Charges include $1.1 billion in alleged telemedicine and fraudulent clinical laboratory testing
Nearly 200 individuals in 25 states are facing charges for alleged participation in a variety of healthcare frauds, the US Department of Justice (DOJ) announced in a press release. This major enforcement action involves telemedicine and clinical laboratory testing as well as other healthcare schemes. In total, the DOJ is alleging the defendants are responsible for $2.75 billion in intended losses and $1.6 billion in actual losses.
The charges include:
$1.1 billion in alleged telemedicine and clinical laboratory fraud.
As part of the action, the government has seized more than $231 million in assets, including cash, luxury vehicles, and gold.
Monica Cooper, JD (above), a DOJ trial attorney and member of the Texas Strike Force, is one of two attorneys prosecuting the case against Harold Albert “Al” Knowles of Delray Beach, Fla., and Chantal Swart of Boca Raton, Fla., in the DOJ’s latest crackdown on healthcare fraud. Charges against Knowles and Swart include conspiracy to commit healthcare fraud, conspiracy to defraud the United States, and paying/receiving healthcare kickbacks in a $359 million scheme to bill Medicare for medically unnecessary genetic tests at two Houston clinical laboratories. (Photo copyright: US Department of Justice.)
Houston-Area Labs Charged in $359 Million Scheme
In one case, the government charged Florida residents Harold Albert “Al” Knowles and Chantal Swart in a $359 million scheme involving fraudulent Medicare billing for medically unnecessary genetic tests. Knowles owned two Houston-area labs—Bio Choice Laboratories, Inc. and Bios Scientific, LLC—while Swart ran a telemarketing operation. According to DOJ case summaries, the government alleges that Knowles paid kickbacks to Swart to obtain DNA samples and doctors’ orders for tests.
“Knowles, Swart, and others obtained access to tens of thousands of beneficiaries across the United States by targeting them with deceptive telemarketing campaigns,” the indictments allege. “Call center representatives—who were almost never medical professionals—often prompted beneficiaries to disclose their medical conditions and induced them to agree to genetic testing regardless of medical necessity.”
In addition, “Knowles, Swart, and others agreed that Swart and others would pay illegal kickbacks and bribes to purported telemedicine companies to obtain signed doctors’ orders for genetic testing after only a brief telemedicine visit,” the indictment stated. “Knowles and his co-conspirators knew that the purported telemedicine companies’ physicians were rarely, if ever, the beneficiaries’ treating physicians and rarely, if ever, used the genetic testing results in the beneficiaries’ treatment.”
Dallas-Area Labs Charged in $335 Million Scheme
In another case, the federal government charged that the owner of two Dallas-area clinical laboratories engaged in a $335 million Medicare billing scheme.
Keith Gray, owner of Axis Professional Labs, LLC and Kingdom Health Laboratory, LLC, “offered and paid kickbacks to marketers in exchange for their referral to Axis and Kingdom of Medicare beneficiaries’ DNA samples, personally identifiable information (including Medicare numbers), and signed doctors’ orders authorizing medically unnecessary cardio genetic testing,” the government alleged. “As part of the scheme, the marketers engaged other companies to solicit Medicare beneficiaries through telemarketing and to engage in ‘doctor chase,’ i.e., to obtain the identity of beneficiaries’ primary care physicians and pressure them to approve genetic testing orders for patients who purportedly had already been ‘qualified’ for the testing.”
Other Clinical Laboratory and Healthcare Fraud Cases
DOJ attorneys charged the owners of Innovative Genomics, a clinical laboratory in San Antonio, in a $65 million scheme to bill Medicare and the COVID-19 Uninsured Program for “medically unnecessary and otherwise non-reimbursable COVID-19 and genetic testing,” according to the indictment. Also charged were two patient recruiters who allegedly received kickbacks for referring patients.
Richard Abrazi of New York City was charged in a $60 million Medicare billing scheme. Abrazi owned two clinical laboratories: Enigma Management Corp. and Up Services Inc. Both operated as Alliance Laboratories.
“Abrazi and others engaged in a scheme to pay and receive kickbacks and bribes in exchange for laboratory tests, including genetic tests, that Enigma and Up billed to Medicare,” the indictment alleges. “Abrazi and others also allegedly paid and received kickbacks and bribes in exchange for arranging for the ordering of medically unnecessary genetic tests that were ineligible for Medicare reimbursement.”
The DOJ charged Brian Cotugno, of Auburn, Ga., and James Matthew Thorton “Bo” Potter, of Santa Rosa Beach, Fla., in a $20 million Medicare billing scheme. Cotugno, the indictment alleges, sold Medicare Beneficiary Identification Numbers (BINs) to two Alabama laboratories co-owned by Potter.
“The BINs were used to bill Medicare tens of millions of dollars for OTC COVID-19 test kits, many of which had not been requested by the beneficiaries,” the government alleged.
These are only a few of the recent cases the DOJ brought against defendants nationwide for healthcare, telemedicine, and clinical laboratory fraud. Both Dark Daily and our sister publication The Dark Report have covered these ongoing investigations for years. And we will continue to do so because it’s important that lab managers and pathology group leaders are aware of the lengths to which the DOJ is pursuing bad actors in healthcare.
Settlement is a reminder to all clinical laboratories that state and federal DOJs and AGs are willing to file actions against genetic testing companies that intentionally mislead the public
California’s Attorney General, in cooperation with the Federal Trade Commission (FTC), announced a recent settlement with CRI Genetics regarding deceptive trade practices. The at-home genetics testing company will have to pay $700,000 in civil penalties and according to the Santa Monica Daily Press, “will be barred from a wide range of deceptive practices to settle charges from the Federal Trade Commission and the California Attorney General that the company deceived users about the accuracy of its DNA reports.”
Santa Monica, Calif.-based CRI Genetics (CRI), which also does business as OmniPGx, offers DNA saliva-swab test kits that are analyzed by a third party laboratory to return customers ancestry data, health information, optimal nutritional guidelines, and potential allergies. The company’s website states a guaranteed 8-week turn around for the kits.
The original complaint against CRI alleged the company used misleading marketing practices by claiming its DNA tests are more accurate and detailed than their competitors, such as Ancestry DNA and 23andMe. CRI also claimed their ancestry data was more than 90% accurate and could determine ancestry dating back 50 generations.
In addition, the company stated its algorithm for matching DNA was patented, which it was not, according to the complaint.
The complaint also alleged the CRI website contained deceitful information and was formatted to appear independent but included inflated reviews and false testimonials.
“CRI Genetics could have found legitimatewaysto market its services. Unfortunately, in its pursuit of growth and profits, the company repeatedly misled consumers. The FTC and my office took notice, we investigated, and we are delivering results today,” said California Attorney General Rob Bonta (above) in a press release. (Photo copyright: State of California Department of Justice.)
Alleged Deceptive Business Practices
According to court documents, CRI manipulated customers into purchasing add-on services and forced consumers to click through a myriad of pop-up pages to lure them into purchasing more products. Customers were informed they would have a chance to review their orders before being charged but were immediately billed. Consumers then had to go through a lengthy and often confusing process to obtain refunds for returned items.
“Based on the facts and violations of law alleged in this Complaint, the FTC has reason to believe that Defendant has violated or is about to violate laws enforced by the Commission because, among other things, Defendant engaged in the unlawful conduct over a period of four years, willfully and knowingly, despite having knowledge of hundreds of consumer complaints and refund requests, as well as inquiries by the Better Business Bureau regarding their deceptive practices and only ceased its unlawful activities after the FTC notified Defendant of its pending investigation,” the court filings state.
“Our settlement not only holds CRI Genetics accountable for its past misconduct, it also aims to ensure that CRI Genetics doesn’t engage in similar misconduct going forward,” said California Attorney General Rob Bonta in the press release. “I want to thank our federal counterparts at the FTC for their continued partnership and commitment to ensuring that all businesses play by the same rules.”
In addition to the $700,000 fine, CRI is obligated to change its practices by:
Ceasing to make misrepresentations about its testing and analysis services.
Not using deceptive tactics to sell its products, represent endorsements, or in billing practices.
Accurately disclosing its website billing practices.
Disclosing any sharing or usage of genetic data for purposes besides the services the consumer purchases.
Refraining from offering the sale of any DNA information testing product or service.
“Today’s action continues the FTC’s crackdown on deceptive reviews, dark patterns, and baseless claims around algorithmic solutions,” said Samuel Levine, Director, Bureau of Consumer Protection at the FTC, in the press release. “We are proud to partner with California on this important matter and will continue to carefully scrutinize claims around biometric information technologies.”
This settlement serves as a reminder to all genetic testing firms and clinical laboratories that state and federal Departments of Justice and state Attorney Generals are willing to file actions against genetic testing organizations that intentionally mislead the public. It is also useful for lab managers to stay aware of the lengths some genetic testing companies will go to deceive consumers and that regulatory agencies are noticing egregious practices.
Only about a third of the hospitals surveyed are in full compliance with giving public access to prices, the watchdog group contends, but the AHA disputes its methodology
It’s been almost four years since the Centers for Medicare and Medicaid Services (CMS) enacted its Hospital Price Transparency rule which requires hospitals—including their medical laboratories—to make their prices available and easily accessible to the public. But according to a 2024 report from PatientRightsAdvocate.org (PRA), just 34.5% of reviewed hospitals are fully compliant with the transparency rule. That’s a slight decrease from the 36% compliance rate the PRA listed in its 2023 report, the watchdog group stated in a blog post.
Released on Feb. 29, this was the group’s sixth semi-annual hospital price transparency report since the CMS rule took effect in 2021.
The rule “requires hospitals to post all prices online, easily accessible and searchable, in the form of (i) a single machine-readable standard charges file for all items, services, and drugs by all payers and all plans, the de-identified minimum and maximum negotiated rates, and all discounted cash prices, as well as (ii) prices for the 300 most common shoppable services either as a consumer-friendly standard charges display listing actual prices or, alternatively, as a price estimator tool,” the report states.
The required viewable prices are to be for, among others, medical imaging, clinical laboratory testing, and outpatient procedures such as a colonoscopies, etc.
“With full transparency, consumers can benefit from competition to make informed decisions, protect from overcharges, billing errors, and fraud, and lower their costs,” the report states. “Employer and union plans can use pricing and claims data to improve their plan designs and direct members to lower cost, high-quality facilities. However, continued noncompliance impedes this ability.”
At any time, the US Department of Justice (DOJ) could decide to file charges against a hospital or a clinical laboratory for not posting their prices on their websites in compliance with the federal rule. Such an action by DOJ officials would be to specifically put the entire industry on notice that there will be consequences for non-compliance.
The PRA’s report provides hospitals and clinical laboratories with a reminder that consumer watchdogs are also monitoring compliance.
“Our comprehensive study of 2,000 hospitals indicates nearly two-thirds (65.5%) of hospitals reviewed continue failing to fully comply with the rule, yet the Centers for Medicare and Medicaid Services (CMS) has only fined fourteen hospitals for noncompliance out of the thousands found to not be meeting all of the rule’s requirements. When hospitals don’t post their prices, they can charge whatever they want,” wrote PRA Founder and Chairman Cynthia Fisher (above) in a letter to President Biden. Hospital medical laboratories are also required to post their prices for tests. (Photo copyright: PatientRightsAdvocate.org.)
To compile their report, PRA analysts examined the websites of 2,000 US hospitals between September 3, 2023, and January 13, 2023, and found that 1,311, or 65.5%, were not in full compliance, mostly due to “missing or significantly incomplete pricing data,” the report states.
More than 6,000 licensed hospitals operate in the US, the report notes. The group said it focused on hospitals owned by the largest US health systems.
Among the notable findings:
The 2023 report found that 98% of Kaiser Permanente’s 42 hospitals were in full compliance with the rule, but in the 2024 study, none were compliant because the hospitals began posting multiple files instead of a single file.
In total, 103 hospitals rated as noncompliant in the previous report were found to be compliant in the new analysis. Conversely, 135 hospitals previously rated as compliant were listed as noncompliant in the 2024 report.
The report lauded three hospitals for posting “exemplary files” that were “easily accessible, downloadable, machine-readable, and including all negotiated rates by payer and plan.” Those were Cape Cod Hospital in Hyannis, Mass.; Christus Santa Rosa Medical Center in San Antonio; and UW Health University Hospital in Madison, Wis.
In its discussion of the findings, PRA called on CMS to step up enforcement of the pricing transparency rule. The group also wants the government to close what it describes as the “estimator tool loophole,” which allows hospitals to list non-binding price estimates and price ranges instead of concrete prices.
“Price estimator tools do not achieve the goals of price transparency policy and fundamentally undermine the intent of the regulations,” the PRA’s report contends.
In response to the 2023 PRA report, AHA Group Vice President for Public Policy Molly Smith issued the following statement, “Once again, Patient Rights Advocate has put out a report that blatantly misconstrues, ignores, and mischaracterizes hospitals’ compliance with federal price transparency regulations. The AHA has repeatedly debunked point-by-point Patient Rights Advocate’s intentionally misleading ‘reports’ on price transparency.”
Citing CMS data, Smith said that as of 2022, 70% of US hospitals had complied with two key federal rules:
One requiring hospitals to post machine-readable files with pricing information.
The other mandating a list of prices for at least 300 “shoppable” services.
More than 80% of hospitals had complied with at least one of the rules, she contended in an AHA press release.
Speaking to the New Orleans Times-Picayune, PRA Founder and Chairman Cynthia Fisher said her group performs a more in-depth study of pricing data compared with CMS.
“They did not do a comprehensive review,” she told the publication. “We do a deep dive for full compliance.”
The PRA study came on the heels of a January report from Turquoise Health that offered a rosier assessment of hospital compliance, albeit with different criteria. According to the Turquoise report, as of Dec. 15, 2023:
90.7% of 6,357 US hospitals had posted machine-readable files,
83.1% posted information about negotiated rates, and
77.3% posted cash rates.
The Turquoise Health end-to-end price transparency platform uses a 5-point system to rate the quality of hospitals’ machine-readable files and said that more than 50% scored five stars. Clinical laboratory managers and pathologists may find it timely to review their lab organization’s compliance with this federal price transparency rule.
Federal prosecutors allege that this nurse practitioner ordered more genetic tests for Medicare beneficiaries than any other provider during 2020
Cases of Medicare fraud involving clinical laboratory testing continue to be prosecuted by the federal Department of Justice. A jury in Miami recently convicted a nurse practitioner (NP) for her role in a massive Medicare fraud scheme for millions of dollars in medically unnecessary genetic testing and durable medical equipment. She faces 75 years in prison when sentenced in December.
In their indictment, federal prosecutors alleged that from August 2018 through June 2021 Elizabeth Mercedes Hernandez, NP, of Homestead, Florida, worked with more than eight telemedicine and marketing companies to sign “thousands of orders for medically unnecessary orthotic braces and genetic tests, resulting in fraudulent Medicare billings in excess of $200 million,” according to a US Department of Justice (DOJ) news release announcing the conviction.
“Hernandez personally pocketed approximately $1.6 million in the scheme, which she used to purchase expensive cars, jewelry, home renovations, and travel,” the press release noted.
Hernandez was indicted in April 2022 as part of a larger DOJ crackdown on healthcare fraud related to the COVID-19 outbreak.
“Throughout the pandemic, we have seen trusted medical professionals orchestrate and carry out egregious crimes against their patients all for financial gain,” said Assistant Director Luis Quesada (above) of the FBI’s Criminal Investigative Division, in a DOJ press release. Clinical laboratory managers would be wise to monitor these Medicare fraud cases. (Photo copyright: Federal Bureau of Investigation.)
Nurse Practitioner Received Kickbacks and Bribes
Federal prosecutors alleged that the scheme involved telemarketing companies that contacted Medicare beneficiaries and persuaded them to request genetic tests and orthotic braces. Hernandez, they said, then signed pre-filled orders, “attesting that she had examined or treated the patients,” according to the DOJ news release.
In many cases, Hernandez had not even spoken with the patients, prosecutors said. “She then billed Medicare as though she were conducting complex office visits with these patients, and routinely billed more than 24 hours of ‘office visits’ in a single day,” according to the news release.
In total, Hernandez submitted fraudulent claims of approximately $119 million for genetic tests, the indictment stated. “In 2020, Hernandez ordered more cancer genetic (CGx) tests for Medicare beneficiaries than any other provider in the nation, including oncologists and geneticists,” according to the news release.
The indictment noted that because CGx tests do not diagnose cancer, Medicare covers them only “in limited circumstances, such as when a beneficiary had cancer and the beneficiary’s treating physician deemed such testing necessary for the beneficiary’s treatment of that cancer. Medicare did not cover CGx testing for beneficiaries who did not have cancer or lacked symptoms of cancer.”
In exchange for signing the orders, Hernandez received kickbacks and bribes from companies that claimed to be in the telemedicine business, the indictment stated.
“These healthcare fraud abuses erode the integrity and trust patients have with those in the healthcare industry … the FBI, working in coordination with our law enforcement partners, will continue to investigate and pursue those who exploit the integrity of the healthcare industry for profit,” said Assistant Director Luis Quesada of the Federal Bureau of Investigation’s Criminal Investigative Division, in the DOJ press release.
Conspirators Took Advantage of COVID-19 Pandemic
Prosecutors alleged that as part of the scheme, she and her co-conspirators took advantage of temporary amendments to rules involving telehealth services—changes that were enacted by Medicare in response to the COVID-19 pandemic.
The indictment noted that prior to the pandemic, Medicare covered expenses for telehealth services only if the beneficiary “was located in a rural or health professional shortage area,” and “was in a practitioner’s office or a specified medical facility—not at a beneficiary’s home.”
But in response to the pandemic, Medicare relaxed the restrictions to allow coverage “even if the beneficiary was not located in a rural area or a health professional shortage area, and even if the telehealth services were furnished to beneficiaries in their home.”
Hernandez was convicted of:
One count of conspiracy to commit healthcare fraud and wire fraud.
Four counts of healthcare fraud.
Three counts of making false statements.
Medscape noted that she was acquitted of two counts of healthcare fraud. The trial lasted six days, Medscape reported.
Hernandez’s sentencing hearing is scheduled for Dec. 14.
Co-Conspirators Plead Guilty
Two other co-conspirators in the case, Leonel Palatnik and Michael Stein, had previously pleaded guilty and received sentences, the Miami Herald reported.
Palatnik was co-owner of Panda Conservation Group LLC, which operated two genetic testing laboratories in Florida. Prosecutors said that Palatnik paid kickbacks to Stein, owner of 1523 Holdings LLC, “in exchange for his work arranging for telemedicine providers to authorize genetic testing orders for Panda’s laboratories,” according to a DOJ press release. The kickbacks were disguised as payments for information technology (IT) and consulting services.
“1523 Holdings then exploited temporary amendments to telehealth restrictions enacted during the pandemic by offering telehealth providers access to Medicare beneficiaries for whom they could bill consultations,” the press release states. “In exchange, these providers agreed to refer beneficiaries to Panda’s laboratories for expensive and medically unnecessary cancer and cardiovascular genetic testing.”
Palatnik pleaded guilty to his role in the kickback scheme in August 2021 and was sentenced to 82 months in prison, a DOJ press release states.
Stein pleaded guilty in April and was sentenced to five years in prison, the Miami Herald reported. He was also ordered to pay $63.3 million in restitution.
These federal cases involving clinical laboratory genetic testing and other tests and medical equipment indicate a commitment on the DOJ’s part to continue cracking down on healthcare fraud.
Plans by several national retail pharmacy chains to expand primary care services and even some clinical laboratory test offerings may be delayed because of financial woes
Times are tough for the nation’s retail pharmacy chains. Rite Aid Corporation, headquartered in Philadelphia, closed 25 stores this year and has now filed for bankruptcy. In a press release, the retail pharmacy company announced it has “initiated a voluntary-court supervised process under Chapter 11 of the US Bankruptcy Code,” and that it plans to “significantly reduce the company’s debt” and “resolve litigation claims in an equitable manner.”
Rite Aid may eventually close 400 to 500 of its 2,100 stores, Forbes reported.
Meanwhile, other retail pharmacy chains are struggling as well. CVS Health, headquartered in Woonsocket, Rhode Island, and Walgreens Boots Alliance of Deerfield, Illinois, are each closing hundreds of stores, according to the Daily Mail.
They are each experiencing problems with labor costs, theft, being disintermediated for prescriptions by pharmacy benefit managers (PBMs), and probably building too many stores in most markets.
This is a significant development, in the sense that Walgreens, CVS, and Walmart are each working to open and operate primary care clinics in their stores. This is a way to offset the loss of filling prescriptions, which has migrated to PBMs. Primary care clinics are important to the revenue of local clinical laboratories, but retail pharmacy chains do not yet operate enough primary care clinics in their retail pharmacies to be a major influence on the lab testing marketplace.
“With the support of our lenders, we look forward to strengthening our financial foundation, advancing our transformation initiatives, and accelerating the execution of our turnaround strategy,” said Jeffrey Stein (above), Rite Aid’s CEO/Chief Restructuring Officer, in a press release. Clinical laboratory leaders may want to closely monitor the activities of the retail pharmacies in their areas. (Photo copyright: Rite Aid.)
Multiple Pharmacy Companies at Financial Risk
Rite Aid Corporation (NYSE: RAD) confirmed it continues to operate its retail and online platforms and has received from lenders $3.45 billion in financing to support the company through the bankruptcy process.
However, according to the Associated Press (AP), Rite Aid has experienced “annual losses for several years” and “faces financial risk from lawsuits over opioid prescriptions,” adding that the company reported total debts of $8.6 billion.
Additionally, the US Department of Justice (DOJ) filed a complaint “alleging that Rite Aid knowingly filled unlawful prescriptions for controlled substances,” explained a DOJ press release.
Rite Aid is not the only retail pharmacy brand dealing with unwelcome developments. Fortune reported last year that Walgreens and CVS paid a combined $10 billion to 12 states for “involvement in the opioid epidemic.”
Walgreens intends to close 150 US and 300 United Kingdom locations, its former Chief Financial Officer James Kehoe shared in a third quarter 2023 earnings call transcribed by Motley Fool.
And in a news release, CVS announced plans to close 900 stores between 2022 and 2024.
Pharmacy Companies’ Investment in Primary Care
Though they are experiencing difficulties on the retail side, Walgreens and CVS have significantly invested in primary care.
In that same ebrief, we reported on CVS’ acquisition of Oak Street Health, a Chicago-based primary care company, for $10.6 billion. CVS plans to have more than 300 healthcare centers by 2026.
“We looked at our business, and we said, ‘We’re seeing an aging population.’ We know people don’t have access to primary care. We know that value-based care is where it’s going. We know that there’s been a renaissance in home (care). So that’s kind of how we approached our acquisitions,” Karen Lynch, CVS Chief Executive Officer told Fortune.
Other Challenges to Retail Pharmacies
It could be that these major pharmacy chains are hoping entry into primary care will offset the loss of sales from prescriptions that have migrated to PBM organizations.
In addition to reimbursement challenges, retail pharmacies are reportedly experiencing:
High labor costs,
Competition from online, bricks-and-mortar, and grocery businesses, and
Effects from the work-at-home trend, among other struggles.
“I think there’s a number of challenges which are coming to a head. One, you have ongoing reimbursement pressure. The reimbursement level for drugs continues to decrease, so profit margin on the core part of the business is under pressure,” Rodey Wing, a partner in the health and retail practices of global strategy and management consulting firm Kearney, told Drug Store News.
Additionally, the pharmacy’s drug sales need to be high enough to retain pharmacists, who are difficult to recruit in a post-pandemic market, Drug Store News explained.
And in the retail space where products are displayed, some pharmacies struggle to compete with Amazon on convenience and with “dollar” stores on price. And with more people working from home, retail pharmacies are seeing less foot traffic, Drug Store News noted.
Retail pharmacy companies also have competition from pharmacies conveniently situated in grocery and big-box stores, Forbes reported. These include:
Walmart, for its part, reduced operating hours of pharmacies at more than 4,500 sites, Daily Mail reported.
Thus, medical laboratory leaders would be wise to keep an eye on market changes in their local retail pharmacies. Some locations are equipped with clinical laboratory services and a closure could give local labs an opportunity to reach out to patients and physicians who need access to a new testing provider.
