Corning agreed to pay a $119 million settlement, the largest penalty yet in a laboratory fraud probe, on behalf of a company it acquired in 1993.
As part of the settlement, the acquired company, Damon Clinical Laboratories, will plead guilty to one count of conspiracy to defraud the government. The settlement must be approved by a U.S. District Court in Boston.
A criminal guilty plea can cost a company hundreds of millions of dollars in lost reimbursement if it is excluded from Medicare, Medicaid and other government healthcare programs. In this case, Damon is barred from participating in those programs, but the move is symbolic. The operations of Damon have been merged into the Corning Clinical Laboratories division, which isn't excluded from the programs.
Corning said it will take a $115 million charge after taxes in the third quarter, mainly to establish reserves at its laboratory division. It said plans are on track to spin off the division by year-end (May 20, p. 16).
The settlement was announced last week by the U.S. attorney in Boston and four other federal departments. Damon was based in Needham, Mass., a Boston suburb.
The penalty is $5 million larger than the first in a major fraud case in the laboratory industry-a $114 million settlement by National Health Laboratories in 1992.
Other laboratory companies since have struck smaller accords. Corning has paid about $48 million under previous settlements but didn't admit wrongdoing.
In general, the laboratories bundled several tests together, leading physicians to order unnecessary tests. They then billed government programs separately for the tests without physicians' knowledge. The investigation was prompted by "whistleblower" lawsuits brought by former employees of the chains.
The charges stem from Damon activities in 1988 through 1993 and relate to blood tests. The settlement involves $35 million in criminal and $84 million in civil penalties.
The questionable practices were stopped when Corning acquired Damon and established a program to ensure compliance with federal regulations.
The government said its industry investigation is ongoing.
Issues raised by a round of subpoenas to laboratory chains in 1993 still might be outstanding, said Robert Michel, editor of the Dark Report, an industry newsletter in Portland, Ore. In addition, Michel said he believes six to 10 whistleblower suits are pending.
Hospitals also have become targets in the probe. The government has said it expects to net $15 million from laboratory fraud cases against northern Ohio hospitals (July 8, p. 22).