Physicians’ Medical Center: Court-Ordered Tests Billed as Medical Care

In the Physicians Medical Center laboratory settlement, the hospital agreed to pay $5,219,000 over allegations of nonmedical urine drug testing and payments for laboratory referrals, the Justice Department announced. The allegations reached from a volunteer doctor ordering tests for people he did not treat to laboratory-funded staff doing a referring physician’s office work.

Physicians’ Medical Center was a hospital in New Albany, Indiana. United States Medical Scientific Indiana managed its clinical laboratory. The government alleged that the hospital submitted false claims to Medicare, Kentucky Medicaid and TRICARE from December 2016 through September 2018. The Justice Department announced the settlements on September 27, 2024.

When Are Toxicology Tests Unnecessary?

Toxicology tests performed only to enforce a program’s rules or a court order lack the medical purpose at the center of the Physicians’ Medical Center allegations. The government said a homeless shelter and peer-to-peer recovery centers referred urine drug tests whose results they used only to monitor compliance. They did not use the results to diagnose or treat the people being tested.

The government’s account of those referrals put the hospital’s alleged false claims from the nonmedical entities at nearly $3 million. The hospital allegedly billed federal healthcare programs for tests serving the shelter’s or recovery program’s requirements. In the government’s account, taxpayers were paying for compliance checks as though they were medical care.

The clinical work behind a urine test helps explain the distinction. Urine Drug Screening: A Guide to Monitoring Tx With Controlled Substances, published in The Journal of Family Practice in 2021, describes testing used to evaluate and treat patients with substance use disorders or receiving long-term opioid or benzodiazepine therapy. The review recommends a risk-based approach and examining unexpected results alongside the patient’s history or confirmatory testing. The result feeds back into care.

A Doctor Ordered Tests for People He Did Not Treat

A recovery-center director allegedly helped arrange for a volunteer doctor to order urine tests while knowing that the doctor did not treat the center’s clients. The director also worked as a specimen collector for the hospital’s laboratory.

The government separately alleged that a hospital laboratory sales representative knew the referring entities did not provide medical services but pursued their business anyway. According to the government, his salary depended in part on how much insurers paid the hospital for tests from his clients, including these nonmedical entities.

The collector could know how the doctor’s orders came about. The sales representative could know what the client actually did and what its paid claims meant for his compensation. According to the government, both helped cause claims for tests referred by the nonmedical entities.

The treating relationship matters in the laboratory business because ordering and billing sit in different hands. Medicare’s diagnostic-testing rule ties the order to a clinician treating the patient and using the result to manage a medical problem. In the volunteer-doctor allegation, the missing connection was the treatment itself. Arranging for a doctor to order the test did not create that relationship.

Do Doctors Get Kickbacks for Ordering Tests?

The government alleged cash payments and office labor as inducements for referrals in the Physicians’ Medical Center case. A different sales representative, who worked for the hospital and Bluewater Toxicology, allegedly paid a referring physician and his wife, the practice’s office manager, to win their laboratory business.

The representative allegedly paid them cash and paid additional salary to specimen collectors working in the office. The hospital, through its laboratory manager, also employed collectors there who allegedly performed office work unrelated to collecting specimens. The alleged benefit extended beyond specimen collection: the physician’s practice allegedly received work from staff employed by the laboratory.

The government said the hospital and Bluewater submitted claims to federal healthcare programs for tests tainted by those referral payments.

The whistleblower’s complaint against Genotox Laboratories describes a similar staffing benefit in a separate case. It alleged that Genotox’s specimen collectors at New Beginnings in Colorado performed office and clerical work in addition to collecting and processing samples. That parallel makes the practical question clear: whose work was the laboratory paying someone to do?

The Lab Manager Owned the Referring Practice

The hospital’s laboratory manager also allegedly owned Prescribe Recovery, a medical practice in Paris, Kentucky, and directed its providers to send tests to the hospital. This was another referral arrangement covered by the hospital’s settlement, with the manager positioned on both sides.

According to the government’s description of the arrangement, United States Medical Scientific Indiana received 78% of the laboratory claim reimbursements paid to the hospital, including reimbursements from Prescribe Recovery referrals. The government alleged that this payment induced the manager to direct the practice’s testing business to the hospital’s lab.

The government described a loop: providers at the manager’s medical practice referred the tests, the hospital billed for them, and the manager received most of the resulting reimbursement. For someone who knows the management agreement, the referral instructions or the payments, that connection is more revealing than either company’s name on its own.

The Lab Closed, but the Referrals Moved to Bluewater

Physicians’ Medical Center closed its laboratory in October 2018. The sales representative who had worked with the nonmedical entities then joined Bluewater Toxicology in Mount Washington, Kentucky. The government alleged that he caused Bluewater to bill for medically unnecessary urine tests from the same peer-to-peer recovery centers and homeless shelter through July 2019.

The later Bluewater allegations concerned nearly $450,000 in false claims to Medicare and Kentucky Medicaid. Bluewater agreed to pay $895,952 in its own settlement. Its testing and claims followed the hospital’s laboratory closure, with the sales representative and referring clients providing the connection between the periods.

That handoff matters to an insider who saw the account move. The laboratory changed, but the alleged source and nonmedical purpose of the referrals continued. The government’s account follows the business relationship across employers.

A Separate Court-Testing Case Shows the Same Gap

In a separate case against Blue Waters Assessment & Testing Services, whistleblowers alleged that court-supervised testing was billed to Kentucky Medicaid without a medical basis. Their complaint described the use of the tests in its own words:

The shared issue is who needed the result and what they did with it. In that complaint, as in the government’s Physicians’ Medical Center allegations, a court or program requirement supplied the reason for testing while the claim sought payment for medical care.

What Evidence Is Needed to Prove Fraud?

Our whistleblower experts connect the testing purpose, the medical records, the claims and the referral payments to what you saw inside the business.

In the Medicare laboratory workflow, the ordering clinician keeps the medical-necessity documentation in the patient’s record. The billing entity keeps what it received from the clinician and documentation that the claim accurately reflects that information. A recovery program’s testing requirement and a patient’s treatment record therefore answer different questions about the same specimen.

A collector may know who arranged the orders and what duties the practice assigned. A salesperson may know the clients’ actual services and the compensation formula. Someone handling laboratory management payments may see how reimbursements connect to a referring practice’s ownership. Those are the working relationships the hospital’s alleged referral arrangements put at the center of the case.

The Civil Settlements and the Whistleblower’s Share

The civil health care fraud settlements reached beyond the laboratories to the sales representatives, the recovery-center director, and the referring physician and office manager.

The case began with a private citizen’s qui tam lawsuit under the False Claims Act. The settlement announcement said the people who brought the complaint 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 Saw Where the Referrals Came From

If you know how a recovery program’s tests became medical claims, or how a laboratory paid for a physician’s business, speak to one of our whistleblower experts. We build your strongest case with you around the orders, claims and financial relationships, bring in laboratory fraud whistleblower lawyers who understand toxicology referrals, and stay beside you throughout the case.