Labcorp to pay $19M to whistleblowers to settle 'blood draw' kickback lawsuit

Two whistleblowers from Florence, South Carolina have settled their 10-year lawsuit against Laboratory Corporation of America (Labcorp) for $19 million, announced Pittsburgh-based law firm Pietragallo Gordon Alfano Basick & Raspanti.

Scarlett Lutz, owner of a medical billing services company, and Kayla Webster, a nurse working for a local family practitioner, alleged that Labcorp had participated in a complex health care fraud scheme to violate the False Claims Act by providing blood draws to their health care provider customers, who were receiving cash kickbacks from two other labs named in the suit.

“These whistleblowers are hard-working people from a small town in South Carolina, not highly paid laboratory-industry executives,” attorney Pamela Coyne Brecht said in a press release. “Our entire legal team … is so very proud to have prevailed as Kayla’s and Scarlett’s advocates on behalf of US taxpayers who fund the Medicare program, which too often falls prey to kickback schemes.”

In 2014, lab partners Health Diagnostics Laboratories (HDL) and Singulex Inc. entered into ability-to-pay settlements for their roles as well, for $47 million and $1.5 million, respectively. Both companies have declared bankruptcy.

According to Pietragallo’s press release, Lutz began seeing checks from HDL and Singulex with patient names attached, prompting him to question why a doctor was being paid by a lab.

For years, others have uncovered the actions of HDL, Singulex and BlueWave, who had paid referring providers kickbacks disguised as “draw fees” or “process and handling” fees to induce lucrative referrals for lab testing. However, Lutz and Webster first revealed Labcorp’s involvement, alleging that senior executives were aware and approved of the kickback scheme.

The complaint, filed in February 2013, also alleged that Labcorp attempted to avoid liability by creating an anonymous request for Office of Inspector General Fraud Alert, submitted through their legal counsel. Labcorp had reportedly sought participation in the HDL conspiracy, with several high-level meetings with former HDL CEO LaTonya Mallory, who allegedly initiated the scheme.

The U.S. government took action and prosecuted the federal claims against Bluewave, Mallory and marketing agents Cal Dent and Brad Johnson. In January of that year, the government obtained a jury verdict after a trial at the U.S. District Court for the District of South Carolina, against defendants named by Lutz and Webster for over $51 million, and against Mallory for $49 million.

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The U.S. Court of Appeals for the Fourth Circuit upheld the judgment, while the Supreme Court denied the defendants’ petition.

Labcorp has denied all allegations in the whistleblowers’ complaint since 2018 and were denied a motion to dismiss. Counsel settled the case just before a three-week jury trial was set to open in the District Court of South Carolina in Charleston.

“Together, they did the scary and difficult thing: they brought their concerns to the government. We are so very proud to have fought the good fight for them,” Brecht added. “Being a whistleblower, committing yourself to the long process  …  without the government’s direct assistance is very difficult both professionally and personally. The experience is made even more difficult when whistleblowers are subjected to the scrutiny of a well-funded health care giant and their counsel.”

Lutz and Webster, along with their counsel, were awarded 29.5% of the government’s recovery, while the remaining over 70% will be returned to the Medicare Trust Fund for the benefit of Medicare beneficiaries.