The Wild West Of New Laboratory Scams

It’s like the wild west. With no sheriff acting to impose law and order, many laboratory companies are now deploying a wide variety of new scams to gain new business.

The new scams have emerged in the wake of the collapse and bankruptcy of Health Diagnostics Laboratory (see the bottom of this story for links to previous coverage) in response to DOJ charges of fraud. Industry observers had hoped that HDL’s collapse last year would have a chilling effect on these sort of schemes. But it’s now becoming quite clear that this is not the case, and in fact the opposite may be true. The new schemes appear to be multiplying.

The reason may be simple:  because the DOJ has so far failed to file criminal charges against anyone involved in the HDL case, and because many of the principal figures retain the wealth they earned from the HDL scams, the mild consequences of DOJ investigations, lawsuits and penalties are seen as simply the price of doing business.

I have received multiple reports from industry observers, doctors, and patients about the new and troubling schemes. These new scams are all based on avoiding, or at least appearing to avoid, the key mistake made by HDL: paying doctors directly for using their services. That is a kickback. The new schemes use a variety of intermediaries– phlebotomy services, physician owned labs, and MSOs (management services organizations)– instead of direct payments. But in the cases I’ve heard about it is completely clear to everyone involved that the doctors are being compensated for purchasing these lab tests.

Here are some examples of what’s going on out there in the wild west of laboratory tests:

Physician-Owned Lab:

Here’s a story shared by one family physician who works in a small group practice. The group was approached by a consultant with an “opportunity” to offer, and profit from, lab tests, including advanced cardiac marker tests, from True Health and other companies. As the representative explained to the physicians, his organization would help the physicians set up and run a lab in which the physicians would own a 40% minority share. Ostensibly the lab would have been based in a small local hospital which would perform the billing. The purpose of the minority ownership was to conceal the fact that physician-owned laboratories are illegal and unethical. The reason for billing through the local hospital was because many of the insurance companies have caught on to the fact that laboratory companies like HDL and True Health have been charging outrageous amounts for thousands of dollars worth of unnecessary tests for their patients. But the insurance companies haven’t yet caught on that the billing for these tests are now coming from small, previously reputable hospitals. The consultant even told the group of doctors that the scheme would probably last only a few years before the insurance companies caught on, but by that time the physician group and their partners would already have made a tidy profit.

A Patient’s Confusion And Odyssey

One patient wrote me about her bizarre experience after getting a urine test and a True Health panel of tests at her doctor’s office. When she didn’t receive a bill for her tests she received a series of confusing responses from her doctor’s office. First she was told that her account was marked “client billing,” which, she was also told, “means True Health is billing my doctor directly, and that I have no financial responsibility to True Health.”

She became concerned that she would be billed after it was too late to obtain any reimbursement from her insurance company so she returned to her doctor’s office to pursue the matter. When she asked to see her patient record she discovered that there was no mention of either the blood test or the urine test on the record.

“Oh! Don’t worry,” she was told. The doctor “won’t be billing you for that. There was a mix-up. You won’t be sent to collection or anything like that.”

She told me she was stunned by this response. “I was just wondering where the results were,” she told me. “I hadn’t even asked about the billing yet. Very strange. This reminded me of the cop who pulls someone over for an expired plate and the driver says, ‘I’m not drunk’.”

The situation got even stranger. Although she hadn’t been billed for it, she did receive an explanation of benefits for her urinalysis from Sun, an out-of-network laboratory, for $3,900. Once again, she hadn’t received a bill, but she said it’s “a mystery as to why my doctor used Sun and not Quest, which is in-network.”

She then contacted her insurance company, Aetna, and discovered that they had never received a claim for the True Health blood tests.

Her doctor never talked to her about the results of her urine and blood tests. When she asked to see the results of the urine test she was given a printout from a small hospital she had never visited or even heard about. When she asked about this she was told that Sun had sent her urine test to this hospital.

She was then astonished when the same thing happened with her blood results. The True Health report advised her to call and discuss her results with a “Clinical Health Consultant” at… you guessed it, the same small hospital. She wondered: “why would I discuss my results with some unknown outfit and not with my doctor, who ordered the tests?”

Things got even stranger when she pursued the missing bills. It turned out that her doctor’s administrator couldn’t answer her questions because the billing matters for the tests was handled by someone else, someone not employed by the doctor. This person’s job was to handle the billing for True Health. The doctor leased space to this True Health biller.

“This seems bizarre to me,” she reported to me. “Am I wrong? Does every third party lab have an on-site rep in every doctor’s office for billing issues? And how ironic, given that neither I nor Aetna have been billed for True Health’s work.” She also speculated that True Health perhaps “subleases space from my specialist’s office suite at a price that’s well above market” and whether this constitutes “financial incentive.”

It also seems clear that reimbursement was being sought not through Truth Health but through the hospital. In other words, this appears to be a working version of the scam proposed to the group practice doctors in the previous anecdote.

Phlebotomy scams:

Phlebotomy scams were among the first new schemes to emerge after the fall of HDL. I’ve previously reported True Health’s relationship with an Uber-style phlebotomy service named Iggboo. In a new example, a physician told me about overtures made to her by Boston Heart Diagnostics, a lab that has often been mentioned for its involvement in these schemes. In order to avoid the direct kickback scheme that was the undoing of HDL, Boston Heart uses a phlebotomy company as an intermediary. In this case, a representative of the phlebotomy company told the doctor that the phlebotomy company would divide a $35 draw fee paid by Boston Heart and pay the share directly not to the doctor but to an employee in the doctor’s office. “For that moment in time when they draw the blood they suddenly become an independent contractor paid by the phlebotomy company,” the doctor said the phlebotomy rep told her. The company also tells doctors to tell their patients that the company will send 2 bills to patients but that it will then make no effort to collect. “We don’t really care if the patient pays their bill, we make our money from the insurance,” the rep explained.

Another key element to the phlebotomy scam is that the phlebotomy companies have relationships with many companies, and encourage doctors to order multiple blood tests from multiple companies. Both the phlebotomy company and the physician employee who actually draws the blood then receive draw fees from all the involved laboratory companies. It should come as no surprise to readers of earlier stories on this topic that True Health Diagnostics is one of the other companies participating in this scheme.



Another hotspot of laboratory scams is toxicology testing. Now it is often the case that it is reasonable to require regular drug testing as a condition of receiving an opiate medication. In this case, however, the patient was astonished that the test was “performed by a lab located next door to the clinic and run by the same physician prescribing the meds.” In fact, the patient reported, “not only is the drug-of-abuse testing lab right next door, there’s a hole in the wall between them to put your pee.” The patient continued his story: “They wouldn’t give me a straight answer what ‘the law’ requires and I didn’t push because I didn’t want to antagonize them.  I’m charged for each monthly test.  They also took my DNA from a mouth swab as part of some vague ‘compliance’ thing, and I’m sure I’ll be charged for that too.”


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  1. Walter Shelton says:

    Thanks for staying on top of this issue. You saved me from the bill collection vultures.

  2. It is very concerning to see Phlebotomy labs act in such unethical manners. Legal and ethical decisions should drive the operations for any healthcare organization. What do you believe are the best methods for patients to determine if they are being scammed, and what should be the follow-up action if so?

  3. Erica Dunn says:

    It’s just a matter of time. MSOs are popping up everywhere and while they are currently a “grey” area as far as the law is concerned, they are certainly unethical and a growing part of our huge healthcare problem.

  4. Craig Childs, M.D. says:

    As a pathologist (now retired) who worked for a scruplously honest major lab company, it has to be pointed out that these scams are reciprocal between the lab and the clinicians. I was at a major training meeting attending a panel discussion with a group of physician clients. One of them actually and very publically stated that labs make a lot of money off of his patients and he believed he had a right to share in those profits. It is appalling what corporate medicine has done to health care ethics. Our sales team routinely lost business to small under the radar labs that offered various illegal schemes- salary support, free bone marrow kits, etc.etc.

  5. You think these examples are bad, quest Diagnostics, the world’s largest commercial reference lab has to pay the State of California $241 million and LabCorp paid $49 million for over-charging Med-Cal, California’s Medicad program. I began my healh care career selling commercial reference lab (CRL) services for Upjohn Laboratory Procedures and the fraud in the CRL segment of health care has been alive and well for many, many decades. Don’t look for it to stop anytime soon either.

    “Sink testing”, industry jargon for just pouring patient samples down the drain and reporting out results led to the enactment of CLIA (Clinical Laboratory Improvement Act) in 1988.

    Please contact me if you would like to discuss my above comments in greater detail.

  6. I am experiencing what appears to be the same thing, in the form of Toxicology tests. I saw a foot doctor to inquire about foot pain and options. They said surgery was an option, but I had to have some lab work done to see if I was eligible. Mouth swabs were used. Only a few. I first asked them to check my insurance to determine how much it would cost. They did, and they said it was fully covered. They used an out-of-network lab called US Toxicology. I received an EOB from my insurance company 2 months later saying that I may owe ~$4000 out of about $9000. I went to the doctor’s office and was persuaded not to be concerned about this. I was told that I can “ignore it” by the person who administered the swabs. Then another two months later another EOB came in, this time saying my financial responsibility was $0, but that the total billed went up to $17,000 (and there were many more charge codes this time that were not on the first EOB). Then two weeks later I got a bill directly from US Toxicology for $350. I called my insurance company and they requested medical records from the doctor. The doctor is purposefully stalling and not sending these records. When I inquired with the doctor, they said that it doesn’t matter if they send the records to the insurance company or not, but that the insurance company would not pay. I don’t think I should pay for this bill because the doctor made a mistake in using an out-of-network provider (or many it wasn’t a mistake, and part of a scam). Anyway, this is extremely disturbing as an American and makes me very distrustful of doctors and our medical system.

    • I forgot to mention that the doctor said they “didn’t like the fact that US Toxicology was charging for unnecessary tests”, and they severed their relationship with them. This was supposed to make me feel better. When I simply stated the obvious that I was billed from them and that the doctor’s office has no association with them, so I am obligated to pay US Toxicology, she then said she understands. Of course, now I realize that the doctor may in fact not be “unassociated” with them, and maybe that is why they speak so confidently that we can ignore these bills from a company that they “severed relations” with.

      I also forgot the mention that the doctor said he would “pay my bill himself” if I still had reservations. Hmm…. This makes you really wonder.

  7. Add ESA Toxicology in Houston to the list of lab scammers. $30 K for two drug screening urine tests in 2016! And my idiotic insurance company (United Health Care) paid $20 K! I was told by the lab not to worry about it, as they had waived my $3000 portion, after the “discount.” My doctor claims ignorance, but pretty sure they’re in on it, some how…

  8. This story sounds exactly like my experience in Houston. Happened to look at my UHC info online and wondered what in the world were these charges for! ONE urine sample was billed for $7939! another urine sample $16,375, another $11,138! it goes on and on. The mouth swabs also a sham at $19,000. I have called UHC THREE times to report this, the reps are like trying to talk to your teenager – they don’t care. The “labs” were tested in the office – I’m sure of it, because the nurse would bring the result during the checkup before the refill was written. Today I’m looking at a blood draw for $8000 that was done in August, never have discussed what it was for or the result! What can we do??????

  9. Another experience with ESA, and a very familiar message from the prescribing doc: “you’re not responsible for the lab charges”, “they are billing for services that weren’t requested by the Dr.”, “we don’t work with them anymore”… WTF?

  10. Ken Powell says:

    More on lab scams from New Jersey:

    As I have said in an earlier comment, don’t expect this to stop any time soon.

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