California False Claims Act Suit Alleging Medicare Fraud Settles for $17.5 Million

October 18, 2013 — A health care provider in California has consented to pay $17.5 million to settle a False Claims Act lawsuit alleging that the provider paid kickbacks for referrals of patients whose services were then billed to Medicare. The whistleblower claims serve to highlight our nation’s massive health care fraud problem. To address the issue, the U.S. Justice Department depends on information from tipsters. The federal False Claims Act contains qui tam language that allows insiders to fight fraud directly by filing a claim in court on behalf of the government. To reward inside employees who are brave enough to come forward, the Act gives whistleblowers a share of any funds the government recoups.

California Provider of Diagnostic and Radiology Services Settles Whistleblower Suit for $17.5 Million

Diagnostic Laboratories and Radiology (Diagnostic Labs), a California health care provider, will pay $17.5 million to settle a whistleblower lawsuit brought by former Diagnostic Labs employees. Jeff Hauser and Jon Pasqua alleged that the provider violated the state and federal False Claims Acts by paying kickbacks in exchange for patient referrals the company could bill to Medicare and Medi-Cal, which is California’s Medicaid program. Diagnostic Labs is run by Kan-Di-Ki LLC (formerly Kan-Di-Ki Inc.).

Medicare has different reimbursement systems for outpatient and inpatient services. For outpatients, Medicare reimburses separately for each service. For inpatient services, however, Medicare pays the same fixed rate according to the patient’s diagnosis, without regard to the specific services provided.

According to the Justice Department, Diagnostic Labs charged discounted rates to Skilled Nursing Facilities (SNFs) in California for inpatient services reimbursed by Medicare in return for the facilities’ referral of outpatients needing radiology and mobile lab services. The scheme allowed the SNFs to increase profits by reducing the cost of inpatient services, which Medicare reimburses at one flat rate. Diagnostic Labs was assured a steady stream of outpatient business that it could bill directly to Medicare and Medi-Cal. The problem is that state and federal law both prohibit health care providers from giving discounted rates to generate referrals.

The two whistleblowers will share $3,755,500 as their portion of the federal government’s recovery from the False Claims Act lawsuit.

Tipsters Blow the Whistle on Health Care Fraud

As here, insiders often are the first to spot Medicare fraud operations. Tipsters deserve to know about their own rights under the False Claims Act before they take action. Waters & Kraus has experienced whistleblower attorneys in offices in three states: California, Texas and Maryland. When you’re ready to collaborate with the government to fight health care fraud, contact us by email or call our False Claims Act lawyers at 855.784.0268 to learn more about our national qui tam practice.

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