Health Fraud Case Study: Health Diagnostic Laboratories, Inc.

Health Diagnostic Laboratory, Inc. (“HDL”) was a fast-growing laboratory that performed blood testing on patients across the South, including Alabama. Beginning in 2010, HDL marketed its services through BlueWave Healthcare Consultants, Inc. (“BlueWave”). HDL’s agreement with BlueWave required HDL to pay process and handling fees (“P&H Fee”) to physicians per patient for blood samples that physicians sent to HDL for testing. From 2010 – 2014, HDL paid more than $48.9 million in P&H fees to doctors and other healthcare providers, ranging between payments of $10 - $17 per patient.

The United States Department of Justice is the primary prosecutor for Anti-Kickback Statute cases. The Anti‑Kickback Statute (AKS), 42 U.S.C. § 1320a-7b, is a federal criminal law that prohibits knowingly and willfully offering, paying, soliciting, or receiving any remuneration to induce or reward referrals for items or services reimbursable by a federal healthcare program. In 2013, the DOJ subpoenaed HDL to investigate whether its agreement with BlueWave violated the AKS. On March 31, 2015, HDL reached a $47 million settlement with the DOJ over allegations that the P&H Fee violated the AKS.

The settlement with the DOJ did not shield HDL or BlueWave's executives from prosecution. HDL’s former CEO, LaTonya Mallory, and two marketing executives, Floyd Calhoun Dent III and Robert Bradford Johnson, were found liable under the False Claims Act. The False Claims Act, 31 U.S.C. §§ 3729–3733, is the federal government’s primary civil fraud statute. It imposes liability on any person who knowingly submits, causes to be submitted, or uses a false or fraudulent claim for payment from the United States.

The case was tried before the Hon. Richard M. Gergel in the United States District Court for South Carolina. At the federal courthouse in Charleston, the DOJ presented evidence that HDL and BlueWave both knew that the P&H fees may have violated the AKS. Mallory, Dent, and Johnson were found jointly and severally liable for HDL submitting false claims to Medicare and TRICARE, and the jury awarded the Government $114,000,000 in damages.

The HDL case shows how a seemingly small per‑test payment can unravel an entire enterprise once regulators see it as remuneration for referrals. Actors from the top down faced the Governments prosecution. The prosecution of HDL was accomplished by information provided to the Government by HDL's own associates, who sought out speaking with healthcare attorneys and federal attorneys.

If you have a healthcare contract or compliance concern, please contact Trice Law Group, LLC.