Court of Appeals Upholds Verdict Against Health Diagnostic Laboratory and its Marketing Partner

On February 22, 2021, the United States Court of Appeals for the Fourth Circuit rejected challenges to a $114 million qui tam jury verdict against a former blood lab chief executive officer and two sales consultants. 

District Court Ruling

Some readers may recall in May 2018, after a two-week jury trial, the United States District Court in the District of South Carolina entered judgments against LaTonya Mallory, Floyd Calhoun Dent III, and Robert Bradford Johnson for violating the False Claims Act and Anti-Kickback Statute. In that case, the three individuals were found to have paid remuneration to physicians in exchange for patient referrals and caused two laboratories to bill federal health care programs for medically unnecessary testing.

During the two-week jury trial, the government introduced evidence that Mallory, the former CEO of Health Diagnostic Laboratory (HDL), as well as Johnson and Dent, owners of HDL’s marketing partner, BlueWave Healthcare Consultants, paid physicians remuneration in the form of “processing and handling fees” of between $10 and $17 for each patient they referred to two blood testing laboratories: HDL and Singulex Inc. 

In addition to that evidence, the government also introduced evidence that the kickback scheme resulted in physicians referring patients to HDL and Singulex for medically unnecessary tests, which were then billed to federal health care programs. 

At the conclusion of trial, the jury found Mallory, Johnson, and Dent jointly and severally liable for causing the submission of 35,074 false claims (worth $16,601,591) to Medicare and TRICARE by HDL. The jury also found Dent and Johnson jointly and severally liable for an additional 3,813 false claims (worth $467,935) submitted by Singulex. To calculate the judgment, the District Court issued treble damages and offset the amount by settlement payments received from HDL and Singulex for the same claims. From there, the Court awarded an additional $63.8 million in penalties requested by the United States, resulting in a total judgment of $114,148,661.86, broken down as $111,109,655.30 against all three defendants for the HDL claims and $3,039,006.56 against just Johnson and Dent for the claims submitted by Singulex.

The claims resolved by the court’s order were originally brought in three lawsuits filed by whistleblowers Dr. Michael Mayes, Scarlett Lutz, Kayla Webster, and Chris Reidel. The three cases were consolidated into one case against Mallory, Dent, Johnson and others in August 2015.

Appeals Court Decision

Following the District Court Decision, Mallory, Johnson, and Dent appealed to the United States Court of Appeals for the Fourth Circuit. As noted above, in February 2021, the Court of Appeals rejected their appeal and “affirm[ed] the judgment of the district court in all respects.”

This decision by the Appeals Court now allows the government to begin to collect the damages and penalties.

Other defendants in the qui tam cases previously settled with the government. In 2015, HDL agreed to pay $47 million and Singulex agreed to pay $1.5 million for their participation. Two years later, Quest Diagnostics and Berkeley Heartlab, which Quest Diagnostics had acquired, agreed to pay a total of $6 million to settle similar charges.