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Medicare Fraud Cases Have Uncertain Future

MANHATTAN (CN) - The U.S. government may be restraining federal prosecutors from pursuing two recently unsealed cases alleging multibillion kickback schemes involving the two largest medical labs in the country, a whistle-blower told Courthouse News.

The Laboratory Corporation of America and Quest Diagnostics are accused of engaging in a practice known as a "pull-through" scheme, in which the medical labs wildly overcharge Medicare and Medicaid to subsidize substantial discounts to private insurers.

If doctors do not use Labcorp and Quest tests, the private insurers allegedly return the favor by threatening to push them out of their networks.

But court documents allege that these private sector discounts are taxpayer-funded kickbacks, achieved through fraud.

Andrew Baker, the founder and former CEO of Quest's current subsidiary Unilab, is one of the whistle-blowers who blew the lid on the alleged scheme. He said that he left Unilab while trying to end pull-through practices.

Former Unilab vice president Richard Michaelson and attorney Mark Bibi subsequently joined Baker's campaign and formed an entity called Fair Laboratory Practices Associates, which filed a case against Quest on behalf of the U.S. government.

That lawsuit claimed Quest charged Medicare five times what it charged private insurers for certain tests.

The heavily redacted complaint, spanning 67 pages, shows high-ranking executives referring to "pull-through" by name, and quotes Quest senior and national sales vice president Bob Peters as saying, "I will never understand how a sales representative with Quest can be anything but successful once we have all the major plans in our pocket, and all the reps have to do is go and get the pull-through."

A federal judge tossed that case this year on the grounds that it was built partly using information that Bibi disclosed in breach of attorney-client privilege.

Toward the end of his 31-page opinion, U.S. District Judge Richard Patterson wrote, "Nothing in this opinion, however, should be deemed as preventing the United States from intervening in this action and from bringing an action against these defendants."

Federal prosecutors have reserved the right to intervene, but they have not expressed any intention to exercise it.

Baker told Courthouse News that federal prosecutors want to take on the medical labs, but they encountered resistance from Washington.

"I am confused and flummoxed that the lawyers who are primarily on the government side are very supportive of our contention," Baker said in a phone interview. "They're totally on board and believe it strongly. It's the civil-service function in the Washington, D.C., level, where the inability to make the decision to intervene is occurring."

Baker doesn't think the resistance is coming from the U.S. Attorney's Office.

"I believed and heard that people from Quest visited with Washington," Baker said. "Why Quest should be allowed that access, I don't know. It's total conjecture, but I'm pretty sure that did happen."

The whistle-blowers are currently asking the 2nd Circuit to revive the Quest case. Baker believes he has "some reason to be optimistic" that it will be reversed.

On Aug. 17, the Southern District of New York unsealed another 4-year-old case against Labcorp, alleging the company raked in more than $3 billion from Medicare for tests that cost 70 to 100 percent more what they charged UnitedHealthCare, the largest single insurer in the United States.

According to that complaint, Labcorp's chief operating officer Donald Hardison told a group of workers that the company "would lose its shirt and would not even be able to turn on the lights" without the pull-through business from Medicare, and he "advised the group that anybody who did not understand this should find another job."

As with the Quest case, prosecutors have not stepped in, as it heads toward an initial pretrial conference on Jan. 3.

"If the government intervenes, this is good," Baker said. "That would clearly get the issue more quickly brought to a point where it would start a resolution. If they don't intervene, we are quite entitled to pursue the case ourselves, but that's obviously going to take a much longer time."

California state prosecutors recently clamped down on pull-through schemes, securing a $241 million settlement with Quest in May and a $49.5 million settlement against Labcorp in August.

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