2nd Chance: The Unpaid Chemistry-Analyzer Lease Behind Laboratory Referrals

In the 2nd Chance laboratory settlement, the Lexington substance abuse treatment center agreed to pay $200,494 to resolve allegations that its unpaid use of a chemistry analyzer tainted urine drug testing referrals. The clinic used the machine to perform tests and collect Medicaid payments, while the laboratory supplying it received referrals for more complex testing. The alleged referral benefit was sitting in the clinic, earning it money.

The Justice Department announced the civil settlement on August 16, 2019. It alleged that 2nd Chance, PLLC caused false claims to Kentucky Medicaid through referrals to Compliance Advantage, LLC, a toxicology laboratory in Nicholasville, Kentucky known as CAL Lab. The clinic’s acceptance and use of the equipment without making lease payments was central to the government’s False Claims Act allegations.

The Analyzer Worked Before the Lease Was Paid

CAL Lab supplied an analyzer that enabled 2nd Chance to perform some urine drug testing on-site beginning on or around October 3, 2016. The machine gave the clinic testing capacity inside its own practice, while CAL remained the destination for more complex drug testing referred by the clinic’s physicians.

According to the Justice Department’s account of the settlement agreement, CAL and 2nd Chance signed a lease on November 29, 2016. It required the clinic to pay CAL a monthly fee for using the analyzer. The clinic made no payments for its use until March 14, 2017.

The government described a five-month period in which the clinic benefited from the analyzer without paying for it. That period began with use of the machine, before the written lease.

The Medicaid Money Went in Different Directions

The government alleged that 2nd Chance received over $400,000 from Kentucky Medicaid for drug tests performed on the analyzer during the unpaid-use period. It also received the results for use in patient care. The equipment therefore provided both a clinical service and a way for the practice to earn testing revenue.

CAL’s side of the arrangement was different. It received referrals for more complex drug testing and submitted claims to Kentucky Medicaid totaling close to $90,000. The government alleged that those claims were false because the clinic accepted and used the analyzer without making lease payments in exchange for referrals.

That is why the unpaid equipment matters. The clinic could earn money on the tests it performed while directing other testing to the laboratory providing the machine. A review focused only on checks labeled referral fees would miss the benefit the government described here.

Do Doctors Get Kickbacks for Ordering Tests?

Yes. Here, the government alleged that the clinic’s unpaid use of the analyzer was a kickback for its physicians’ referrals.

A free chemistry analyzer used by a clinic that refers specimens can put the benefit directly into the practice’s operations. The government treated the unpaid use in this case as something of value exchanged for referrals paid by Kentucky Medicaid. That is the connection between the equipment arrangement and the resulting claims.

The laboratory business gives that benefit a particular importance. An analyzer costs money whether or not specimens arrive; a laboratory that carries that cost for a referring practice has bought a relationship with the people who decide where the send-out work goes. Supplying equipment to a health care practice brings those interests together: the practice gains testing capacity, and the supplier has a relationship with the people directing the send-out work.

The government alleged that CAL billed Kentucky Medicaid for referrals bought with unpaid equipment use. Taxpayers were being asked to pay for the bargain.

How to Detect and Deter Laboratory Fraud?

We work with insiders to connect the lease, payments, referrals and claims behind an equipment arrangement. The unpaid analyzer shows why the financial benefit belongs in that review alongside the testing itself.

The separation between the ordering practice and the performing laboratory has long shaped laboratory oversight. In Model Plan Helps Laboratories Fight Fraud, published in Laboratory Medicine in 1997, the account of the federal model compliance plan describes standardized requisition forms with space for the physician to document why each test was medically necessary. It also describes physician acknowledgment of customized test profiles, review of standing orders and analysis of test-use data.

Those recommendations make the order record useful for more than billing. It connects the referring practice’s choices to the testing the laboratory performed. In an analyzer arrangement, we examine that clinical record alongside the equipment and payment records. Healthcare staff handling the lease may know why no payment went out. Staff handling specimens may know where the more complex work went. Their accounts can explain different parts of the same relationship.

Analyzer Reimbursements Erased the Physician’s Expense

In a separate case involving Physicians Choice Laboratory Services, the government’s complaint alleged that a physician paid an analyzer company for testing and then received reimbursement for those costs and other analyzer expenses. The allegation shows a different way to absorb the referring practice’s operating costs: money went out, then came back.

Here, the complaint alleged reimbursement that erased the physician’s expense. In the 2nd Chance settlement, the government alleged unpaid use of the analyzer. Both accounts put the practice’s equipment costs beside the testing it sent elsewhere.

CAL Lab Also Agreed to a Civil Judgment

In June 2018, CAL Lab agreed to a separate civil settlement that included a $2,816,015 judgment in favor of the United States. According to the Justice Department announcement, CAL admitted knowingly failing to return overpayments for specimen validity testing, a service not covered by Medicare or Kentucky Medicaid. That admission concerned money CAL kept, distinct from the equipment benefit alleged against the clinic.

The Related Criminal Case Used Another Laboratory’s Billing Information

The same Justice Department announcement described guilty pleas in a related criminal case involving a separate CAL billing arrangement. Two participants pleaded guilty to conspiracy in connection with an agreement to bill tests referred to and performed by CAL under another laboratory’s billing information. The participants and CAL’s owner had agreed to use that information to evade payment restrictions insurers had placed on CAL.

That criminal account adds another concrete comparison for a laboratory insider: the laboratory that performed the testing and the laboratory whose information appeared on the bill. The civil allegations against 2nd Chance concerned the equipment benefit and referrals. The related criminal pleas concerned the use of another laboratory’s billing information to get claims paid.

What an Equipment Arrangement Can Show a Whistleblower

The useful knowledge may sit with the person who handled the lease, recorded the payments, ran the analyzer or directed the send-out testing. We work with that knowledge to connect the benefit received by the practice to the referrals and government claims it allegedly purchased.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

The unpaid analyzer makes the broader point tangible. An alleged referral payment can take the form of a practice expense that someone else carries. Understanding that expense, and how it affected the choice of laboratory, is where an insider can make the difference.

You Know How the Analyzer Was Paid For

If you worked with the equipment accounts or specimen referrals, talk with our whistleblower experts about the arrangement you saw. We develop the case with you and bring in laboratory fraud whistleblower lawyers who understand equipment benefits and Medicaid billing. You have a partner from the first discussion of the unpaid lease through the pursuit of a recovery.