DOJ Enforcement Relating to Laboratory Relationships is Relentless, Especially as to Genetic Testing

The Department of Justice (“DOJ”), including its constituent Healthcare Strike Force Units and U.S. Attorney’s Offices around the country, continues to wage a campaign that shows no sign of slowing against laboratories, marketers and physicians for the submission of false claims relating to genetic-testing.  In this regard, the Department’s approach to enforcement mimics the methodology it typically employs to promote industry reform: target the largest and most significant industry participants first, hoping the initiative will result in trickle-down change by smaller participants.  Hence, a majority of the genetic-testing enforcement actions brought to date have involved telemedicine companies, which typically have greater claims volume than traditional brick-and-mortar businesses. The recent conviction of the owner of a telemedicine company by the U.S. Attorney’s Office for the Middle District of Tennessee relating to cancer genomic testing represents yet another example of that ongoing focus. Make no mistake, however, that a broader swath of the industry will receive enforcement attention based on DOJ’s increasing knowledge and expertise in the lab/marketing space.

Other than the high reimbursement dollars often associated with claims, there is nothing particularly distinctive or endemic about genetic testing that makes it a repeat enforcement target.  Indeed, the entire laboratory industry relies heavily on marketing relationships, particularly out-of-network labs.  Cottage industries have arisen around these contracts, including fair-market valuation services and compliance monitoring.  Moreover, as applied to these relationships, the law arguably is overbroad and unconstitutionally applied: the Anti-Kickback Statute prohibits payments based on volume or value, but the intrinsic value of a marketer’s work is directly correlated with how successful he or she has been in driving business to the lab.  Likewise, absent a safe-harbor or statutory exception, the Anti-Kickback Statute prohibits compensation in exchange for “referrals,” which ironically is the central business objective of a lab/marketer relationship.  Furthermore, at least according to a recent decision by a federal judge in the District of Hawaii, the payment of commission-based compensation to an employee does not violate the law, but DOJ’s position is that such payments to Form-1099 contractors, in and of themselves, are illegal.  Finally, marketers invariably refuse to commit to W2-employee status, and labs are therefore left with a Hobson’s choice whether to engage them as independent contractors or suffer competitive disadvantages.  In short, this would not be the first time that DOJ is accused of writing speeding tickets on the Autobahn.

The penalties, however, can be severe.  Because violations of the Anti-Kickback statute may be enforced either as criminal or civil penalties, there is a range of potential outcomes that turn on a number of factors, including, for example, whether Main Justice or a U.S. Attorney’s Office (and the internal structure of that office) is pursuing the case.  Hence, Frier Levitt counsels clients on a number of different considerations and strategies to mitigate risk in this area most effectively.  First and foremost, non-compliant relationships should be identified through compliance reviews and periodic monitoring.  Second, the extent of non-compliance must be weighed based on the factors the DOJ will evaluate: does the conduct warrant the severe sanction of criminal charges, or can it be addressed through self-disclosure and civil penalties.  Third, as we have written, whether self-disclosure is advisable is an extraordinarily complex decision that may have broader implications, and there are many options short of self-disclosure that may be deployed to mitigate enforcement risk.  Finally, given the number of affirmative remediation strategies available, we suggest that it is highly unadvisable to simply do nothing because DOJ’s activity in this space has been relentless—even under the former administration—and is likely to ramp further under President Biden.  Please call us today for a consultation should you need assistance thinking through these challenges.


* Mr. Mahajan currently serves as Chair of Frier Levitt’s White Collar Defense & Government Investigations practice.  He formerly served as an Assistant U.S. Attorney for the U.S. Department of Justice for nearly a decade, and as a top compliance executive for UnitedHealth Group and McKesson Corp., two of the largest healthcare companies in the world.