Alleged False Claims Act Violation: Unnecessary Drug Testing a Red Flag for Feds

Earlier this month, a toxicology lab doing business as Precision Diagnostics agreed to pay $27 million to resolve allegations raised by three whistleblowers under the False Claims Act that it charged Medicare and Medicaid for medically unnecessary urine drug tests and also paid kickbacks to get testing referrals.

To overbill Medicare, the complaint alleges, Precision Diagnostics used “custom profiles,” which acted as functional standing orders that led doctors to order a wide array of urine testing without assessing individual needs. Many of these tests were expensive and alleged to be medically unnecessary.

Urine drug testing has been a focus of U.S. Department of Justice (DOJ) enforcement efforts recently, including as a part of treatment of the opioid epidemic, which has proven to be especially vulnerable to various types of healthcare fraud. Put differently, and channeling David Glaser, Monitor Monday’s punster-in-chief, DOJ resolutions of whistleblower-initiated allegations of urine testing fraud have been coming at a steady stream.

Earlier this year, Labtox agreed to pay $10.4 million to settle similar allegations, with two of its executives going to prison, including one for nearly four years. In 2021, Colorado-based laboratory Cordant Health Solutions paid nearly $1 million to resolve similar allegations, and Nevada Advanced Pain Specialists, a Reno-based medical practice, paid $1 million for allegedly medically unnecessary urine drug testing. In 2023, a drug testing laboratory called Solid Diagnostics paid the State of Vermont $400,000 to settle the same type of fraud.   

For drug testing, there are two main categories of testing, “qualitative” and “quantitative.”  A qualitative test, more commonly known as a screen, is generally a binary test that determines the presence of a drug and costs around $50. In contrast, a quantitative test, which costs hundreds of dollars, determines the amount of a drug in a patient’s system. Jumping straight to quantitative tests, when a qualitative test would have been sufficient and more cost-effective, may violate the False Claims Act.

In addition to being accused of medically unnecessary urine drug testing, Precision Diagnostics also settled kickback allegations as part of the recent $27 million settlement with DOJ. Federal officials accused Precision Diagnostics of handing out free equipment to doctors expressly conditioned on the agreement to use Precision for its testing.

Kickbacks are not a new theory of liability in the urine drug testing world. In 2020, laboratories operated by Cordant Health Solutions in Washington and Colorado paid nearly $12 million to resolve allegations that the labs paid millions to a physician group in exchange for referrals.

The Precision Diagnostics recovery resulted from three qui tam cases brought by three separate whistleblowers under the False Claims Act, a law that allows private individuals to sue in the name of the government and share in the recovery. Billions are recovered under the False Claims Act annually, with doubtless billions more of fraud deterred.

One of the whistleblowers in the Precision Diagnostics matter will receive just under $3 million as their whistleblower award. As an editorial footnote, I’m pleased to report that my colleagues at Whistleblower Partners LLP represented one of the three brave whistleblowers involved in this case.

Needless to say, I’m proud of them, and most importantly, of our whistleblower client, for their role in achieving this important result.