Laboratory Industry Fraud:
A Firsthand Account

California vs. Quest Diagnostics and LabCorp

The Blood Brothers' business model was elegant in its cynicism: capture physician clients by offering deeply discounted prices on tests billed directly to doctors or IPA capitated contracts, then generate massive profits by "pulling through" the remainder of each physician's practice—Medicare, Medicaid, insurance payors, and patient billing—at rates that grossly exceeded those discounts.

They blatantly refused to follow California law mandating that the Medi-Cal program receive the lowest charge offered to any customer. The charges to Medi-Cal were often 20 to 40 times higher than those offered to physicians, clinics, and insurance companies—effectively stealing billions of dollars from California taxpayers and the state's neediest citizens.

I believed such shameful conduct would be swiftly addressed by the California Department of Justice. I was wrong.

Florida vs. Quest Diagnostics and LabCorp

Like California, Florida law required that its Medicaid program receive the lowest available charge. Unlike California, we faced a governor who actively opposed his own Attorney General's lawsuit and undermined state law.

United States vs. Health Diagnostic Labs & BlueWave

In 2008, two laboratory sales representatives, Brad Johnson and Cal Dent, devised an audacious scheme to induce physicians to order large panels of advanced cardiovascular disease (CVD) tests.

The pitch was straightforward: "Doctor, how much money do you want to make ordering our CVD panels? We'll pay you $20 for each panel. If that's not enough, we'll split specimens among multiple labs—each paying you $20 for packaging and handling. Split among four labs, and you can collect $80 per patient. Still not enough? We'll put you on our speaker's bureau and pay you a monthly fee, whether you speak or not."

One physician reportedly received more than $250,000 in a single year through this arrangement. Patients were never sent invoices—a direct violation of federal and state law—allowing doctors to offer "free" lab testing as a patient acquisition tool.

How did HDL profit while performing free testing? Simple: bill Medicare up to $5,000 per panel. To further boost margins, they added tests of dubious medical value or that duplicated information already captured—effectively double billing.

It was a refined evolution of the Blood Brothers' "loss leader, pull-through" model. The boldness would have impressed Bernie Madoff.

Hunter Labs found it impossible to compete with its own CVD panel without matching the illegal activity. I expected the Department of Justice would act swiftly against such an outrageous scheme. Once again, I was wrong.

United States vs. True Health Diagnostics

Chris Grottenhaler was no stranger to Medicare fraud. As former VP of Finance for Ameritox, a drug testing laboratory that paid $16.3 million in 2010 to settle kickback claims, he brought that experience to True Health when he became CEO in 2015.

He quickly implemented a variety of fraud schemes—including those refined at Ameritox—along with new kickbacks, billing for tests never performed, and billing for medically unnecessary tests. True Health also failed to provide the lowest charges required by state Medicaid laws across the country.

Then he raised the bar further by introducing a novel money laundering operation—all while the DOJ had recently issued fraud alerts on the very kickback schemes he was implementing.

The laboratory industry was stunned by his brazenness and fully expected DOJ would intervene immediately. It didn't happen.

United States vs. Boston Heart Labs

I served on the Boston Heart Diagnostics Board of Directors from its early stages until Bain Capital acquired the company.

At several board meetings, the CEO stated that unless Boston Heart copied the kickback schemes pioneered by Health Diagnostic Labs, the company could not achieve meaningful growth. I advised the board—none of whom had commercial laboratory experience—that these schemes were illegal and that DOJ action was inevitable.

While I served on the board, implementing these schemes was never put to a formal vote. I later learned that behind my back, the kickback programs had been implemented, driving the company's successful growth.

Though no longer a board member, I remained a shareholder. When our Hunter Labs sales team reported they could not compete against Boston Heart without matching the kickbacks, I wrote to the board in my capacity as a shareholder, demanding they cease the illegal payments, hire outside regulatory counsel to investigate, and return the improperly obtained funds to Medicare.

The response? Nothing—except that the company stopped sending me shareholder reports.