood tests.
A company spokesman would not confirm the size of the fine that the company may have to pay. A story in The Wall Street Journal this week said the fine would be $47 million.
“We wish to make it clear that HDL Inc. has worked cooperatively with the Department of Justice since the inception of its investigation of various diagnostic laboratory industry practices, many of them common within the industry,” the company said in a prepared statement.
“We look forward to concluding a settlement with the Department in the very near future that will enable our company to avoid potentially expensive and protracted litigation and allow us to move ahead with our important work of helping improve the health of millions of Americans.”
HDL said Tuesday it would not make senior executives available for interviews. The company also said its settlement would contain an explicit denial of any wrongdoing.
“It is pretty typical in these big anti-kickback cases to have a really substantial monetary settlement,” said Rachel Suddarth, an assistant professor in the University of Richmond School of Law who has a background in Medicare regulatory law.
In cases involving possible kickback violations, the government typically pursues civil claims rather than a criminal case under the False Claims Act, because a civil case is easier to prove and the government’s goal is to recoup money that it believes it should not have paid, she said.
Fines in similar cases have varied widely from a few hundred thousand dollars to hundreds of millions of dollars. The size of the fine “depends on how rampant the problem is and how widespread,” Suddarth said. “It also depends to some extent on how helpful and upfront the company is.”
Last year, The Wall Street Journal reported that some doctors had received $4,000 a week in reimbursements from HDL for blood samples, and that the lab obtained Medicare payments of $1,000 or more for some bundles of the 28 tests it performs on blood samples, and that the company earned about 41 percent of its $383 million in 2013 revenue from Medicare reimbursements.
HDL said that under the terms of the proposed settlement, it also will sign a five-year “corporate integrity agreement” with the Office of Inspector General of the U.S. Department of Health and Human Services.
A corporate integrity agreement means the company would remain eligible to participate in Medicare, Medicaid or other federal health care programs.
However, the agreement also “means the government is going to be intimately involved in their business for the next five years,” Suddarth said.
Under such an agreement, the company could be required to put in place a new, internal regulatory compliance structure and submit to government audits.
“A lot of times the government will come in and do pre-payment reviews,” she said. “They would probably scrutinize any sort of payment going to and from a physician’s office, and do it on the front end rather than try to catch these actions on the back end.”
Settling its issues with the Department of Justice should give the company some stability and an opportunity to focus on its strategy for the future, said Richard Coughlan, senior associate dean of UR’s Robins School of Business.
“I expect it will be a few years before they are on really solid footing, because they have to regain the trust of a lot of stakeholders outside the business,” he said.
HDL confirmed in July that it was cooperating with a federal investigation into reimbursement practices in the clinical laboratory industry.
Federal regulators had previously warned laboratory companies such as HDL about the practice of paying fees to health care providers to send blood samples to commercial labs for testing. The U.S. Office of the Inspector General said the practice could amount to an illegal financial inducement, running afoul of anti-kickback laws designed to prevent fraud and waste in the federal Medicare and Medicaid insurance programs.
HDL also said in July that it had discontinued its practice of paying $20 fees to health care providers for preparing and sending blood samples. Though it ended the payments, HDL argued that its payments were permissible under safe harbor statutes in federal law and that it had complied with regulations.
Since starting operations in 2009 as a small blood-testing services company, HDL grew quickly, adding hundreds of jobs at its office and laboratory in downtown Richmond.
It rapidly grew in part because of a sales contract with the Alabama-based firm BlueWave Healthcare Consultants Inc. HDL terminated its contract with BlueWave in January, and the sales company filed a lawsuit seeking $205 million in payments. HDL then filed a counter lawsuit. HDL also is facing an $84 million lawsuit by one of the nation’s largest health insurers, Cigna, which claims that HDL “lured” patients to use its blood-testing services by waiving patient co-pays, co-insurance or deductibles, while billing Cigna “exorbitant and unjustified” charges for the same tests.
The lawsuit also claims that HDL’s fee-paying to health care providers encouraged physicians to order unnecessary tests.
HDL denies the charges and is seeking to have the lawsuit dismissed.