DOJ adds defendants to its laboratory services fraud complaint

by Ben Vernia | May 28th, 2022

On May 26, the Department of Justice announced that it had filed an amended complaint adding six physicians to its complaint, filed intervening in a whistleblower’s qui tam lawsuit in April, alleging that the doctors had received kickbacks in exchange for referrals. According to DOJ’s press release:

The Justice Department amended its complaint in a laboratory testing fraud case to add six physicians in Texas. The case alleges False Claims Act violations based on patient referrals in violation of the Anti-Kickback Statute and the Stark Law. The amended complaint further alleges that the six physicians caused claims to be improperly billed to federal health care programs for medically unnecessary laboratory testing. 

According to the United States’ complaint, the six physician defendants received thousands of dollars in kickbacks in return for their referrals of laboratory testing. The complaint alleges that laboratories True Health Diagnostics LLC (THD) and Boston Heart Diagnostics Corporation (BHD) conspired with small Texas hospitals, including Rockdale Hospital dba Little River Healthcare (LRH), to pay physicians to induce referrals to the hospitals for laboratory testing, which was then performed by THD or BHD. As alleged in the complaint, the hospitals paid a portion of their laboratory profits to recruiters, who in turn kicked back those funds to the referring physicians. The recruiters allegedly set up companies known as management service organizations (MSOs) to make payments to referring physicians that were disguised as investment returns but were actually based on, and offered in exchange for, the physicians’ referrals. The complaint alleges that laboratory tests resulting from this referral scheme were billed to various federal health care programs, and that the claims not only were tainted by improper inducements but, in many cases, also involved tests that were not reasonable and necessary.

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The Anti-Kickback Statute prohibits offering, paying, soliciting or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid and other federally-funded programs. The Stark Law forbids a hospital or laboratory from billing Medicare for certain services referred by physicians that have a financial relationship with the hospital or laboratory. The Anti-Kickback Statute and the Stark Law seek to ensure that medical providers’ judgments are not compromised by improper financial incentives and are instead based on the best interests of their patients.

The United States’ amended complaint alleges that, in addition to the previously named defendants, the following six physicians received kickbacks from MSOs in return for their laboratory testing referrals:

  • Doyce Cartrett, Jr., M.D., of Silsbee, Texas, allegedly received over $320,000 from LRH and two MSOs, Ascend MSO of TX LLC (Ascend) and Eridanus MG LLC (Eridanus), in return for his referrals.
  • Elizabeth Seymour, M.D., of Corinth, Texas, allegedly received over $280,000 from two MSOs, Ascend and Eridanus, in return for her referrals.
  • Emanuel Paul “E.P.” Descant, II, M.D., of Spring, Texas, allegedly received over $125,000 from two MSOs, North Houston MSO and Tomball Medical Management Inc., in return for his referrals.
  • Frederick Brown, M.D., of Missouri City, Texas, allegedly received over $190,000 from two MSOs, Ascend and Indus MG LLC (Indus), in return for his referrals.
  • Heriberto Salinas, M.D., of Cleburne, Texas, allegedly received over $75,000 from two MSOs, Ascend and Herculis MG LLC (Herculis), in return for his referrals.
  • Hong Davis, M.D., of Lewisville, Texas, allegedly received over $70,000 from two MSOs, Ascend and Herculis, in return for her referrals.

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The United States’ amended complaint was filed in connection with a lawsuit originally filed under the qui tam or whistleblower provisions of the False Claims Act by STF LLC, whose members are Felice Gersh, M.D. and Chris Riedel. The United States intervened in the qui tam action in December 2021 and filed a complaint under the False Claims Act in January 2022 against former THD CEO Christopher Grottenthaler, former BHD CEO Susan Hertzberg, former LRH CEO Jeffrey Madison, and others. Under the False Claims Act, a private party can file an action on behalf of the United States and receive a portion of the recovery. The Act permits the United States to intervene in such lawsuits and add claims and defendants, as it has done here. The qui tam case is captioned United States, et al. ex rel. STF, LLC v. True Health Diagnostics, LLC, et al., No. 4:16-cv-547 (E.D. Tex.). If a defendant is found liable for violating the act, the United States may recover three times the amount of its losses plus applicable penalties.

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