Lab Corp. to pay $49.5 million to settle kickback case

Laboratory Corp. of America has agreed to pay $49.5 million to resolve a whistle-blower's allegations that the Burlington, N.C.-based company paid kickbacks to doctors and hospitals for referring California Medicaid patients, whose bills were then allegedly inflated.

The announcement brings the state's tally of settlements to more than $290 million and counting in its ongoing investigation into whistle-blower complaints against companies accused of inflating bills to Medi-Cal, California's Medicaid program. State law says companies must offer Medi-Cal comparable rates to similar payers.

In May, industry giant Quest Diagnostics, Madison, N.J., agreed to pay a record $241 million to settle similar allegations without admitting wrongdoing. California Attorney General Kamala Harris said lawsuits against three other testing firms are still pending.

In a 2005 lawsuit filed under California's False Claims Act, whistle-blowers from a competing firm called Hunter Laboratories complained they could not compete in the market when Quest, Lab Corp. and other firms gave doctors and hospitals much lower rates than they charged Medi-Cal. Lab Corp., for example, allegedly charged the state $35 for a total testosterone test for which other customers paid $7, state officials said.

State officials alleged that the labs' free or discounted services to doctors and hospitals were kickbacks in exchange for Medicaid referrals.

In Lab Corp. disclosures filed with the Securities and Exchange Commission, the company told investors it faced exposure of as much as $97.5 million under the state's damages formula in the lawsuit, and that it settled the case “to avoid the uncertainty and costs associated with prolonged litigation.”

The state was seeking a refund of all alleged overpayments made to Lab Corp. from November 2005 to November 2009, plus 7% interest, Lab Corp. said.

Lab Corp. also disclosed in the SEC filing that it has received subpoenas from three other states since 2007 related to its Medicaid billing: Florida in June 2010, Michigan in October 2009, and Virginia in February 2009.