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The biggest West Coast provider of X-ray, ultrasound, and lab services for patients at skilled nursing facilities says it has done nothing wrong. Nevertheless, it has agreed to pay $19.4 million to settle federal and state accusations of paying illegal kickbacks for referral of mobile radiology and lab services.

Diagnostic Laboratories & Radiology of Burbank, California, will pay $12.95 million to the federal government, $4.55 million to the California government, and $1.9 million for attorney fees and court costs, according to the Los Angeles Daily News.

Two former salesmen for the company, Jon Pasqua and Jeff Hauser, will share $3.76 million of the federal share and will receive an as-yet-undetermined portion of the state share. Pasqua and Hauser filed a whistle-blower lawsuit in 2010 after leaving the company.

Joe Hixson, a spokesman for Diagnostic, said the company did nothing improper or illegal. He added:

We did feel that we would have prevailed before a jury. It was really just a matter of cost and time. We wanted something that was definitive so we could move forward and instead focus on our business and not the courts.

The U.S. Department of Justice announced the settlement last week in a news release. “Diagnostic Labs allegedly took advantage of Medicare’s different reimbursement system for inpatient and outpatient services by charging Skilled Nursing Facilities (SNFs) in California discounted rates for inpatient services paid by Medicare in exchange for the facilities’ referral of outpatient business to Diagnostic Labs,” the release said.

According to the release, Diagnostic offered discounts on inpatient services, for which Medicare pays a diagnosis-based fixed rate regardless of what services are actually provided. In exchange, the release says, the nursing facilities would give Diagnostic referrals for outpatient services directly to Medicare and Medi-Cal (California’s Medicaid program). Medicare pays for each outpatient service separately, so outpatient services are potentially much more profitable.

Both federal and California law prohibit inducements to generate referrals, including discounted rates. “When medical facility owners illegally offer discounts to customers to generate business, it results in inflated claims to government health care programs and increases costs for all taxpayers,” said Glenn R. Ferry, the local special agent in charge for the Department of Health and Human Services’s inspector general.

Naill McCarthy, a lawyer who represented Pasqua and Hauser, said, “It’s been difficult for them to work in the same industry, so they are now looking outside the industry because they are now known as whistle-blowers.” The $3.76 million will probably make the job search a little less urgent.

Related CME seminar (up to 59.25 AMA PRA Category 1 credits™): National Diagnostic Imaging Symposium


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