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Lab company to pay $256 million over allegedly tainted claims

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Millennium Health, a San Diego-based lab company, will pay the government $256 million to settle allegations it billed the government for medically unnecessary urine, drug and genetic testing and gave free drug cup tests to physicians in exchange for referrals.

The U.S. Justice Department's announcement of the settlement Monday came days after the company it had reached an agreement with a majority of equity holders, the Centers for Medicare and Medicaid Services and the Justice Department on the terms of a plan to financially restructure the company. Millennium CEO Brock Hardaway said the agreement would help the laboratory reduce its debt and pay the settlement.

“While Millennium may debate some of the merits of the DOJ's allegations, we respect the government's role in health care oversight and enforcement,” Mr. Hardaway said in the statement issued Oct. 16. “At the end of the day, it was time to bring closure to an investigation that began nearly four years ago. Millennium Health is currently a very different organization than we were in the past.”

Millennium said it plans to begin soliciting formal votes on a restructuring plan from its lenders in coming weeks. The agreement allows Millennium to restructure through a Chapter 11 bankruptcy proceeding or outside of court.

A Millennium spokeswoman declined to comment further Monday.

The government alleged that Millennium prompted doctors to order excessive numbers of urine drug tests without individualized assessments of patients in violation of federal health care program rules. It also alleged that Millennium gave free urine drug testing cups to doctors on the condition that the physicians would return the urine to Millennium for hundreds of dollars of additional testing in violation of the Stark law and anti-kickback statute.

Millennium also submitted false claims to federal health programs for genetic testing performed without individualized assessments of need, the government alleged.

Clinton Mikel, a partner with the Health Law Partners, called the $256 million settlement one of the larger ones he's seen outside of those with pharmaceutical and medical device companies.

“I think it will send a message certainly,” Mr. Mikel said. “The government is cracking down on labs.”

Another lab company, Health Diagnostic Laboratory, recently filed for bankruptcy after agreeing to pay nearly $50 million to resolve allegations that it improperly paid doctors for blood samples. HDL denied wrongdoing as part of that settlement.

Federal investigators signaled their interest in Medicare payments to lab companies last year. A special fraud alert issued by HHS' Office of Inspector General warned that certain types of lab payments to referring physicians for blood specimen collection, processing and packaging could be illegal.

“There just has been increased scrutiny of labs and many other areas of health care as well,” said Sarah Coyne, a partner with the law firm Quarles & Brady L.L.P.

One reason the government is going after labs in particular is the large amount of money Medicare spends on them, Mr. Mikel said. From 2005 to 2010, Part B spending for lab services increased 29%, to $8.2 billion, even though enrollment increased just 10%, according to a 2014 OIG report.

“They've identified an industry that they think is taking more than its share of the pie,” Mr. Mikel said, adding that he often encounters anecdotal evidence that some players are taking their share through questionable means.

“We represent several national labs, and probably on a weekly basis they're saying, 'This is what our competitor is doing. Is this OK?'” Mr. Mikel said.

The allegations against Millennium were originally brought in several whistle-blower complaints. Under the False Claims Act, the whistleblowers will share nearly $32 million from the government's settlement.

Lisa Schencker writes for Modern Healthcare, a sister publication of Business Insurance.