Biodiagnostic Laboratory Services: Sham Leases and the Physician-Bribery Network

The Biodiagnostic Laboratory Services fraud case centered on a physician-bribery scheme that brought the lab more than $100 million from Medicare and private insurers, according to the Justice Department’s corporate guilty-plea announcement. The criminal information described payments to doctors disguised as rent, services and consulting. It charged that the scheme ran from at least January 2006 through April 2013.

Biodiagnostic Laboratory Services was a clinical blood laboratory in Parsippany, New Jersey. The company pleaded guilty on June 28, 2016 to conspiracies involving physician bribery and money laundering. This health care fraud case reaches into the ordinary work of a laboratory: recruiting physician accounts, collecting specimens, paying sales commissions and billing insurers. The agreements gave the payments respectable names. The records connecting those payments to testing gave them their meaning.

Do Doctors Get Kickbacks for Ordering Tests?

Yes. The corporate guilty-plea announcement reported that BLS organizers admitted paying millions of dollars in bribes to physicians for blood-test referrals. The criminal information, the charging document to which BLS pleaded guilty, described payments intended both to bring specimens to the laboratory and to induce unnecessary testing.

The business depended on a decision made outside the laboratory. Physicians referred their patients’ blood specimens. BLS performed the tests and billed Medicare and private insurers. Its salespeople recruited those physicians, and their commissions depended on the revenue the referred testing generated.

That arrangement put the sales incentive in the examining room. According to the criminal information, physicians could receive a cash fee for ordering a particular test that was highly profitable for BLS. A physician could send more patients, order more tests on each patient’s blood, or both. Each offered a way to increase the laboratory’s revenue and the salesperson’s commission.

The patient came for a medical decision. The payment system described in the criminal information gave the person making that decision a separate reason to choose the laboratory and expand the testing. Taxpayers and private insurers paid for tests ordered under that incentive, while patients depended on the physician to order what they needed.

Sham Leases and Services Paid for Referrals

The criminal information alleged that BLS paid physicians for office space it did not actually use and paid above-market amounts for basic blood-drawing tasks. Both arrangements placed a business contract between the laboratory and the physician receiving its money.

The information charged that BLS leased substantially more space than it used and misrepresented the transactions, making the payments far larger than ordinary rent for that space.

The service agreements worked through the same office. The charging document alleged that BLS paid substantial sums for routine blood draws that many physicians would have performed anyway. The supposed service was familiar. The reason for the payment was the referral.

For an employee who knew the office arrangement, the difference was concrete. The lease described space, while the collection staff knew where they actually worked. A service agreement described blood-drawing duties, while the practice knew who performed them.

Consulting Agreements Kept the Money Moving

When New Jersey restricted laboratory payments under lease and service agreements, the criminal information alleged that BLS shifted money through newly funded entities and sham consulting agreements. The filing said the state acted in 2010 after reports of inflated rents influencing laboratory selection and difficulty checking whether those rents reflected the space’s value. Many physicians receiving the later payments had already received money through the earlier arrangements.

The information charged that BLS supplied more than $8 million to these entities to fund bribes. More than $1.6 million was withdrawn in hundreds of cash transactions, much of it used to pay physicians. Other payments reached physicians as checks issued under the consulting agreements. The entity signing the check could change while the laboratory funding it and the physician receiving it stayed the same.

The Justice Department’s account of the initial criminal complaint gives a particularly clear example. It alleged that a BLS employee who also ran Advantech Sales LLC paid a physician $1,500 a month for spending less than two minutes completing a one-page questionnaire. The questions concerned sales visits and the practice’s insurance relationships. The complaint alleged that the payments actually bought blood-specimen referrals. The fee bought access to patients’ blood, dressed up as advice about sales visits.

The account payable, the supposed consulting task and the referrals belong in the same picture. A practice employee who knew how little work the questionnaire required could explain what the consulting label concealed.

Running the BLS Referral-Payment System

The corporate criminal information placed BLS’s president and his brother, a laboratory employee, inside the operation of the payment system. It alleged that they supervised the salespeople recruiting physicians, arranged disguised payments and funded entities used to continue paying for referrals.

The salesperson’s compensation tied that supervision to individual physician accounts. According to the information, BLS paid commissions based on revenue received from Medicare and private insurers for testing referred by the physicians each salesperson recruited. The company’s return, the salesperson’s commission and the physician’s payment were connected parts of the same business relationship.

The information also reproduced messages between the president and a referring physician about increasing testing volume. The physician described the added testing this way:

The physician was discussing added tests with the person paying for referrals. In other messages reproduced in the same paragraph, the physician set a billing goal for BLS, and the president pressed for greater specimen volume from the office.

For a sales or account-management employee, those conversations matter alongside the compensation records. They connect the discussion of more business to the people ordering the tests and the people paying for the referrals.

The Monthly Records Connected Payments, Tests and Revenue

The criminal information alleged that BLS and funded entities maintained detailed monthly records of money paid to each physician, tests ordered by that physician and revenue those tests generated. The company was allegedly tracking the very relationship that the lease and consulting descriptions disguised.

Different employees may recognize different parts:

• Sales and account management: the physician recruited, the commission formula and the messages about increasing referrals or test volume.
• Billing and laboratory operations: the tests ordered and performed, the claims sent to insurers and the payments received for that physician’s patients.
• Finance and practice administration: the lease or consulting agreement, the work actually performed, the entity funding the payment and the physician receiving it.

Someone who knows why an account’s testing changed may explain a pattern that the payment ledger records without explaining. Our work is to connect that inside knowledge to the transactions.

The Test Order and the Referral Payment Belong Together

An independent laboratory’s order file and the physician’s patient chart show different parts of the same test. The physician holds the medical explanation for ordering it. The laboratory holds the request it received and the information it used to bill. A referral-payment inquiry needs the clinical decision as well as the money.

That separation matters because the BLS criminal information charged that payments encouraged additional, profitable tests. The question reaches beyond where a specimen went. It also concerns who selected the tests and why the testing expanded. We examine the order, the work performed and the claim together, then connect them to the referral arrangement.

Laboratory-compliance literature had identified records useful to that inquiry long before the BLS prosecution. In Laboratory Medicine, the 1997 article Model Plan Helps Laboratories Fight Fraud described physician acknowledgments for customized test profiles, monitoring of standing orders and analysis of test-use data. It also described requisition forms with space for the physician to document the medical necessity of each test.

Applied to a referral-payment case, the paper’s lesson is practical: the ordering forms, test-use reviews and physician communications belong beside the contracts and ledgers. That comparison asks whether the clinical account of the testing agrees with the commercial account. The patient’s care and the sales account should not tell different stories about why a test was ordered.

One Laboratory, Many Participants

By the BLS corporate plea announcement, the criminal investigation had produced 40 guilty pleas, including 26 from doctors.

The successive accounts of physicians, salespeople and organizers describe participants in the same laboratory referral network. The corporate filing connects their roles through the company’s contracts, commissions, funding and test revenue.

For an insider considering a civil whistleblower case, the BLS documents show the value of knowing how the business actually operated. A payment ledger can show that money changed hands. The person who worked with the physician account may know what that money was expected to produce.

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

You Know What the Physician Was Paid to Do

If your healthcare work involves leases, consulting checks or physician accounts like these, talk with our whistleblower experts about the referral payments you saw. We build the case with you, bring in laboratory fraud whistleblower lawyers who understand referral arrangements and testing records, and stay beside you through the pursuit of a recovery.