San Diego laboratory Phamatech Inc. and its CEO, Tuan Pham, have settled a medicare fraud lawsuit for more than $3 million, a percentage of which will be paid to the whistleblower who brought the lawsuit.

The whistleblower, known as a relator, is John P., a former Phamatech employee. John filed the medicare fraud lawsuit in the U.S. District Court for the Southern District of California under the False Claims Act.  John alleged that Pharmatech engaged in two separate Medicare overbilling schemes involving improper kickbacks and violated its contract with the government.

For blowing the whistle, John will receive $517,392 of the settlement funds.

In an Oct. 2 press release issued by the Department of Justice, U.S. Attorney Robert Brewer stated, “We are committed to protecting the integrity of the Medicare program and ensuring accountability under the False Claims Act. This settlement meets these goals.”

Timothy B. DeFrancesca of the U.S. Department of Health and Human Services noted that paying kickbacks hurts everyone. “Paying to secure business increases costs — ultimately, leaving taxpayers to pick up the bill,” he said.

According to a white paper published by the Centers for Medicare and Medicaid Services, in 2017, clinical laboratory services comprised 2.6% of the country’s annual health care revenue, generating $87.3 billion, “a large target for potential fraud and abuse.”

Two-Part Medicare Overbilling Fraud Scheme

John alleged in the now unsealed complaint that Phamatech violated the Anti-Kickback Statute by paying kickbacks to referral sources, including marketing companies and health care providers, to secure a vast volume of urine samples. John argued that Phamatech knew the samples weren’t medically necessary but billed for Medicare reimbursement despite many of the samples not being lawfully eligible.

Specifically, the complaint claimed that the lab verbally agreed with Imperial Valley Wellness, “a Health Care Provider posing as its own marketing company, to pay per-sample fees for all samples sent to Phamatech for testing.” 

According to John, the same samples were “tested multiple times, in rapid succession, over numerous billing cycles, by different doctors from the same facility,” resulting in wrongful Medicare overbilling.  

The lawsuit further alleged that Phamatech violated the terms of a contract with the General Services Administration concerning forensic testing of urine samples for federal prison inmates.

According to the lawsuit allegations, the lab sold cups that were not FDA-approved and charged non-government customers either less or nothing for similar specimen cups, which violates the contract terms. John claimed that Pham, the CEO, concealed invoices during audits to cover up the fraud.     

Whistleblower Claims Unlawful Employment Practices

According to the complaint, John began working at Phamatech in 2001 as a Regional Sales Manager and ultimately became Vice President, Director of National Sales and Operations in December 2012.

Phamatech allegedly engaged in “pass-through billing” practices and had illegal agreements, including with the marketing group, Providica, the complaint states. Initially unaware of what the practice was, John stated in the complaint that he asked Pham whether the company engaged in such practices, to which he responded “no,” but continued that “‘ the other marketing groups are an exception,'” referencing Providica and others.

During a meeting, John claimed he also learned about an increased number of samples from Imperial Valley Wellness and reported them to the compliance officer, who then spoke with Pham. John claims that after he reported the illegal samples, his salary went down 80%, his commissions were removed, and he was ultimately terminated in March 2017.

John also raised allegations of age discrimination by Phamatech.

Qui Tam Provision of the False Claims Act

The qui tam provision of the False Claims Act, also known as the whistleblower provision, allows private citizens to file a lawsuit on the government’s behalf if they have knowledge of a fraud committed against the government, such as overbilling Medicare.

Qui tam lawsuits are filed under seal and remain so for 60 days. During that time, the government investigates the allegations. An action may remain sealed for longer than 60 days if the government requires additional time for its investigation. The government will then notify the court whether it is going to intervene in the case or decline.

The relator who filed on behalf of the government can continue the case if the government declines to intervene.

If the government intervenes, a relator can receive 15% to 25% of the total amount the government recovers in the qui tam action. If the government declines to intervene, the relator may receive 25% to 30% of the amount recovered, in addition to attorney fees and expenses.      

What Protections Do Whistleblowers Have?

Retaliatory action against a whistleblower who has reported illegal or fraudulent acts committed by their employers is prohibited. Under the False Claims Act, whistleblowers are entitled to be reinstated to their jobs, with the same pay and seniority status. They may also be entitled to double back pay with interest, special damages, attorney fees, and litigation costs.

The Phamatech Medicare Fraud Lawsuit is Case No. 3:16-cv-01835-L-NLS in the United States District Court for the Southern District of California.

This article is not legal advice. It is presented
for informational purposes only.