Northwest Physicians Laboratory: The Physician-Owned Lab That Sold Federal-Program Referrals

In the Northwest Physicians Laboratory fraud case, the former CEO agreed to pay $1.1 million to settle allegations that outside laboratories bought Medicare and TRICARE referrals through fees for marketing work nobody performed. The physician-owned laboratory could direct the business elsewhere and receive money back. For someone who worked in laboratory sales, a physician office or billing, that is the transaction worth recognizing: the test went one way, and the referral payment came the other.

The Justice Department’s October 18, 2021 civil settlement announcement described payments from Molecular Testing Labs and Sterling Healthcare Opco, doing business as Cordant Health Solutions. Both allegedly paid Northwest Physicians Laboratory for federal-program business between January 2013 and July 2015. By the time of the announcement, Northwest Physicians Laboratory was defunct.

How Northwest Physicians Laboratory Sent Federal-Program Business Elsewhere

The Justice Department described a constraint on Northwest Physicians Laboratory: because it was physician-owned, it could not test urine samples for patients covered by government health care programs such as Medicare, Medicaid and TRICARE. The civil allegations concerned payments for referrals of Medicare and TRICARE business to the outside laboratories.

Under the alleged arrangement, Molecular Testing Labs and Cordant obtained the referrals and paid Northwest Physicians Laboratory in return. The referring lab could earn money from testing performed elsewhere.

The ordering relationship matters in the laboratory business because the treating practitioner chooses the test and uses the result in the patient’s care, while the laboratory performs the test and submits the claim. A referral gives the receiving lab access to a billable service that begins in someone else’s practice.

Here, the government alleged that the return payment bought that access. The physician-owned laboratory occupied the referral side of the arrangement, while the outside laboratories received the government-program testing business.

Sales Fees Without Marketing Work

The alleged sales arrangement paid Northwest Physicians Laboratory for referrals while describing the money as compensation for services. The Justice Department’s account of the civil settlements put the discrepancy plainly:

The labs allegedly paid for marketing that nobody did. What they bought was the referral.

That makes the sales relationship part of the evidence. A person who knows what work a marketing payment supposedly purchased may also know who promised the referrals, which laboratory received them and who approved the payments. We examine those connections with the insider who saw them. In the arrangement the Justice Department described, the account of the work is as important as the account of the money.

The Former CEO’s Civil Settlement

The former CEO’s civil agreement called for an initial $500,000 payment, followed by annual payments until the full amount was paid. He led Northwest Physicians Laboratory during the period of the alleged referral payments.

The agreement resolved allegations under the False Claims Act and the Anti-Kickback Statute. It put a civil payment obligation on the executive who led the referring laboratory, alongside the separate settlements with the laboratories accused of buying the business. The October 2021 announcement also reported that the former CEO had pleaded guilty in the criminal case concerning the kickback scheme.

The Co-Owner Who Led Sales

The criminal case also reached Northwest Physicians Laboratory’s co-owner and vice president of sales. The Justice Department’s March 2022 verdict announcement reported his conviction for conspiring to solicit and receive kickbacks and for receiving them. It said he helped steer specimens to outside laboratories in exchange for more than $3.7 million in payments to Northwest Physicians Laboratory. The company itself had pleaded guilty in February 2021.

In its January 2023 account of the criminal case, the department described prosecutors’ account of how the sales manager kept the marketing explanation alive: he misled the sales force and providers and circulated fraudulent legal opinion letters. Prosecutors said his monthly distributions rose from $10,000 in 2013 to $50,000 in 2015. The sales explanation and the owner’s compensation were parts of the same referral business.

Patient Care Behind the Urine Sample

Urine drug testing helps clinicians evaluate and treat patients with substance use disorders and monitor patients taking controlled substances. A clinical review in The Journal of Family Practice, Urine Drug Screening: A Guide to Monitoring Tx with Controlled Substances, published in 2021, centers testing on the patient’s risk and the clinical use of the result.

The review also describes how financial interests can encourage large, expensive panels, excessive testing frequency and unnecessary confirmatory testing. Its focus is how the financial incentive can pull testing away from the patient’s needs.

The Department of Justice explained the concern in its announcement: paying medical providers or provider-owned laboratories for referrals encourages medically unnecessary services. The patient needs an answer that helps with care. The receiving laboratory gains business when a specimen arrives. A payment back to the referral source gives that source a financial reason to send the business to the paying laboratory.

The physician generally selects the laboratory. The patient receives the service, and the government program pays. The alleged marketing arrangement put a private payment into that choice, at taxpayers’ expense.

What Proof Do You Need as a Whistleblower?

For a laboratory referral-payment case, useful evidence connects the testing business to the payment and explains what the recipient actually did in return. Contracts, descriptions of services, referral records, payment records and communications about the arrangement can show different parts of that relationship. Our whistleblower experts work with you to establish how those parts fit together.

Under CMS’s diagnostic-test documentation rules, the ordering practitioner maintains the medical-necessity documentation in the patient’s record. The entity submitting the claim keeps what it received from the practitioner and documentation showing that its claim accurately reflects that information. The medical reason for the test and the laboratory’s bill therefore have to be connected across the ordering and billing sides.

Laboratory Medicine‘s 1997 article Model Plan Helps Laboratories Fight Fraud describes a concrete link between the practice and the lab: uniform requisitions with space for the physician to record the diagnosis supporting each test.

In a referral-fee matter, we connect that testing information with the commercial arrangement. Someone in sales may understand the promised work. Someone in a physician office may know where the specimens went. Someone handling payments may know the expense description and recipient. Those perspectives can explain the same transaction from different sides without any one employee having seen every part of it.

Cordant and Molecular Testing Labs’ Separate Civil Settlements

Cordant separately settled civil allegations over payments for Northwest Physicians Laboratory referrals.

Molecular Testing Labs, a testing laboratory in Vancouver, Washington, agreed in December 2018 to pay $1,777,738 to settle allegations that it paid illegal kickbacks for government healthcare program referrals. The Justice Department recounted that agreement in its later announcement of the former Northwest Physicians Laboratory CEO’s settlement.

These resolutions show the arrangement from both ends. The performing laboratories faced civil allegations over money paid to obtain business. The former CEO’s civil agreement concerned the referring laboratory’s side. The recurring transaction is a laboratory paying the source of its specimens, with a service description standing in for the referral it allegedly bought.

The Whistleblower’s Share of the Recovery

In the former CEO’s civil settlement, the Justice Department said the whistleblower would receive 15% of the recovery. The announcement credited a whistleblower with bringing the fraud to the government’s attention.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. An insider’s value in a referral-payment case can lie in explaining the relationship behind an otherwise routine-looking payment: who directed the testing business, who paid for it and what the claimed service amounted to in practice.

You Know What the Marketing Fee Bought

If you saw referral business exchanged for fees that bought no actual work, speak with our whistleblower experts about the laboratory payments. We bring in laboratory fraud whistleblower lawyers who understand referral arrangements and federal-program billing. We stay with you through the whole case to build your strongest laboratory kickback whistleblower case.