Lab Fraud Scheme Costs Hospital Over $7M in Settlements

A Kentucky hospital, lab, and employees are paying up big time after being caught in a fraudulent lab testing plot.Photo byCDConUnsplash

A hospital, laboratory, three employees, and a referring physician have agreed to pay more than $7.2 million to resolve civil allegations of defrauding federal healthcare programs by submitting fraudulent claims for unnecessary lab testing, the U.S. Attorney's Office for the Eastern District of Kentucky announced Friday.

Physicians’ Medical Center (PMC), based in New Albany, Ind., operated a clinical laboratory managed by the now-defunct U.S. Medical Scientific Indiana, LLC.

According to federal allegations, PMC submitted nearly $3 million in false claims to Medicare, Kentucky Medicaid, and TRICARE for urine drug tests that were not medically necessary between December 2016 and September 2018.

“These settlements highlight our office’s commitment to protecting the integrity of federal healthcare programs,” said Carlton S. Shier IV, U.S. Attorney for the Eastern District of Kentucky.

PMC’s fraudulent claims stemmed from partnerships with nonmedical entities, including homeless shelters and peer-to-peer recovery centers.

The tests, which were used solely to monitor compliance with program conditions rather than for medical treatment, violated federal healthcare guidelines, authorities said.

Two PMC employees, Bobby Sturgeon, a sales representative, and Derrick Arthur, a specimen collector, were also implicated in the scheme.

Sturgeon continued submitting false claims after PMC's lab closed in 2018, transferring his operation to Bluewater Toxicology in Kentucky, according to settlement documents.

Bluewater submitted an additional $450,000 in false claims.

In a related plot, PMC and Bluewater sales representative Steve Moore allegedly paid kickbacks to Dr. Pablo Merced and his office manager, Theresa Merced, to induce referrals for lab tests.

The U.S. government claimed these payments violated the Anti-Kickback Statute, further inflating claims to federal healthcare programs.

Under the settlements, PMC will pay $5.2 million, Bluewater $895,952, and Sturgeon $713,466.

The Merceds agreed to pay $450,000, while Arthur and Moore will pay $5,500 and $40,000, respectively, to resolve their liabilities. Some settlement amounts were reduced due to financial hardship.

This case returns over $7.2 million to Medicare, Kentucky Medicaid, and TRICARE, officials said.