By Allison Shelton and Colleen Byrom, Brown & Fortunato, P.C.
On July 23, 2020, the Department of Justice announced a $49 million settlement with Progenity, Inc. The settlement addressed claims that Progenity engaged in fraudulent billing practices and provided illegal kickbacks to physicians and their staff.
Progenity is a biotechnology company based out of San Diego, California, that provides molecular and diagnostic testing services, such as prenatal testing, for genetic and chromosomal abnormalities. Claims against Progenity originated from a whistleblower lawsuit brought by Demetria Katsanos, a former Progenity sales representative. Pursuant to the False Claims Act, Katsanos filed a qui tam complaint on November 21, 2016, in the United States District Court for the Southern District of New York, alleging that Progenity engaged in illegal kickback schemes to induce physicians to order Progenity tests. Thereafter, the United States of America intervened and sued Progenity.
The underlying complaint alleged that Progenity utilized three different kickback schemes to induce physicians to use Progenity tests. First, the Government found that from January 2012 to March 2016, Progenity paid $1.7 million worth of “draw fees” to physicians for blood samples collected and later used for Progenity tests. According to the Government, such “draw fees” exceeded fair market value and varied with the volume of referrals to Progenity. Moreover, the Government alleged that in 2014, Progenity paid physicians $20 or more per blood draw even though Progenity knew that the Medicare rate of reimbursement to providers was $3 per draw.
For the second kickback scheme, the Government alleged that Progenity’s sales representatives routinely provided food and alcohol to physicians and physician offices to increase referrals in violation of the anti-kickback statute and the Stark Law. For example, the Government’s complaint indicated that one sales representative in Texas spent $65,6580 on alcohol and meals for physicians in 2015. The Government alleged that sales representatives hosted various events such as happy hours, birthday parties, and holiday parties for physicians and physician staff. Often these events would take place at bars and other local establishments. Further, the Government noted that the events involved little to no educational content and that Progenity did not maintain accurate sign-in sheets for the events.
In addition to happy hours and parties, the Government alleged that Progenity encouraged sales representatives to routinely offer meals and provide “goodies” to physicians and their staffs. The types of “goodies” ranged from M&Ms customized to be in the business colors of the target physician, whiskey cakes, items from Edible Arrangements, and custom orders for snacks and beverages for physician offices. According to the Government’s complaint, “[f]or the vast majority of the relevant period, Progenity did not limit or even monitor the total amount its sales representatives spent on a physician.” Thus, the Government concluded that the marketing practices violated the federal anti-kickback statute and did not satisfy the exception for nonmonetary compensation under the Stark Law.
Finally, the last kickback scheme involved waivers of federal beneficiaries’ coinsurance and deductible payments. The Government alleged that from January 2012 through April 2018, Progenity routinely waived or reduced, or offered to waive and reduce, copayment obligations for federal health care beneficiaries. The Government believed that Progenity undertook this scheme to help market expensive and costly tests to patients and physicians. The Government alleged that waivers were routinely approved without conducting a determination of a patient’s financial need or undertaking any reasonable collection efforts. Further, according to the complaint, Progenity directed its sales representatives to inform physicians and their staff that Progenity would waive patient coinsurance and deductibles. And for some physicians, Progenity allegedly agreed to not charge any copayments to the physician’s patients.
As part of the settlement, Progenity admitted that it (i) miscoded tests and knowingly submitted false claims for reimbursement under federal health care programs; (ii) paid draw fees that exceeded fair market value; (iii) provided meals and happy hours to referring physicians that exceeded limits under the Stark Law; and (iv) reduced and waived copayments regardless of the individual’s ability to pay and without making reasonable collection efforts. In addition to the $49 million settlement payment, Progenity agreed to enter into a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services.
The Progenity settlement is a reminder for providers to monitor marketing practices and to track marketing expenditures. Providers of designated health services, such as home health agencies, DMEPOS suppliers, laboratories, and hospitals, need to ensure that marketing expenditures that benefit referring physicians do not exceed the annual limit under the Stark exception for nonmonetary compensation. In addition to tracking the amount of expenditures, many providers will maintain records identifying (i) individuals in attendance at provider-sponsored events and (ii) topics and materials discussed at such events