Quest Diagnostics: The Corporate Case History

Quest Diagnostics laboratory fraud cases include a $262 million federal civil settlement over allegedly unreliable test kits sold by its subsidiary Nichols Institute Diagnostics, alongside separate cases about unnecessary tests, unbundled billing and referral payments. A test-kit manufacturer, a laboratory billing Medicare and a sales representative offering a physician a financial benefit occupy different places in the same testing business. The useful question is where the order, the result or the payment stopped matching what the government was told.

The Justice Department’s April 15, 2009 account of the test-kit case describes both the allegedly unreliable results and the claims for unnecessary treatment that followed. Other cases concern businesses Quest acquired and practices that began before those purchases.

Nichols Institute and the Older Unbundling Case

Quest agreed to pay $13.1 million to settle allegations that Nichols Institute laboratories routinely billed government health care programs for medically unnecessary tests. The Justice Department announced the settlement on January 3, 2001, identifying Medicare and Medicaid among the programs affected. The FBI and the Department of Health and Human Services Office of Inspector General assisted the federal case.

The government alleged that the practices began in 1989 and ended shortly after Quest acquired Nichols. Its investigation began through Operation LABSCAM, which targeted unbundling: billing separately for groups of laboratory tests performed together to obtain higher reimbursement.

Laboratory compliance guidance had already addressed that separation. The 1997 Laboratory Medicine article Model Plan Helps Laboratories Fight Fraud described federal recommendations that laboratories tell physicians which individual tests a profile contained, which codes would be billed to Medicare and how the profile would be charged. It also described physician acknowledgment forms for customized profiles and monitoring of standing orders.

The article’s practical point fits the Nichols allegations: the physician’s understanding of a group of tests and the laboratory’s billing for that group need to be connected. The profile has a clinical meaning to the physician and a payment meaning to the billing department. An insider who knows both can explain a discrepancy that either side alone may miss.

Nichols Institute Diagnostics and Unreliable Test Kits

The 2009 resolution paired Quest’s civil settlement over allegedly unreliable kits with Nichols Institute Diagnostics’ guilty plea admitting that it knowingly introduced a misbranded assay into interstate commerce with intent to mislead.

Quest also agreed to pay approximately $6.2 million to state Medicaid programs to resolve similar civil claims. A whistleblower’s qui tam case prompted the government’s investigation. The FBI, HHS Office of Inspector General, U.S. Postal Inspection Service and Food and Drug Administration’s Office of Criminal Investigations assisted in the matter.

Do Doctors Get Kickbacks for Ordering Tests?

Physician kickbacks were central to the government’s allegations against Berkeley HeartLab: payments disguised as processing and handling fees allegedly bought blood-test referrals. A physician whistleblower started the case, and the government joined it in part. Quest agreed to pay $6 million to resolve that case, which the Justice Department announced on April 28, 2017.

Quest acquired Berkeley in 2011. The Justice Department said Quest ended the conduct that gave rise to the settlement. The government also alleged that Berkeley routinely waived copayments for certain patients who owed them, and that the physician and patient incentives led to medically unnecessary cardiovascular tests charged to federal healthcare programs.

The physician whistleblower’s third amended complaint separately alleged conduct by Quest itself. The filing calls the medical practice HMP. It described an offer to supply a phlebotomist for all tests ordered by the medical practice, including basic panels performed in the practice’s own offices, in exchange for continued Berkeley referrals. It also alleged that Quest offered rent to replace drawing-fee revenue:

The alleged benefit could change form while serving the same commercial purpose: keeping the physician’s testing business. A drawing fee, paid staff and office rent appear in different business records. The complaint alleged a connection between those benefits and the referrals. That connection is what we would want to understand from someone who saw the offers made.

The same complaint also alleged that Berkeley added Plavix testing to a follow-up panel without the physicians discussing or authorizing that addition. It said the order forms went to billing staff, while a physician might learn that the extra test had run only when the result arrived.

The government identified Health Diagnostic Laboratory and Singulex as other laboratories that had settled similar allegations. The alleged practice in each was paying for the flow of testing business. The FBI’s Columbia Field Office and Healthcare Fraud Unit, HHS Office of Inspector General and Defense Criminal Investigative Service were among the investigators in the Berkeley matter.

Cleveland HeartLab and Alleged Payments Before Acquisition

Quest agreed to pay $2,275,094 on behalf of Cleveland HeartLab after self-disclosing conduct to the Department of Health and Human Services Office of Inspector General. The agency’s December 18, 2018 enforcement account identifies alleged collection, processing and handling payments to physicians and physician groups.

The inspector general alleged that Cleveland HeartLab made the payments between August 12, 2010 and June 30, 2014. Quest acquired the laboratory on December 1, 2017.

For an employee who stayed through a sale, the useful knowledge may cross both periods: how the arrangement worked under the former owner and what the buyer later learned about it. Knowing when the arrangement began and who continued it helps us identify the decisions behind the payments.

Care360 Panels and the Original Physician Order

The Care360 panel allegations concern how a physician’s paper selection allegedly became electronic orders for component tests. In her court filing, a Quest compliance officer described comparing original paper orders with tests performed and billed, and alleged that Quest billed for tests the physicians had never authorized.

The whistleblower’s brief alleged that sales representatives built Care360 panels without physician authorization, that phlebotomists converted paper panel selections into electronic requisitions automatically ordering every component, and that Quest then billed those tests individually to the government.

The comparison begins before the claim reaches Medicare. It follows the physician’s selection into the electronic requisition, then the tests and the bill. A familiar panel name can conceal a consequential difference between what the physician selected and what the laboratory’s system generated.

What Evidence Is Needed to Prove Fraud?

Evidence in these laboratory cases connects the physician’s order, the tests performed, the submitted claims and any payment tied to referrals. The clinical reason for testing and the billing information may sit in different places: the physician maintains the medical justification, while the billing entity maintains the information it received and the documentation that its claim reflects it.

The distinction explains why an insider’s knowledge matters. For the kit case, we would examine the product claims alongside what the company knew about performance. For a panel case, we would connect the original selection with the component tests and charges. For a referral case, we would connect the promised benefit with the testing business it allegedly bought.

Those are different investigations. A quality specialist, a billing employee and a person handling physician accounts may each see a part the others cannot. Our job is to understand what your view reveals and build the case around it.

The Whistleblower’s Share of the Recovery

The Justice Department announced that the whistleblower whose case prompted the test-kit investigation would receive approximately $45 million from the False Claims Act recovery.

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

You Know Where the Testing Business Changed

If you saw a test added to an order, a result sold as reliable despite internal warnings, or a physician offered benefits for referrals, tell our whistleblower experts what happened. We work with you to build your strongest laboratory fraud whistleblower case and bring in laboratory fraud whistleblower lawyers who understand the testing, billing and referral arrangements at issue. We stay beside you as your knowledge becomes the foundation of the case.