Phamatech: Payments to a Practice for Drug-Test Orders

Phamatech and its CEO and founder agreed to pay $3,043,484 to settle allegations of Medicare drug-testing kickbacks and unnecessary testing, the Justice Department announced. The government alleged that Phamatech paid a medical practice for each urine specimen it referred from a Medicare patient. A former employee brought the case. For someone inside a laboratory or referring practice, the allegation reaches familiar work: counting specimens, paying a referral source and billing Medicare for the tests that followed.

Phamatech is a San Diego medical-technology company that manufactures diagnostic devices and provides laboratory testing, including tests for drugs and alcohol. The practice at the center of the government’s allegations was Imperial Valley Wellness. The alleged arrangement linked the practice’s income to the urine samples it sent to Phamatech, while Medicare paid the laboratory’s claims.

How the Alleged Drug-Test Arrangement Worked

Phamatech allegedly paid Imperial Valley Wellness a per-specimen fee for about two years to induce referrals of Medicare urine samples. The government alleged that the referral payments and resulting Medicare claims violated the Anti-Kickback Statute and the False Claims Act.

The alleged fee was tied to each referred specimen from a Medicare beneficiary. It gave the referring practice a financial interest in sending urine samples to the laboratory that would bill for testing them.

Medicare generally pays the performing laboratory directly. Imperial Valley Wellness allegedly received a separate payment from Phamatech for referring that testing business. The laboratory’s claim and the practice’s fee describe the same sample from opposite ends of the transaction.

For an insider in health care, the per-specimen arrangement reaches across departments. We examine the payment ledger alongside the specimen referrals with you, connecting the laboratory’s accounts payable to its incoming work. Your knowledge of why the practice was paid helps us understand what those separate records mean together.

Taxpayers financed the testing at the end of this alleged arrangement. The government also alleged that many of the referred samples were not medically necessary. That puts the patient’s need for a test at the center of the story, alongside the practice’s payment for sending it.

When Are Toxicology Tests Unnecessary?

Toxicology tests are unnecessary when they lack a patient-specific clinical reason. In the Phamatech case, the government alleged that many urine samples referred under the paid arrangement were not medically necessary and therefore were not eligible for Medicare reimbursement.

The practice’s clinical documentation matters here. Under Medicare’s laboratory documentation rule, the ordering practitioner keeps the patient’s record showing why the test was needed. The billing laboratory keeps what the practitioner sent and documentation showing that its claim matches that information. Applied to this case, the comparison is between the reason for a patient’s urine test and the service for which Phamatech sought payment.

The clinical literature explains why a stream of specimens can outgrow a patient’s need for testing. The Journal of Family Practice’s 2021 review, Urine Drug Screening: A Guide to Monitoring Tx With Controlled Substances, describes financial interests associated with excessively broad panels, excessive testing frequency and unnecessary confirmatory testing. Its discussion of stable patients makes the point sharply:

The review describes testing frequency that changes with the patient’s progress in addiction treatment. Visits and tests become less frequent as addiction behavior diminishes, and more frequent when it increases. A business arrangement that pays by the specimen rewards volume. The clinical reason for collecting the next sample follows the patient.

That tension explains why the Phamatech allegations belong together: the government challenged the payment for the referral and the medical need for many of the samples referred. An insider who understands the practice’s testing decisions can add something the lab’s specimen count cannot explain on its own.

A Former Employee Brought the Phamatech Case

A former Phamatech employee brought the allegations in a qui tam case. The Justice Department announced the Phamatech settlement on October 2, 2020, and stated that the employee would receive a share of the settlement proceeds.

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

What Laboratory Insiders Can See

The useful evidence in a per-specimen case connects the referral payment to the specimens and the Medicare billing. We examine that connection with the person who understands how the business operated. The arrangement may be most visible to someone who approved the practice’s payments or reconciled its referrals, even if that person never submitted a Medicare claim.

The payment formula is especially revealing. The terms governing what triggered a payment and the records showing which specimens earned it can identify what the laboratory was buying. We then connect those referrals to the claims. In Phamatech’s case, the government specifically alleged a fee tied to urine samples from Medicare beneficiaries, making the payer attached to the referred testing part of the inquiry.

The same business question appears in the Cordant Health Solutions settlement. Cordant agreed to pay $11,942,913 to resolve allegations involving payments to Northwest Physicians Laboratories and Genesis Marketing Group for urine drug-test referrals. The recipients differed from Phamatech’s referring practice, but the shared question was what the laboratory paid to obtain the testing business.

For someone in healthcare billing, a practice manager or someone handling referral accounts, that connection can make routine records consequential. A payment may sit in the laboratory’s accounts while the patient’s clinical reason for testing sits at the practice. We work with the insider to understand what those records say about the same testing relationship and build the case around that knowledge.

You Know Why the Specimens Kept Coming

If you saw a laboratory pay a practice for Medicare urine samples, speak to one of our Whistleblower Experts about how that business worked. We work with you to build your strongest laboratory fraud case, bring in laboratory fraud whistleblower lawyers who understand referral payments and drug-test billing, and stay beside you through the pursuit of a recovery.