The long-running test-referral prosecution against Biodiagnostic Laboratory Services, LLC (“BLS”), a New Jersey clinical blood testing laboratory; its owner and employees; and BLS’s referring physicians recently reached another milestone. In a criminal case that the U.S. Attorney’s Office for the District of New Jersey has called the “largest physician bribery case ever prosecuted,” resulting in 40 guilty pleas, BLS was sentenced on June 28, 2016 and ordered to forfeit all of its assets.

In addition, on June 30, 2016, the 27^th BLS referring physician pleaded guilty to charges that he violated the Federal Travel Act by taking bribes from BLS. The physician admitted that, between April 2011 and June 2012, BLS paid him approximately $1,500 per month. This physician plea is another in the long line of individual criminal pleas, 38 of which are catalogued here.

The case against BLS, its officers and employees, and the physicians who accepted payments from BLS

The criminal case against BLS involves kickbacks to physicians designed to induce them to order BLS blood tests for their patients, in violation of the Anti-Kickback Statute (“AKS”). According to the Information against BLS, the kickbacks were disguised through sham service agreements, lease agreements, and consulting agreements. Specifically, the Government charged that BLS entered into service agreements and paid physicians above-market value for blood-drawing tasks.  BLS also leased space from physicians, leasing more space than necessary as a means to pay physicians more than BLS would pay through a legitimate, arms-length lease.  After New Jersey banned lease payments from clinical blood laboratories to physicians in 2010, the Information asserts that BLS entered into sham consulting agreements to “disguise continued bribe payments.”

As a result of the bribes that BLS paid to physicians, the Information contends that BLS’s revenue increased by 400% between 2006 and 2012, and it received more than $100 million in revenue from Medicare and private insurers that was “the product of referrals from physicians receiving bribes from defendant BLS.”

For this alleged conduct, the government brought two charges against BLS: one count of conspiracy to violate the AKS and the Federal Travel Act, and one count of conspiracy to commit money laundering. BLS recently pleaded guilty to both charges and was sentence on June 28, 2016.

The Government’s focus on individual prosecutions will likely continue

The BLS case stands out for two reasons.  First, an enormous number of individuals were prosecuted, including many physicians. The AKS prohibits offering, paying, soliciting, or receiving anything of value to induce or reward referrals payable by federal health care programs. But the recipients of payments—such as physicians—are not subject to health care enforcement actions nearly as often as are the health care providers who pay alleged kickbacks.  Second, in most health care fraud cases, the corporation typically avoids criminal liability completely or enters into a non-prosecution agreement and then pays a civil settlement under the False Claims Act.  Institutional providers go to great lengths to avoid criminal conviction because it leads to exclusion from Medicare and other government-funded health care programs.  Given the magnitude of the conduct in this case, conviction of the corporation was inevitable.

As discussed in Mintz Levin’s overview of trends in the laboratory industry, given the government’s renewed focus on the prosecution of individuals, as reflected in the Yates Memo, health care enforcement actions may involve the pursuit of more individuals than in the past. For that reason, BLS may be a harbinger of things to come.