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September 13, 2011 > $49.5M settlement with Labcorp

$49.5M settlement with Labcorp

Submitted By the Office of the State Attorney General

State Attorney General Kamala D. Harris announced a $49.5M settlement with Laboratory Corporation of America, the state's second largest provider of medical laboratory testing, stemming from a lawsuit alleging illegal overcharges to the state's medical program for the poor. The settlement with Labcorp will bring the total recovered so far in the Attorney General's lab test pricing cases to $298M.

"Medical providers and professionals who attempt to abuse Medi-Cal are draining healthcare resources from the millions of Californian families and children who rely on the program," said Harris. "In this time of difficult public budgets, we will make it a high priority to track down those who engage in excessive charges, false claims or illegal kickbacks of Medi-Cal funds."

The settlement with Labcorp, announced on August 30, 2011, is the result of a lawsuit filed under court seal in 2005 by a whistleblower and referred to the Attorney General's office. The lawsuit alleged that Labcorp and other medical laboratories systematically overcharged the state's Medi-Cal program for more than 15 years and gave illegal kickbacks in the form of discounted or free testing to doctors, hospitals and clinics that referred Medi-Cal patients and other business to the labs.

In May 2011, Harris announced a settlement of $241M with Quest Diagnostics for the same alleged practice.

According to the allegations in the lawsuit, Labcorp charged Medi-Cal over five times as much as it charged some other customers for certain tests. For example, Labcorp was accused of charging Medi-Cal $35.04 to test for total testosterone, while it allegedly charged another customer $7.36 for the same test.

Under the state's False Claims Act, any person with previously undisclosed information about a fraud, overcharge or other false claim can file a sealed lawsuit on behalf of California to recover the losses and is entitled to a share of the recovery in some cases. Such individuals become plaintiffs and are known as "whistleblowers," "qui tam plaintiffs," or "relators."

In this case, the whistleblowers were Chris Riedel and his company Hunter Laboratories. Hunter Laboratories allegedly found it could not compete in a significant segment of the marketplace where major medical laboratories such as Labcorp offered doctors, hospitals and clinics far lower rates than they were charging Medi-Cal. Riedel and Hunter were represented by Niall P. McCarthy of Cotchett, Pitre & McCarthy, LLP, who filed the original whistleblower complaint in 2005 and worked closely with the Attorney's General's Office throughout the entire litigation.

The Attorney General's Bureau of Medi-Cal Fraud and Elder Abuse conducted an intensive three-year investigation that uncovered widespread abuse of Medi-Cal by medical testing laboratories in California and pursued complaints against several of the labs.

Based on allegations in the complaints, the California Department of Health Care Services, which administers the Medi-Cal program, launched an independent statewide audit of medical laboratories. Through reform of industry pricing practices stemming from this case, Medi-Cal is expected to save hundreds of millions of dollars.

"This settlement reinforces the state's strong commitment to fight fraud against Medi-Cal and all of the state's vital health care programs," said Toby Douglas, director of the Department of Health Care Services. "We will continue to work with our partners at the Department of Justice to ensure that tax dollars invested to serve our state's most vulnerable residents are protected."

Besides providing compensation to the whistleblower under statutory guidelines, the settlement is designed to reimburse the state's Medi-Cal program and the Attorney General for expenses in investigating and prosecuting false claims actions. After payment of the whistleblower share, the government will receive $35.145M as a result of this settlement.

The settlement also requires Labcorp to report information to assist the state in determining Labcorp's future compliance with Medi-Cal's pricing rules.

Similar cases are still pending against three other defendants.

Also assisting in the case was the Office of the Inspector General of the U.S. Department of Health and Human Services.

Among those in the Attorney General's office who were instrumental in this case: Aviva Burmas, Doug Cantrell, Sharon Crotteau, Vincent DiCarlo, Dennis Fenwick, J. Timothy Fives, Brian Frankel, Alissa Gire, Jennifer Gregory, David Guon, Sharon Harris, Brian Keats, Eileen Landon, Linda McCrackin, Larry Menard, Kelli O'Neill, Susan Park, Kim Reed, Marcy Rodriguez, James Shannon, Annette Silva, Jill Spitz, Tom Temmerman, Claude Vanderwold, Kenneth Vo, Lawrence Wold, Mark Zahner, and Gary Zerbey.

To report fraud or abuse, call the Bureau of Medi-Cal Fraud and Elder Abuse hotline at (800) 722-0432.

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