Smart Lab: Sales Commissions That Bought Urine Samples

The Smart Lab fraud case involved unnecessary confirmatory urine testing and referral kickbacks disguised as sales commissions, according to the Justice Department’s Smart Lab guilty-plea announcement. Standing orders supplied the tests, insurance supplied the money, and a sales representative passed some of that money back to a treatment-center owner. For someone who knows the order forms or commission accounts, the clinical paperwork and the referral payments tell the same story.

Smart Lab LLC operated in Palm Beach Gardens, Florida. Its chief executive and chief operating officer established the laboratory to perform confirmatory urinalysis testing. The company and both executives pleaded guilty to conspiracy to commit health care fraud, the department announced on August 31, 2018.

Standing Orders Made the Testing Repeatable

The Justice Department’s Smart Lab guilty-plea announcement describes standing orders and drug-testing protocols that called for duplicative, expensive confirmatory testing regardless of individual patients’ needs. The laboratory used those protocols across substance-abuse treatment centers.

Treatment-center owners in the scheme required insured patients to undergo confirmatory drug testing approximately three times per week. Smart Lab could bill those tests to the patients’ insurance plans. Employment agreements supplied another part of the arrangement: people solicited specimens from treatment centers, and the laboratory returned part of the reimbursement as purported sales commissions. Participants understood that some of the money would reach owners, operators or clinicians at the centers sending the samples.

The patient supplied the urine. The standing protocol supplied the repeated testing. The payment arrangement gave the people directing specimens to the laboratory a financial reason to keep them coming.

When Are Toxicology Tests Unnecessary?

Toxicology tests become unnecessary when the tests selected or their repetition have no patient-specific clinical purpose.

A 2021 clinical review in The Journal of Family Practice, Urine Drug Screening: A Guide to Monitoring Tx With Controlled Substances, describes confirmatory testing as a way to investigate unexpected screening results.

In its discussion of addiction treatment, the review makes a point that a fixed testing schedule can obscure:

The review describes testing frequency changing with the patient’s progress. That makes the treatment record important to understanding the laboratory claim: what question did the test answer, and how did the result affect care?

The Sales Commission That Funded the Referral Payments

The same announcement says Smart Lab’s top sales representative had an agreement entitling him to approximately 50% of the insurance reimbursements from treatment facilities he referred to Smart Lab. The department called those commissions kickbacks for excessive, unnecessary and duplicative testing.

His largest account was Reflections Treatment Center in Margate, Florida. He used part of the commission money to pay the center’s owner cash kickbacks to keep urine samples coming to Smart Lab. Acting through a sales representative disguised the money’s real recipient and purpose. The payment formula connected the laboratory’s insurance receipts to the person controlling the referrals.

The guilty-plea announcement reports more than $600,000 in payments from Smart Lab to the representative from 2005 through 2017, all from proceeds of health care fraud. It also says he performed no actual services for the laboratory.

The representative recruited friends and business associates who signed employment agreements presenting them as sales representatives. The same announcement says they too performed no actual services for Smart Lab. The contracts made payments appear to compensate work while hiding their purpose and recipient. The money then went to others as the representative directed.

An employment agreement gave the payment a respectable description. The insurance reimbursement and the onward cash payment explained what it bought.

The Reflections Treatment Center owner who received the cash separately pleaded guilty to health care fraud and money-laundering conspiracies, the Justice Department reported in its March 2017 guilty-plea announcement.

Waived Copayments Kept the Samples Coming

The Justice Department’s Smart Lab guilty-plea announcement says the company chose not to collect required copayments, deductibles and coinsurance that could make patients unable or unwilling to undergo testing. Smart Lab also kept that noncollection from the insurance plans.

This gave the scheme another way to sustain testing volume. Patients did not face the required charge that might make them refuse a test, while the laboratory continued billing their plans. The orders generated the testing, the commissions rewarded the referrals, and the waived charges removed a reason for patients to object.

We examine the plan’s requirements alongside what the laboratory billed and what it actually collected from patients.

What a Laboratory Insider Can See

An insider may see the connection between a recurring order, the tests billed and the money paid for the referral. Sales, billing and clinical staff see different parts of that transaction in their ordinary work.

For the orders, we examine who selected the tests, how the protocol applied to individual patients, and whether results informed treatment. Understanding how those records fit together is central to a case about testing selected in advance.

For the payments, we connect the employment or commission agreement to the reimbursement it used and the recipient of the money. Smart Lab’s case shows why the contract’s description is only part of that account. The representative’s payment depended on insurance receipts, and some of it reached the owner who sent the specimens.

A biller may know how patient balances were handled. A sales employee may know the commission formula. A clinician may know that repeated results did not change treatment. Our whistleblower experts work with that knowledge to establish how the clinical decision, the claim and the referral payment fit together.

The Same Practices in Civil Whistleblower Cases

The connection to a civil whistleblower case under the False Claims Act is a claim for government-program money. Our whistleblower experts examine who paid for the testing alongside the orders and referral arrangements.

Genotox Laboratories admitted using preset orders to repeat tests across patients in its 2023 civil settlement.

Cordant Health Solutions agreed to pay $11,942,913 in a 2020 civil settlement over allegations of payments for urine-test referrals. A whistleblower brought the qui tam case, and the government allocated that whistleblower 20% of the settlement. Here the parallel is the money paid to obtain specimens, with a civil recovery arising from a whistleblower’s case.

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

You Know How the Orders Became Revenue

If you know how a treatment center’s orders became laboratory claims and referral payments, bring that account to our whistleblower experts. We build the case with you and bring in laboratory fraud whistleblower lawyers who understand toxicology billing and addiction-treatment referral arrangements. You have a partner through the whole case, from the first explanation of the commission ledger to the pursuit of a government recovery.