Two Clinical Labs and Their Owners Agree to Pay $5.7 Million to Resolve False Claims and Kickback Allegations

NEWARK, N.J. – Two clinical laboratories and their owners have agreed to pay $5.7 million to resolve allegations that they caused the submission of false claims to Medicare by paying kickbacks in return for genetic testing samples, the Department of Justice announced today.

Metric Lab Services LLC and Metric Management Services LLC (Metric) and Spectrum Diagnostic Labs LLC (Spectrum) and two of their owners and operators, Sherman Kennerson and Jeffrey Madison, have agreed to the settlement.

“Rather than compete fairly for business, these labs engaged in a brazen kickback scheme to rake in millions of dollars of Medicare money,” Philip R. Sellinger, U.S. Attorney for the District of New Jersey, said. “A patient’s needs must guide medical decisions, not who is paying the biggest kickback. Today’s settlement recoups millions of dollars for the Medicare program, and demonstrates this Office’s continuing resolve to protect the integrity of federal healthcare programs.”

“Laboratories that attempt to profit from unlawful kickbacks will be held accountable,” Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division, said. “The department will continue to pursue those who undermine the integrity of federal health care programs and waste taxpayer dollars.”

“When health care providers engage in kickback schemes – particularly ones that deceive Medicare patients about the medical necessity of services – the trust of both patients and taxpayers are at risk,” Special Agent in Charge Scott J. Lampert of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) said. “This case shows our commitment to investigating such allegations in order to protect the Medicare program’s ability to subsist and serve its mission.”

Metric and Spectrum were clinical laboratories in Mississippi and Texas, which Kennerson and Madison co-owned and operated along with other individuals. The United States alleged that Metric, Spectrum, Kennerson and Madison participated in a genetic testing fraud scheme with various marketers. These marketers solicited genetic testing samples from Medicare beneficiaries. The marketers arranged to have a physician fraudulently attest that the genetic testing was medically necessary, and Metric and Spectrum would process the tests, receive reimbursement from Medicare and pay a portion of that reimbursement to the marketers. 

In an attempt to conceal the nature of the kickback arrangement, Metric and Spectrum entered into sham agreements with marketers to provide various consulting, marketing and other services at an hourly rate. In reality, however, Metric and Spectrum paid the marketers a percentage of revenue, including Medicare reimbursement, in return for the samples. The marketers then generated sham invoices for hourly services that matched the agreed-upon kickback amount. 

Kennerson and Madison each previously pleaded guilty to one count of conspiracy to defraud the United States in connection with this scheme and are awaiting sentencing.

The 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 District of New Jersey, with assistance from HHS-OIG.

The government is represented by Assistant U.S. Attorney Andrew A. Caffrey III of the District of New Jersey and DOJ Trial Attorney J. Jennifer Koh.

The investigation and resolution of this matter illustrates the government’s emphasis on combating healthcare 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 800-HHS-TIPS (800-447-8477).

The claims resolved by the settlement are allegations only and there has been no determination of liability except to the extent admitted by Kennerson and Madison in their criminal pleas.