Allied Clinical Laboratories: The Guilty Plea Inside Labcorp’s LabScam Resolution

The Allied Clinical Laboratories LabScam case involved a guilty plea by the company’s San Diego Regional Lab for false claims to Medicare and Medi-Cal. The plea sat inside a broader resolution involving Labcorp and its predecessor laboratories. For someone who knows the ordering forms, test panels or billing instructions inside a laboratory, the enforcement wave exposed a familiar possibility: the doctor sees a routine blood test, while taxpayers pay for more.

Allied entered its guilty plea on November 21, 1996, as the Justice Department recounted in its historical account of laboratory enforcement.

How Allied Became Part of Labcorp

National Health Laboratories acquired Allied Clinical Laboratories in 1994. National Health Laboratories then merged with Roche Biomedical Laboratories in 1995 to form Laboratory Corporation of America. The company’s annual filing dates that merger to April 28, 1995.

Allied’s operating history became part of the successor company’s history, and the government resolved claims involving Allied, Roche Biomedical and National Health Laboratories together.

An employee’s knowledge is usually more specific than the name on the parent company’s annual report. The employee may know the laboratory that ran the tests, the forms its sales staff supplied and the billing department that sent the claims. Those details connect the corporate history to the work that generated the government’s bill.

What LabScam Was Built to Catch

LabScam pursued laboratory billing practices that turned additional tests into additional government charges, including tests physicians had been led to believe were free. The National Health Laboratories criminal case preceded the initiative: the company pleaded guilty in December 1992 over false claims, with the conduct involving tests added to panels and misleading representations to physicians about their cost.

The business arrangement made the deception useful. A treating clinician orders a diagnostic test and holds the medical explanation for it. The laboratory performs the test and bills for it. The program paying the claim sees a different part of the transaction from the physician who chose the testing.

A panel makes the gap harder to see. The physician can select a group of tests under one name, while the laboratory controls how the group is described and how its components reach the bill. An added test can look like an incidental part of the package to the physician and become a separate charge to Medicare.

Automation added another financial incentive. In its 1998 report on hospital billing practices, the General Accounting Office explained that machines could perform multiple tests on one blood sample, reducing laboratory costs. The billing system recognized that economy by paying less for an automated profile than for the same tests billed separately. Splitting the bill could therefore increase payment for the same laboratory work.

That is why the order form and the claim have to be read together. One shows what the physician selected. The other shows what the laboratory asked the government to buy.

Meris Laboratories agreed to pay $5.2 million in a separate civil settlement over allegations that it added unnecessary tests to automated panels and billed for additional blood-count indices, according to the Justice Department’s February 12, 1997 announcement.

The Allied Whistleblower Case in Ohio

Two whistleblowers brought a separate Allied case in Ohio and received a share of the recovery, as the court’s account of the whistleblower cases describes.

For a laboratory insider, the connection that matters is the one between the conduct you saw and the claims it produced. Healthcare billing staff, laboratory personnel and physician-office employees see different parts of that connection. Our whistleblower experts work with you to understand what your position in the business reveals.

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

Why the Compliance Response Focused on Forms and Billing

The June 1997 Laboratory Medicine article Model Plan Helps Laboratories Fight Fraud described recommendations for requisitions documenting each test’s medical need and physician notices explaining profile components and Medicare billing.

You Know How the Test Became a Charge

If you know why a laboratory added tests, what physicians were told or how the billing instructions changed, talk with our whistleblower experts. We build your strongest laboratory whistleblower case with you and bring in laboratory fraud whistleblower lawyers who understand test ordering and Medicare billing. You bring the view from inside the business, and we stay beside you through the pursuit of a recovery.