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Press Release

Owner of Defunct Urine Drug Testing Laboratory Agrees To Pay Over $2 Million To Resolve Allegations Of Participation In Kickback Schemes

For Immediate Release
U.S. Attorney's Office, Western District of North Carolina


CHARLOTTE, N.C. – William T. Stetzer, Acting United States Attorney for the Western District of North Carolina announced today that the United States has settled claims asserted against Philip McHugh, one of the former owners of Physicians Choice Laboratory Services (PCLS), a now-defunct diagnostic testing laboratory formerly located in Charlotte and Rock Hill, South Carolina. McHugh has agreed to pay $2,021,795.57 to resolve the United States’ allegations that he violated the Anti-Kickback Statute (AKS), and, as a result, caused PCLS to submit millions of dollars in false claims for reimbursement to the Medicare program in violation of the federal False Claims Act (FCA).

In June of 2019, the United States filed its Complaint in Intervention asserting FCA claims against McHugh, PCLS and other agents of the laboratory based on allegations that they participated in various schemes to offer or provide benefits to physicians in exchange for the referral of patient samples for drug testing. The United States contended that such conduct violated the AKS, which specifically forbids any person or entity from knowingly and willfully offering, paying, soliciting, or receiving remuneration to influence the referral of items or services reimbursable by a federal health care program, and, that as a result, it was entitled to recover damages under the FCA. 

“Strategic drug testing, when medically indicated and ordered without the taint of monetary gain, is an important tool that medical professionals can use to safeguard patients by confirming compliance with prescription medications and identifying signs of substance use disorders,” said Acting U.S. Attorney Stetzer. “Offering financial incentives to medical providers in exchange for performing these tests not only violates the law, it undercuts the significant efforts that the medical and law enforcement communities have made to combat the opioid crisis in America.”  

“This laboratory used prohibited financial instruments and giveaways to physicians for patient referrals,” said Derrick L. Jackson, Special Agent in Charge at the U.S. Department of Health and Human Services, Office of Inspector General in Atlanta (HHS-OIG).  “Such quid pro quo arrangements are kickbacks that stifle competition and steer business to the company offering the inducements.”

This settlement resolves the United States’ allegations that during the time period beginning on June 20, 2013, and continuing through October 26, 2015, PCLS submitted false claims to the Medicare program as a result of McHugh’s participation in various kickback schemes, including (1) the provision of urine drug testing equipment, including desktop analyzers and associated supplies and services, to two physicians; (2) PCLS’ payment of volume-based commissions, and later a salary, to an individual in exchange for that individual’s exercise of influence over two physician practices; and (3) the provision of loans to two physicians – all with a purpose to induce the referral of quantitative urine drug tests to PCLS.

In December 2019, the U.S. Attorney’s Office for the Western District of North Carolina announced that another defendant, Manoj Kumar, a former sales representative and manager of PCLS, had paid $649,407 to resolve claims asserted by the United States that he participated in schemes to illegally induce physicians to refer patients to PCLS for medically unnecessary urine drug tests.

The United States’ civil action was filed in the District of North Carolina following the filing of two whistleblower complaints under the qui tam provisions of the FCA, titled United States ex rel. Jenkins et al. v. Physician’s Choice Laboratory Services et al., originally filed in the Eastern District of Tennessee, and United States ex rel. Hartnett & Shoched v. Physicians Laboratory Services, LLC et al., originally filed in the Middle District of Florida), which were transferred to the Western District of North Carolina and consolidated under Civil Case No. 17-cv-37. 

This settlement was the result of coordinated efforts and investigation by the HHS-OIG and U.S. Attorney’s Office. The claims resolved in this settlement are allegations only and there has been no determination of liability.

Updated March 26, 2021