Family Medicine Centers: Bonuses Based on Tests Personally Ordered

In the Family Medicine Centers South Carolina laboratory settlement, the practice, its co-owner and former chief executive, and its former laboratory director agreed to pay $2 million to resolve allegations of referral-linked physician bonuses and unnecessary testing. The government alleged that physicians earned a percentage of the value of tests they ordered through the practice, which then billed Medicare. The alleged result: patients underwent unnecessary tests, and taxpayers picked up the bill through Medicare and TRICARE.

Family Medicine Centers of South Carolina LLC was a physician-owned chain of family medicine clinics in and around Columbia. The Justice Department announced the resolution on September 11, 2017, covering alleged false claims to Medicare and TRICARE. A physician formerly employed by the practice brought the whistleblower case under the False Claims Act.

The chain’s practices included Springwood Lake Family Practice, Woodhill Family Practice, Midtown Family Medicine, Saluda Pointe Family Medicine and Lake Murray Family Medicine. The announcement also listed Rice Creek Family Medicine as closed.

The Physician Compensation Plan Rewarded Test Orders

Family Medicine Centers allegedly paid its physicians a percentage of the value of laboratory and other diagnostic tests they personally ordered through the practice. The practice then billed Medicare for those services. The government tied the compensation to the ordering decision.

According to the settlement announcement, the co-owner and former chief executive allegedly initiated the program and reminded physicians to order tests and other services through the practice to increase its profits and keep their take-home pay among the highest for family practice doctors nationwide. The laboratory order had become part of the pitch for a better paycheck.

In its settlement announcement, the government challenged the compensation arrangement under the Stark Law, the physician self-referral law. Its allegation concerned a financial incentive built into the practice’s own pay plan. That matters to an insider reading a bonus statement: the calculation can show how an ordering decision benefits the physician who makes it.

How the Laboratory Testing Became Routine

The government alleged that the practice’s co-owner and former chief executive and its former laboratory director participated in submitting or causing false claims for medically unnecessary laboratory services. Its account identified separate decisions about the test menu, the physician’s order, the testing schedule and the billing codes.

Custom Panels Built for Routine Use

Family Medicine Centers allegedly created custom laboratory panels containing diagnostic tests that were inappropriate for routine measurement. The individual components still matter: the clinical reason for one test does not supply the reason for every other test in the package.

That concern was already explicit in federal laboratory compliance guidance published in 1998. The Department of Health and Human Services’ Office of Inspector General said a requisition should ensure that the ordering physician makes an independent medical-necessity decision for each test the laboratory will bill. At Family Medicine Centers, the government alleged that the panel design worked against that patient-specific choice.

Tests Without a Treating Physician’s Order

The government also alleged that the practice performed these tests without an order from the treating physician. The test menu could therefore reach beyond what the clinician had requested for the patient.

The Medicare diagnostic-testing rule ties a test to the clinician treating the patient and using the result to guide care. For this part of the allegations, the connection between the visit and the laboratory work is central: what did the clinician request, and what did the laboratory run?

Standing Orders Set the Frequency

Family Medicine Centers allegedly used standing orders to ensure that the custom panels ran at defined intervals rather than in response to clinical need. The panel selected the tests. The standing order made them recur.

The June 1997 Laboratory Medicine article Model Plan Helps Laboratories Fight Fraud described federal recommendations for telling physicians which tests a profile contained, how the laboratory would bill them and why each test needed medical justification. It also described monitoring existing standing orders to confirm their continued validity.

The patient-specific decision can be lost when a menu and a schedule keep generating tests after the initial selection. What keeps a test recurring is part of the billing story.

Billing Software Changed the Codes

The government alleged that the practice programmed its billing software to systematically change certain laboratory billing codes to ensure Medicare payment. The alleged change was built into the system that produced the claims.

For a billing employee, that is a different view of the case from the physician’s bonus statement or the laboratory’s test menu. The software rule can explain why the claim sent for payment differs from the work that entered the billing process.

What Evidence Is Needed to Prove Fraud?

For a health care practice like Family Medicine Centers, the relevant records are the bonus calculation, custom panel definitions, standing orders and billing-software code rules. Together, they can show how test orders affected physician pay, which tests were grouped and repeated, and how codes changed before claims went to Medicare. We work with insiders to connect what they saw in their own role to the decisions elsewhere in the business that made the practice repeatable.

The Settlement Changed Who Could Manage the Practice

Family Medicine Centers agreed to pay $1.56 million, while its co-owner and former chief executive and its former laboratory director agreed to pay $443,000. The announced resolution also addressed their future roles inside the practice.

Under the Corporate Integrity Agreement described in the Justice Department’s announcement, the two individuals would have no management role in the practice for five years. The practice also agreed to substantial internal compliance reforms, including hiring an independent review organization to conduct annual claims reviews.

What a Whistleblower Case Can Pay

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. This healthcare whistleblower case began with a former physician employee, someone who knew the practice from inside. Knowledge of how a clinic rewards orders or turns them into claims can be the starting point for a laboratory fraud case.

You Know How the Practice Paid for Orders

If you saw test-order bonuses, panels run by schedule or billing codes changed to secure payment, talk with our whistleblower experts about your practice. We build the case with you and bring in laboratory fraud whistleblower lawyers who understand physician compensation and unnecessary-testing claims. Speak with us about turning what you know about the clinic into your strongest laboratory fraud whistleblower case.