Tennessee Physician Laboratory Kickbacks: The Dividend Depended on the Referrals

A Tennessee physician paid $199,425 to resolve allegations of laboratory kickbacks disguised as dividends on Southwest Laboratories shares. The government alleged that the physician bought the shares for a nominal sum and received a monthly return only if she met the laboratory’s urine drug screen referral quota. The investment came with a condition the physician could fulfill through her own patients’ testing.

The U.S. Attorney’s Office for the Northern District of West Virginia announced the settlement on April 26, 2018. Its account identified the physician as from Murfreesboro and described a scheme involving Southwest, Medscan Laboratory, affiliated sales representatives and West Virginia physicians. Private-insurance specimens and Medicare specimens took different paths through the businesses.

Do Doctors Get Kickbacks for Ordering Tests?

Yes. The government alleged that this physician received kickbacks for ordering tests through a laboratory ownership dividend conditioned on a referral quota. Southwest’s alleged offer paired nominal-price shares with approximately $5,000 per month, provided the physician met or exceeded its required number of urine drug screen referrals.

The alleged investment required the physician to supply its business from her own patients. Her return depended on where she sent their specimens.

The government alleged that the physician collected nearly $100,000 in these dividends. The quota explains what the recipient allegedly had to deliver to keep receiving it.

Southwest, Medscan and the Medicare Specimens

The government alleged that Southwest processed urine drug screens for patients covered by private health care benefit programs and forwarded Medicare patients’ specimens to Medscan. The government alleged that Medscan profited more than $300,000 from the physician’s Medicare referrals.

The physician’s shares were in Southwest, while the Medicare testing generated profit at Medscan. Reading only the ownership paperwork would miss that second laboratory. Reading only the testing records would miss the dividend attached to the physician’s referrals.

That separation reflects how the laboratory business works. The treating practitioner orders a test and keeps the clinical documentation supporting it. The laboratory performs the test, reports the result and submits the claim. Under Medicare’s laboratory payment rules, payment generally goes to the performing laboratory. The referral decision and the claim therefore sit in different hands.

The Department of Health and Human Services’ Office of Inspector General addressed payer separation in its 2014 Special Fraud Alert on laboratory payments to referring physicians. Discussing specimen-processing payments, the agency explained that payments presented as relating to private patients could disguise compensation for federal healthcare business. That concern gives the Southwest and Medscan route its significance: the commercial side of an arrangement and its Medicare side need to be understood together.

The Physician’s Civil Settlement

The government alleged that the referral arrangement caused false claims to Medicare, citing the False Claims Act, the Physician Self-Referral law and the Anti-Kickback Statute. Taxpayers funded the Medicare claims behind the alleged referral bargain.

Her alleged role was supplying the urine drug screen referrals that satisfied the dividend condition, while the laboratories handled the testing. The settlement followed the transaction back to the person directing the business and receiving the return.

For an insider, that is a reason to pay attention to the physician compensation side of a laboratory relationship. The referral terms can explain a payment that looks ordinary in an investment account, and the payer information can connect it to claims submitted elsewhere.

Urine Drug Testing Has a Clinical Purpose

A referral quota introduces a financial target into the physician’s decision to order urine drug testing.

The 2014 Pain Physician article Ethical Perspectives on Urine Drug Screening for Pain Physicians examined both the clinical purpose of screening and its financial incentives. The article placed the potential conflict in the physician’s decision to test:

The article’s concern is the patient behind the specimen. Southwest’s alleged dividend condition measured how much testing business the physician sent. That is the tension an employee may see in a referral-driven practice: the laboratory’s volume target sits beside the clinician’s responsibility for the patient. The clinical record explains the test. The compensation agreement explains the financial incentive attached to sending it.

What Evidence Is Needed to Prove Fraud?

For a referral-linked laboratory dividend, we examine how the investment terms, referral counts, specimen routes, claims and payments fit together. The question is what the physician received in exchange for directing the testing business.

Share agreements, dividend records and quota communications can connect the payment to the required referrals. We examine that bargain alongside the testing records.

The testing side adds another connection. Requisitions record the requested work, test results show the laboratory’s reported work, and claims and payment records connect that work to the payer. In a business with more than one laboratory, those records also help explain where the work went after the physician sent it.

The clinical documentation has its own role. Medicare’s ordering and documentation requirements put the treating practitioner’s reason for the test in the medical record. The laboratory keeps the information it receives and the support for its claim. A physician-office employee and a laboratory billing employee may therefore understand different parts of the same referral relationship.

Our work is to connect those views. Someone who knows the dividend terms may explain why the referrals mattered financially. Someone who knows the specimen routing may explain how those referrals reached a different laboratory and payer. Together, that knowledge can expose the business arrangement behind an otherwise routine test claim.

Other Ways to Buy Laboratory Referrals

Laboratory referral benefits can take the form of supplies as well as money. In the separate Millennium Health settlement announced in October 2015, the government alleged that the laboratory provided free point-of-care test cups to physicians who agreed to refer testing. The benefit reached the practice through its supplies, while the condition directed specimens back to the laboratory.

The ordering paperwork can shape the resulting test volume too. In its April 2023 civil settlement, Genotox Laboratories admitted offering custom profiles that let providers preselect tests for all or nearly all their patients. Genotox performed and billed those tests generally at the highest reimbursement categories.

These cases expose different business decisions. A free cup can be tied to where a specimen goes. A custom profile can determine how much testing follows. Southwest’s alleged dividend attached the physician’s return to the amount of business referred. For someone inside the practice or laboratory, the terms behind the order can be as revealing as the claim itself.

A Whistleblower’s Knowledge of the Arrangement

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Your knowledge of how a laboratory recruits referring physicians, sets compensation and routes specimens can give meaning to records that show only pieces of the transaction. We work with insiders to turn that understanding into a case focused on the referrals, the payments and the government claims they connect.

You Know What the Dividend Required

If you saw a laboratory investment tied to referral targets, tell our whistleblower experts how the payment worked. We build your strongest laboratory kickback whistleblower case around your knowledge of the arrangement, bring in laboratory fraud whistleblower lawyers who understand physician referral payments, and stay with you through the pursuit of a recovery.