SmithKline Beecham Clinical Laboratories: Government Allegations of Added Tests and Invented Diagnoses
The SmithKline Beecham laboratory fraud case produced a $325 million civil settlement over allegations of unnecessary, unrequested and unperformed tests, fabricated diagnosis codes and benefits supplied to referring physicians. The alleged conduct connected the laboratory’s ordering, billing and sales operations: what the doctor requested, what the laboratory charged, and what the referring practice received in return. The alleged billing asked Medicare and other government health care programs to pay for testing that patients did not need or receive, at taxpayers’ expense.
The Justice Department announced the settlement on February 24, 1997. SmithKline Beecham Clinical Laboratories provided clinical laboratory testing as one of the country’s national independent laboratories. Its settlement was part of Operation LabScam, the federal initiative targeting laboratory fraud. The civil resolution covered alleged conduct across 42 states and the District of Columbia.
What SmithKline Was Accused of Billing
The civil settlement allegations covered tests that physicians had not ordered, tests patients did not need, and tests the laboratory had not performed. They also included altering test codes and fabricating diagnosis codes.
Why Test Profiles and Diagnosis Codes Matter
The contemporary article Model Plan Helps Laboratories Fight Fraud, published in Laboratory Medicine in 1997, described the government’s response in unusually practical terms. The model plan called for uniform requisition forms with space for the physician to document a diagnosis supporting each test. It also called for notices explaining the individual components of laboratory profiles, the billing codes and how the laboratory would bill Medicare.
The same article described physician acknowledgments for customized profiles, monitoring of standing orders, and retention and analysis of test-use data. Those recommendations put the physician’s choice, the profile’s contents and the resulting bill alongside one another. Applied to the SmithKline allegations, they explain why a requisition, a diagnosis entry and a claim can tell different stories about the same specimen.
Damon Clinical Laboratories provides a concrete parallel. In its opinion in the Damon criminal case, the First Circuit, reviewing the trial, described ferritin testing bundled into the LabScan panel and marketed as free, while Medicare was charged separately. The court also recounted that some doctors who said they did not need ferritin were told the panel would cost more without it. Removing the unwanted test meant a higher price for the doctor.
The court also described a requisition form that gave physicians no option to order the panel without ferritin. Doctors were induced to certify the medical need for tests the court described as unnecessary. That is why the sales pitch belongs beside the requisition in a laboratory billing case.
Do Doctors Get Kickbacks for Ordering Tests?
Laboratory kickbacks can take the form of equipment, staff or rent paid for a referring practice. SmithKline’s civil allegations included free computers, fax machines, personnel and payment of rent. The alleged benefit was something the practice otherwise had to obtain or pay for. A healthcare referral can be bought with an expense taken off the practice’s books, not just a check handed to a doctor.
The Health and Human Services Office of Inspector General had already addressed this kind of value in its 1994 Special Fraud Alert on clinical laboratory services. It identified computers and fax machines as potential inducements when they were not integral to, and used exclusively for, the outside laboratory’s work. The alert also addressed laboratory personnel working in physicians’ offices.
The practical question is what the practice received and what work those resources actually did. Equipment described as laboratory support can also support the physician’s business. Staff assignments and rent arrangements show a side of the referral relationship that a test claim alone cannot show. In SmithKline’s case, those alleged benefits sat alongside the allegations about the testing itself.
The Final Whistleblower Award
The final judgment, entered on August 31, 2000, awarded about $26 million to a whistleblower in the SmithKline case.
What Is the Reward for a Medicare Fraud Whistleblower?
A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. In a laboratory case, the insider’s contribution can connect the doctor’s order, the testing, the diagnosis and the claim, or show what the laboratory supplied to obtain the referral. That is the knowledge we work with you to turn into a case.
You Know How the Order Became a Bill
If you worked with test profiles, diagnosis codes, billing or physician accounts, tell our whistleblower experts where the order and the bill parted company. We build the case with you and bring in laboratory fraud whistleblower lawyers who understand testing, billing and referral arrangements. We stay beside you through the pursuit of the recovery, with your knowledge of the business at the center of the case.
