Greensburg lab accused of paying kickbacks to doctors

Firm target of inquiry by federal agents

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A Peters man who five years ago launched a medical lab testing firm that rattled the competition has become the subject of a federal investigation that emerged Thursday with the seizure of more than $750,000 in allegedly fraudulent gains.

William J. Hughes, 67, formed Greensburg-based Universal Oral Fluid Laboratories of PA LLC in 2009 and built its business by paying kickbacks to doctors, a federal prosecutor alleged in court documents.

The allegations emerged in a forfeiture complaint in which Assistant U.S. Attorney Lee J. Karl seeks to seize $269,926 from the lab’s bank account, $415,529 in certificates of deposit from Mr. Hughes and his wife, and $68,500 in cash uncovered in March.

The lab has been inactive since March, when federal officials served search warrants at the business.

Mr. Hughes said he did not believe there was anything illegal in the business arrangements he had with doctors.

“There were no guarantees” of payments to doctors, he said. Doctors could refer lab work to his firm or take their business elsewhere, he said. “There were no minimums. There were no maximums.”

The seizure effort and the investigation that underlies it reflect the Affordable Care Act’s increased emphasis on fighting fraud in the health marketplace, said Valarie K. Blake, a visiting assistant professor of health law at Duquesne University.

Kickbacks, she said, “can kill competition, because other labs that are abiding by the law can’t compete.” They also can spur unnecessary care, noting that an estimated one-third of the money that flows into the American health-care system is wasted.

Universal Oral Fluid Lab, according to its website, tested saliva for drugs, allowing doctors to monitor their patients’ adherence to prescriptions.

In 2011, a Florida firm, Millennium Laboratories Inc., sued Universal, accusing the company of using “a scheme” masquerading as a series of “joint ventures” under which it paid physicians for every lab test referral. According to the lawsuit, Universal kept $150 of the insurance proceeds from each test and sent the balance to the doctors.

Universal unfairly won over doctors in Florida and Texas, Millennium alleged.

Millenium argued that violated federal laws against paying or receiving kickbacks in relation to services covered by federal health-care programs. The firm also cited the Stark Law, which bars physicians from referring federal health-care program patients to labs with which they have financial interests.

Universal countered that those laws didn’t give Millenium any right to sue. The case appears to have settled in January.

Mr. Hughes said Thursday that his lab simply charged “a flat fee of $150. … We had about 30 [referring doctors]. Eight of them made money, and some didn’t make money.”

The FBI, however, “has been conducting an investigation of William Hughes and others” for health-care fraud, kickbacks and money laundering, according to Mr. Karl’s complaint. “The investigation revealed that [Universal] engaged in kickback arrangements with physicians in order to be the exclusive lab for providing drug testing services.”

The lab and at least one doctor, identified in the complaint only as “JJ,” discussed how to “ramp up” swabbing and “open the floodgates” to bill “the insurance companies with the largest kickback potential,” according to the complaint.

From January 2011 through November 2013, insurance companies paid $42 million into the lab’s account, and Medicare Part B paid $11.2 million.

“Of the approximately $11.2 million, approximately $1,869,926.37 was paid to [Universal] for oral swabs submitted to [the lab] by Dr. JJ,” according to the federal complaint.

Documents filed as part of the Millenium lawsuit indicate that Universal had a relationship with John Johnson, a doctor with Central Pennsylvania Pain Management. He could not be reached for comment Thursday at his office in Tyrone, near Altoona.

According to the federal complaint, Mr. Hughes shifted some of the money earned by Universal to himself. “For example, from January 2013 through October 2013, Hughes wrote checks to himself totaling approximately $1.7 million,” Mr. Karl wrote.

Mr. Hughes said he shifted money between accounts only to cover Universal’s employee pension plan.

He said that Universal charged “hardship cases” only $30 and shut its doors even as some clients owed it millions of dollars. “How can it be a kickback if I’m losing money?” he asked.

U.S. Attorney David Hickton declined to speak specifically to the case involving Universal. He has, however, repeatedly said that he is focusing federal investigative powers on the health-care industry.

“Money spent on medical care should benefit patients not line the pockets of fraudsters,” he said in a statement issued Thursday.

Ms. Blake said there probably will be more investigations like the one involving Universal because the Affordable Care Act allocated $350 million to fight fraud and abuse through 2020.

Rich Lord:, 412-263-1542 or on Twitter @richelord. First Published September 4, 2014 11:13 AM

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