Federal prosecutors have sued two former Capstone Diagnostics executives, alleging they helped generate approximately $13.7 million in Medicare payments for laboratory tests that lacked individualized medical necessity.
The case it the latest example of an aggressive push by federal law enforcement to crack down on healthcare fraud, including within the clinical laboratory world. All labs, including those working hard to maintain Medicare compliance, should be wary of the heat being brought on the industry by alleged fraudsters. The False Claims Act complaint, filed Sept. 17, names former Chief Operating Officer and CEO Jay Johnson and former Chief Sales Officer and Vice President of Business Development Austin Whiles. The allegations have not been adjudicated.
According to the Department of Justice, the first alleged scheme operated from May 2019 through February 2020 and used church-sponsored health fairs and religious conferences to collect samples for genetic testing. Prosecutors allege that laboratory personnel swabbed attendees and used physician names, signatures and standing orders without authorization to make the tests appear properly ordered.
When the COVID-19 pandemic disrupted those events, the executives allegedly turned to senior living communities. The complaint says sales personnel used demand for COVID-19 tests to generate orders for higher-reimbursing respiratory pathogen panels. Prosecutors allege that account-wide standing orders, copied physician signatures and standardized diagnosis codes took the place of decisions made for individual residents by their treating providers.
The government also alleges that Whiles received volume-based commissions through a company he controlled. It seeks to recover Medicare payments, damages and civil penalties from the defendants.
Earlier settlements in the case
The new lawsuit follows resolutions involving other participants. In 2024, Capstone and its owner agreed to pay $14.3 million to settle allegations involving kickbacks and unnecessary testing. A billing company previously agreed to pay about $300,000 to resolve allegations connected to respiratory panels billed for seniors receiving COVID-19 tests. Those settlements do not establish liability for the defendants in the new complaint.
While most honest laboratories would not test samples ordered through dubious means, labs must nonetheless realize that cases involving alleged medical necessity fraud have led to investigators looking more closely at test reimbursement. Regardless of the outcome of the Capstone allegations, this case will cause more headaches for a wider net of medical laboratories.
This article was created with the assistance of Generative AI and has undergone editorial review before publishing.
