On May 23, 2018, the U.S. District Court for the District of South Carolina entered a multi-million dollar judgment against Latonya Mallory, former CEO of Health Diagnostic Laboratory (HDL) and Floyd Calhoun Dent III and Robert Bradford Johnson, owners of a healthcare marketing firm, BlueWave Healthcare Consultants, Inc. In January 2018, a jury found that the defendants submitted tens of thousands of false claims to the Medicare and TRICARE programs in a consolidated qui tam whistleblower action. In violation of the Anti-Kickback Statute and False Claims Act, defendants were accused of paying physicians “processing and handling” and commission fees per blood draw to be processed by the laboratory. Under the False Claims Act, liable persons are subject to treble damages, and the court found all three defendants jointly and severally liable for $111,872,273 in damages related to approximately 35,000 HDL claims. The BlueWave owners were also found jointly and severally liable for an additional $3,136,305 for approximately 3,800 claims related to another laboratory, Singulex.
In entering the judgment, the court rejected many of the defendants’ arguments against the sufficiency of the evidence. First, defendants argued that the government had not suffered any harm because the ordered tests were actually performed and were medically necessary. The court rejected this argument and found that causing Medicare/TRICARE to pay for tests the programs otherwise would not have due to associated statutory violations was sufficient to show damage to the government. Second, defendant Mallory took issue with the way in which the damages figures were aggregated between HDL and Singulex. The court rejected this contention, finding that the damages expert sufficiently provided an overall ratio of HDL to Singulex claims, which were then applied to damages figures.
The HDL and Singulex organizations separately settled False Claims Act violation allegations made against the companies, of which the number of claims in this case constituted only 10-12 percent of the settlement. The court therefore applied an offset to the amount of damages for which the employee defendants were responsible: 10 percent of the amount received from Singulex and 12 percent of the amount received from HDL.
Lastly, the court rejected defendants’ arguments that the judgment violates the Excessive Fines Clause of the Eighth Amendment and the Due Process Clause of the Fifth Amendment. According to the court, the damages are both compensatory (15 percent to the qui tam relators and single damages) and punitive (two-thirds of the damages and the civil penalties), and the court found the ratio of punitive to compensatory damages (below 4-to-1) raised no constitutional concerns. The court also noted the seriousness of the violations.
The case is United States ex rel Lutz v. BlueWave Healthcare Consultants Inc., No. 9:14-cv-00230-RMG (D.S.C. May 23, 2018). The damages order is available here. The defendants said they will appeal.
