California radiology business settles whistleblowers' kickback case for $17.5 million

by Ben Vernia | September 27th, 2013

On September 26, the Department of Justice announced that a radiology services company in California will pay $17.5 million to settle civil charges that it paid kickbacks for patient referrals. According to DOJ’s press release:

Kan-Di-Ki LLC, formerly known as Kan-Di-Ki Inc., doing business as Diagnostic Laboratories and Radiology (Diagnostic Labs), will pay $17.5 million to settle allegations that the California-based company violated the federal and California False Claims Acts by paying kickbacks for referral of mobile lab and radiology services subsequently billed to Medicare and Medi-Cal (the state of California’s Medicaid program), the Justice Department announced today.

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Diagnostic Labs allegedly took advantage of Medicare’s different reimbursement system for inpatient and outpatient services by charging Skilled Nursing Facilities (SNFs) in California discounted rates for inpatient services paid by Medicare in exchange for the facilities’ referral of outpatient business to Diagnostic Labs. For inpatient services, Medicare pays a fixed rate based on the patient’s diagnosis, regardless of specific services provided. For outpatients, Medicare pays for each service separately. Diagnostic Labs’ scheme enabled the SNFs to maximize profit earned for providing inpatient services by decreasing SNFs’ costs of providing these services. It also allegedly allowed Diagnostic Labs to obtain a steady stream of lucrative outpatient referrals that it could directly bill to Medicare and Medi-Cal. The provision of inducements, including discounted rates, to generate referrals is prohibited by federal and state law.

DOJ announced that the two whistleblowers, former employees of the company, will receive $3,755,500 of the undisclosed federal share of the $17.5 million (a relator’s share cannot be computed without knowing how much the federal and state governments received).

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