Bluewater Toxicology: What Was Tested, Who Ordered It, and Who Used It

In the 2021 Bluewater Toxicology settlement, the laboratory agreed to pay $1,252,403 over allegations that it overstated drug-class counts, billed tests without adequate order documentation and separately charged for specimen-validity testing. A later settlement set Bluewater’s payment at $895,952 after allegations involving urine tests referred by recovery centers and a homeless shelter. Medicare, Medicaid and the taxpayers behind them paid for the allegedly improper claims.

Bluewater is a clinical laboratory in Mount Washington, Kentucky. Its first settlement followed the company’s own disclosure of allegedly false claims. The later settlement concerned recovery-center referrals that allegedly led to bills for tests with no medical purpose.

What Bluewater Disclosed in 2021

Bluewater’s self-disclosure brought three alleged billing problems to the government. The Justice Department described claims submitted to Medicare, Kentucky Medicaid, Indiana Medicaid, TRICARE and CHAMPVA.

The disclosure also changed the payment. According to the department, Bluewater resolved the matter for 1.5 times the monetary loss attributed to its allegedly false claims because it disclosed them itself. The announcement compared that with the False Claims Act’s provision for three times the government’s loss.

More Drug Classes on the Claim

The government alleged that Bluewater billed definitive urine drug tests as covering 22 or more drug classes when it had tested fewer. Those claims ran from January 2016 through September 2018. The alleged overstatement secured a higher reimbursement.

The class count has a specific job in definitive drug-testing billing. Medicare groups the testing into payment tiers by the number of drug classes. During the period at issue, the highest of those tiers covered the class count Bluewater allegedly claimed.

A technical employee’s account of what the laboratory tested can expose that mismatch. The bill may describe the broadest tier while the laboratory’s own testing records describe fewer classes.

The neighboring LabTox settlement, announced in 2019, concerned a different alleged mismatch: billing high-complexity urine testing when the method was low complexity, along with specimen-validity billing. An insider who knows the test can identify which feature the claim overstated.

The Physician’s Intent to Order the Billed Test

The second Bluewater allegation concerned claims from January 2016 through December 2017. The government said the documentation did not sufficiently support the treating physician’s intent to order the test Bluewater billed.

For someone working with requisitions or billing, that is a concrete comparison. We examine the order documentation alongside the test billed, looking at what the physician requested and how that request became a charge.

Can Specimen Validity Testing Be Billed Separately?

Medicare does not pay separately for specimen validity testing performed as quality control with urine drug testing, and the government alleged that Bluewater billed it anyway. The Justice Department said Medicare guidance had stated that boundary since January 2014. The allegedly separate bills ran from October 2014 through May 2016.

A 2014 review in PharmacologyOnline, False Positive and False Negative Results in Urine Drug Screening Tests: Tampering Methods and Specimen Integrity Tests, explains how creatinine and specific gravity can help detect dilution.

When Are Toxicology Tests Unnecessary?

Toxicology tests used only to enforce a recovery program’s rules or a court order, with no use in medical diagnosis or treatment, do not meet the medical purpose federal health care programs pay for. That was the government’s allegation in the later Bluewater matter. The purpose of the result was central to the case.

The clinical use is easy to recognize. The 2014 Pain Physician article Ethical Perspectives on Urine Drug Screening for Pain Physicians describes testing to monitor adherence to prescribed medication and to inform continuing care.

The later settlement described a different use: a homeless shelter’s rule checks allegedly reached Medicare as medical care. Recovery centers also allegedly used the results to monitor compliance with their programs and court orders. The person working with those accounts could know exactly what the results were for.

The Recovery-Center Referrals Moved to Bluewater

The referral route began at Physicians’ Medical Center, a hospital in New Albany, Indiana. The government alleged that its laboratory billed Medicare, Kentucky Medicaid and TRICARE for tests referred by nonmedical organizations, including peer-to-peer recovery centers and a homeless shelter. The hospital’s alleged false claims ran from December 2016 through September 2018.

The Justice Department alleged that a laboratory sales representative knew those clients did not provide medical services but pursued their business anyway, with a salary tied partly to what insurers paid the hospital for his clients’ tests. The allegation connected knowledge of the referral source with a financial reason to keep the specimens coming.

The government also alleged that a recovery-center director, working as a specimen collector for the hospital laboratory, helped arrange for a volunteer doctor to order tests while knowing that the doctor did not treat the center’s clients. In that account, the doctor’s order supplied paperwork for a test used only for program compliance.

The Justice Department said the sales representative moved to Bluewater after the hospital closed its laboratory in October 2018. The government alleged that he caused Bluewater to submit claims for medically unnecessary urine tests from the same recovery centers and shelter through July 2019. It also alleged that Bluewater knew federal healthcare programs would not pay for that nonmedical use.

The Justice Department put Bluewater’s allegedly false claims from these referrals at nearly $450,000, billed to Medicare and Kentucky Medicaid. The allegation followed the same referral sources to another laboratory. For an insider, the account history follows the business across that change of employer.

Cash and Extra Pay for Referrals

The later announcement also described another sales representative’s alleged payments to a physician and the physician’s office manager to induce referrals to both laboratories. The government said the representative paid cash and additional salary to specimen collectors working at the medical office to obtain its large volume of referrals.

The hospital’s laboratory manager, United States Medical Scientific Indiana, also allegedly supplied collectors who performed office work unrelated to specimen collection.

The government alleged that both laboratories submitted claims for tests tied to their representative’s kickbacks.

What a Laboratory Insider Can Connect

Bluewater’s cases put the technical side of testing beside the commercial side.

Those details sit with different people. A laboratory employee may know which classes the method covered. A sales employee may know why a recovery center wanted the tests. A collector may know which duties served the physician’s office. We work with the person who knows that part of the business and connect it to the claims the government paid.

The Later Settlement and the Whistleblower Case

The later Bluewater payment formed part of settlements totaling more than $7.2 million across the hospital, laboratory and individual participants. The Justice Department attributed the resolution to a qui tam case and said the whistleblowers who brought it would receive a portion of the proceeds.

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

You Know What the Lab Was Billing

If you know the class counts, the order records or the purpose of recovery-center testing, speak to one of our whistleblower experts about what the lab billed. We build the case with you and bring in laboratory fraud whistleblower lawyers who understand toxicology billing and referral arrangements. We stay beside you throughout the process to build your strongest laboratory fraud whistleblower case.