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Diagnostic Laboratories Settles for $17.5 Million After Healthcare Whistleblowers’ Allegations of Medicare Fraud

The Department of Justice announced yesterday that Diagnostic Laboratories and Radiology, the West Coast’s largest supplier of laboratory and X-ray services to nursing homes, will pay $17.5 million to settle whistleblower allegations that the California-based company violated the False Claims Act by giving kickbacks for referral of mobile lab and radiology services, which were subsequently billed to Medicare and Medi-Cal (California’s Medicaid program).  Diagnostic Labs allegedly took advantage of Medicare’s and Medi-Cal’s reimbursement systems by billing them at standard rates while secretly giving discounted fees to the participating nursing homes. According to the lawsuit, those fees were as much as 80 percent below the lab’s normal rates.

For inpatients, Medicare pays a fixed rate based on the patient’s diagnosis, regardless of specific services provided.  For outpatients, Medicare pays for each service separately.  Diagnostic Labs’ scheme supposedly enabled the nursing homes to maximize their profits for providing inpatient services by decreasing the cost of them.  It also allegedly allowed Diagnostic Labs to obtain a steady stream of lucrative, outpatient referrals that it could directly bill to Medicare and Medi-Cal.  This provision of inducements, including giving discounted rates to generate referrals, is prohibited by both federal and state law. By law, the discounts should have been passed along to the government programs.

The Medicare whistleblowers in this case were two former Diagnostic Lab employees, Jon Pasqua and Jeff Hauser, who said they were fired after reporting the secret discounts and kickbacks to the authorities. Hauser and Pasqua worked in the company’s sales office and said they tried to report the questionable discount practices to supervisors first, but were ignored. They then provided information to state and federal officials, and were subsequently fired from their jobs shortly before filing the healthcare fraud case in February 2010, according to their lawyers.

This settlement will resolve Hauser and Pasqua’s lawsuit, which was filed under the qui tam, or whistleblower, provisions of the federal and state False Claims Act. This act allows private citizens with knowledge of fraud to bring qui tam lawsuits on behalf of the US government. The individual filing the lawsuit is known as the relator, or whistleblower.  Healthcare whistleblowers, such as Hauser and Pasqua, serve an important role in exposing and eliminating healthcare fraud.

While it is true that whistleblowers take on a personal risk in these cases, it is still worthwhile for them to come forward with their information. Because qui tam whistleblowers help to eliminate government fraud, they receive a significant proportion of the lawsuit’s settlement for their efforts.

Together, Pasqua and Hauser will receive a total $3,755,500 as their share of the federal government’s recovery.

© 2019 by Tycko & Zavareei LLP


About this Author

Jonathan K. Tycko leads the Whistleblower Practice Group of Tycko & Zavareei LLP

In recent years, the laws of the United States have undergone a whistleblower revolution. Federal and state governments now offer substantial monetary awards to individuals who come forward with information about fraud on government programs, tax fraud, securities fraud, and fraud involving the banking industry. Whistleblowers also now have important legal protections, designed to prevent retaliation and blacklisting.

The law firm of Tycko & Zavareei LLP works on the cutting edge of this whistleblower revolution, taking on even the most complex and confidential whistleblower...