Piedmont Pathology: Alleged Referral Kickbacks and Special Stains Before Review

In the Piedmont Pathology settlement announced in 2017, the company agreed to pay $601,000 to resolve allegations of billing Medicare and Medicaid for medically unnecessary special stains. Piedmont separately agreed to pay $500,000 in 2015 over alleged referral kickbacks involving electronic medical record software. One case began with a former pathologist who understood when a specimen needed another stain. The other began with a former contract salesperson who saw what the practice offered for referrals. We see the same misplaced priority in both allegations: the business opportunity came ahead of the patient’s need.

Piedmont Pathology is a diagnostic anatomic pathology group in Hickory, North Carolina. The settlements addressed different decisions: where a physician sent specimens and what additional testing the laboratory performed on them.

Do Doctors Get Kickbacks for Ordering Tests?

Yes, kickbacks can take the form of benefits for a physician’s practice. In Piedmont’s case, the government alleged that practices received electronic medical record software licenses at little or no cost in exchange for specimen referrals.

In the settlement announcement of November 30, 2015, the U.S. Attorney’s Office for the District of South Carolina described licenses provided to nine physicians’ practices close in time to their contracts to refer specimens to Piedmont. A former contract salesperson brought the qui tam case that prompted the investigation. The Department of Health and Human Services’ Office of Inspector General investigated it.

The timing gives the allegation its substance. The government connected a benefit the physician’s practice received with a commitment to send work to the laboratory. Someone familiar with those sales arrangements could recognize the exchange behind the software offer: what the practice was given, what it agreed to send, and how closely the two decisions lined up.

We see a straightforward problem in that alleged bargain. A laboratory competes for a patient’s specimen by lowering the referring practice’s software bill. The clinical decision acquires a sales incentive. The patient needs a diagnostic service, while the practice choosing the laboratory gets something for itself.

The government’s case against Miraca Life Sciences likewise concerned alleged electronic health record subsidies and free or discounted technology consulting for referring physicians.

The Special-Stain Case Turned on What Came First

The later Piedmont case alleged that special stains were used on certain gastric biopsies before a pathologist reviewed the routine hematoxylin and eosin stain. The May 2, 2017 announcement explains that stains let pathologists identify abnormalities in tissue and that special stains are billed separately to government health care programs.

The whistleblower’s complaint alleged that a pathologist should first review the specimen with its routine H&E stain, then decide whether a special stain was needed. The United States joined the case and pursued allegations that Piedmont lacked medical necessity for the special stains performed before that review. The U.S. Attorney’s Office in Charlotte worked with the Inspector General’s office on the investigation.

We see the absurdity in the alleged sequence: the additional test came first, and the clinical review meant to establish whether it was needed came later. Medicare and Medicaid then faced healthcare claims for a separately billed procedure the government considered unnecessary.

Why the Order of Review Matters

Preparing and staining a specimen and interpreting it are different parts of anatomic pathology. The technical component includes specimen processing, sectioning, staining, equipment and technician work. The professional component is the pathologist’s interpretation. Those components can be billed separately.

That division helps explain why a pathologist’s view of the workflow can be so valuable. The pathologist’s review addresses what the tissue shows and what further work the patient needs.

For additional pathology stains, the clinical need belongs in the documentation and in the communication to the treating physician.

The distinction is familiar to someone reading slides, processing orders or reviewing medical records. Who selected the extra test? What had already been reviewed? What finding called for more work? Those questions connect a testing protocol to an individual patient.

The industry’s attention to medical necessity predates these settlements. In Laboratory Medicine in 1997, Model Plan Helps Laboratories Fight Fraud described the federal inspector general’s recommendation that requisition forms leave space for physicians to document the medical necessity of each test with a diagnosis code. The article also described notices explaining the individual tests within a laboratory profile and how the laboratory would bill for them.

The article explains why someone who knows the requisition and the tests within a profile can see more than a billing code reveals.

The government alleged the same testing sequence at Atlanta Gastroenterology Associates: automatic special stains without prior routine-stain review, a patient-specific determination of need or justification in the medical record.

What a Pathology Insider Can Explain

A pathology insider can connect the decision to use a special stain with the specimen, the review and the resulting claim. The clinical record and the billing record describe different parts of that sequence. We work with the person who understands how those parts fit together.

The ordering clinician holds the patient’s medical-necessity documentation. The laboratory holds the information it received and the information used for its claim. Understanding what passed between them helps explain why a test was selected and what the billing system represented.

For a pathologist, the key knowledge may be that the special stains were already done when the routine slide reached review. For someone handling orders, it may be how the extra stain was selected. For a billing employee, it may be the connection between that work and a separate government-program claim. These are different views of the sequence challenged in the Piedmont case.

The referral case calls for a different comparison. A salesperson or practice employee may understand the software offer and the specimen-referral commitment together. The license terms, the promised business and the timing explain the alleged exchange. The former salesperson in Piedmont’s earlier case saw that side of the operation, while the former pathologist in the later case understood the clinical work.

The Whistleblowers Saw Different Parts of the Business

The former contract salesperson’s reward in the referral settlement was 15% of the settlement funds. In the later testing case, the government also announced a share of the recovery for the pathologist who had worked at Piedmont.

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

You Know When the Extra Stain Was Chosen

If you saw special stains precede routine review, or software benefits tied to specimen referrals, speak to our whistleblower experts about what happened inside the practice. We build the laboratory fraud case with you and bring in whistleblower lawyers who understand pathology testing, medical necessity and referral arrangements. From the first conversation through the pursuit of a recovery, we stay beside you and keep your knowledge of the work at the center of the case.