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Press Release

Texas Laboratory Agrees to Pay $5.9 Million to Settle Allegations of Kickbacks to Third Party Marketers and Unnecessary Drug Tests

For Immediate Release
Office of Public Affairs

Genotox Laboratories Ltd., of Austin, Texas, has agreed to pay at least $5.9 million to resolve False Claims Act allegations that it paid volume-based commissions to third party marketers in violation of the Anti-Kickback Statute and submitted claims to federal health care programs for unnecessary drug tests. In parallel proceedings, the U.S. Attorney’s Office for the Western District of Texas and Genotox entered into an eighteen-month Deferred Prosecution Agreement to resolve a criminal investigation regarding the same conduct.

“Laboratories are prohibited from paying kickbacks to third parties to arrange for laboratory orders,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “We will hold accountable companies that violate the rules intended to protect the integrity and resources of federal health care programs.”

The settlement announced today resolves allegations that, from 2014 to 2020, Genotox paid kickbacks to independent contractor sales representatives and marketing firms to arrange for or recommend the ordering of Genotox’s laboratory testing, in violation of the Anti-Kickback Statute. As part of the settlement, Genotox admitted and accepted responsibility for paying independent contractor marketers, whom Genotox referred to as “1099” representatives, a percentage of the revenue Genotox received from billing Medicare, the Railroad Retirement Board (RRB), and TRICARE for laboratory testing orders facilitated or arranged for by the 1099 representatives.

The Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by Medicare and other federally funded health care programs. The Anti-Kickback Statute is intended to ensure that medical providers’ judgments are not compromised by improper financial incentives and are instead based on the best interests of their patients.

In addition, the settlement resolves allegations that, from 2014 to 2022, Genotox submitted claims to Medicare, RRB, and TRICARE for laboratory tests that were not covered and/or not reasonable and necessary, including blanket orders and routine standing orders of drug testing for all patients in a provider’s practice. As part of the settlement, Genotox admitted and accepted responsibility for offering health care providers order forms known as “custom profiles” for each provider to pre-select the tests to order, which Genotox then performed and billed, for all or nearly all of the provider’s patients, generally at the highest reimbursement categories, such as definitive drug testing for 22 or more drug classes.

Under the settlement with the United States, Genotox has agreed to pay $5.9 million, plus additional amounts if certain financial contingencies occur. The settlement amount was based on the company’s ability to pay.

In connection with the settlement, Genotox entered into a five-year Corporate Integrity Agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG). The CIA requires, among other things, that Genotox maintain a compliance program, implement a risk assessment program, and hire an Independent Review Organization to review Medicare and Medicaid claims at Genotox.

“Kickbacks harm the integrity of federal programs and unnecessarily increase costs to taxpayers,” said  U.S. Attorney Jill E. Steinberg for the Southern District of Georgia. “Patients should know that decisions concerning their health are based on their needs, not the profit margins of providers.”

“The Deferred Prosecution Agreement ensures that Genotox will live up to its compliance obligations,” said U.S. Attorney Jaime Esparza for the Western District of Texas. “My office is committed to the effort to root out fraud and abuse in the health care system.”

“Health care companies that engage in kickback schemes can undermine the public’s trust in medical institutions and the financial integrity of the programs billed,” said Special Agent in Charge Tamala E. Miles of HHS-OIG. “Working with our law enforcement partners, our agency will continue to investigate such allegations in order to detect and deter illicit activity targeting federal health care programs.”

“The Department of Defense (DOD) Office of Inspector General’s Defense Criminal Investigative Service (DCIS) is committed to rooting out fraud schemes that not only waste valuable taxpayer resources, but also impact mission readiness,” said Special Agent in Charge Michael Mentavlos of the DCIS Southwest Field Office. “DCIS, along with our law enforcement partners, will aggressively pursue and hold those accountable who undermine the integrity of DOD’s taxpayer funded health care program, known as TRICARE, which is intended for our service members, retirees, and their families.”

The civil settlement includes the resolution of claims brought under the qui tam or whistleblower provisions of the False Claims Act by Alex DiGiacomo, Genotox’s former billing manager. Under those provisions, a private party can file an action on behalf of the United States and receive a portion of any recovery. The qui tam case is captioned United States ex rel. DiGiacomo v. Genotox Laboratories, Ltd., et al., No. 2:20-cv-97 (S.D. Ga.). As part of the settlement, DiGiacomo will receive approximately $1 million.

The civil resolution obtained in this matter was the result of a coordinated effort between the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the Southern District of Georgia, with assistance from HHS-OIG and DCIS.

The matter was handled by Fraud Section attorneys Douglas Rosenthal and Christopher Terranova and Assistant U.S. Attorney Bradford C. Patrick for the Southern District of Georgia. Assistant U.S. Attorneys G. Karthik Srinivasan and Alan Buie handled the criminal matter in the Western District of Texas.

The government’s pursuit of this matter illustrates the government’s emphasis on combating health care fraud. One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement can be reported to the Department of Health and Human Services, at 1-800-HHS-TIPS (800-447-8477).

Except to the extent of the facts admitted by Genotox, the claims resolved by the settlement are allegations only and there has been no determination of liability.

Updated April 4, 2023

False Claims Act
Health Care Fraud
Press Release Number: 23-369