DOJ Continues Focus on Laboratory Financial Arrangements

The U.S. Department of Justice recently announced another round of False Claims Act (FCA) settlements arising out of alleged laboratory kickback arrangements involving physicians, marketers, and so-called managed service organizations, or MSOs. The settlements, totaling more than $2 million, are the latest reminder that arrangements involving laboratory referrals, physician “investment” payments, and marketing intermediaries remain squarely within the government’s enforcement priorities.

According to DOJ, former Boston Heart Diagnostics Corporation CEO Susan Hertzberg and former Boston Heart sales executive Matthew Theiler each agreed to pay $600,000 to resolve allegations that they caused false claims to be submitted to Medicare, Medicaid, and TRICARE through illegal kickback arrangements. The DOJ also announced settlements with one physician, Dr. Frederick Brown, and several marketers and related entities, who agreed to pay an additional $859,055 to resolve related allegations.

The government’s allegations centered on payments allegedly disguised as MSO investment distributions. The DOJ alleged that marketers, including Boston Heart employees, used MSOs to offer and pay physicians kickbacks in exchange for laboratory referrals. According to the DOJ, those referrals included laboratory testing performed by Boston Heart for Texas hospitals, including allegedly medically unnecessary testing.

Although the settlement amounts in this announcement are smaller than some recent healthcare fraud resolutions, the case is significant because of what it says about DOJ’s continued focus. The government is not only pursuing laboratories and corporate entities; t is also pursuing individual executives, sales personnel, marketers, and physicians who allegedly participated in, approved, implemented, or benefited from improper referral arrangements.

Individual Accountability Remains a Central Theme

The settlement also reflects DOJ’s continued emphasis on individual accountability. The government alleged that Hertzberg, Boston Heart’s former CEO, and Theiler, Boston Heart’s former Vice President of Sales, caused false claims for laboratory testing to be submitted to federal healthcare programs. The DOJ further alleged that they agreed to a kickback scheme involving marketers and MSOs that paid doctors to induce laboratory referrals.

One of the more notable allegations is that Hertzberg and Theiler allegedly knew that marketers using MSOs were recruiting doctors to order testing performed by Boston Heart through a Texas hospital arrangement and were allegedly given a “strong recommendation” to “reel this in” and “stand down on all hospitals,” particularly in Texas. The DOJ alleged that, notwithstanding that warning, Hertzberg approved and Theiler implemented an expansion of the Texas hospital arrangement to another hospital.

Those allegations are important for compliance purposes. They show how internal warnings, emails, consultant advice, compliance concerns, or business recommendations can become central evidence in a government investigation. When a company receives a warning that a referral arrangement may present kickback risk, the response matters. Ignoring the warning, expanding the arrangement, or continuing business as usual can substantially increase exposure.

The physician settlement is also significant. The DOJ alleged that Dr. Brown solicited and received kickbacks from purported MSOs in exchange for ordering laboratory tests from Little River Healthcare and True Health Diagnostics. Dr. Brown agreed to pay $309,055 to resolve the civil allegations. The marketers and related entities agreed to pay $550,000 to resolve allegations that they paid kickbacks disguised as MSO payments to induce laboratory testing referrals.

The message is clear: the DOJ is not limiting enforcement to the company that billed the government. The government may also pursue executives who approved the arrangement, sales personnel who implemented it, marketers who facilitated it, and physicians who received the payments.

Why This Matters for Physicians and Healthcare Businesses

The Anti-Kickback Statute (AKS) prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services reimbursable by federal healthcare programs. In addition to criminal penalties (including up to ten years in federal prison), violations of the AKS can also give rise to liability under the FCA when claims resulting from the kickback arrangement are submitted to a federal healthcare program.

For physicians, the risk is not limited to obvious cash-for-referral arrangements. The government frequently scrutinizes payments that are framed as investment returns, consulting fees, medical director payments, marketing fees, lease payments, speaking fees, or administrative services fees. If the government believes that “any one purpose” of the payment was to induce or reward referrals, the label attached to the payment will not control the analysis.

For laboratories, diagnostic companies, telehealth companies, marketing organizations, MSOs, and other healthcare businesses, the settlement is another warning that growth strategies built around referral-source payments can create substantial legal risk. Even where an arrangement is routed through multiple entities, the government may look through the structure and focus on the practical reality: Who paid whom, why, how was the amount calculated, and what business followed the payment?

Compliance Takeaways

Healthcare providers should treat this settlement as a prompt to reexamine any arrangement involving payments to physicians or other referral sources. That is especially true for arrangements involving laboratories, MSOs, marketing companies, physician investors, medical directors, or compensation tied in any way to generated business.

Several practical steps are worth considering:

First, providers should confirm that any compensation paid to or received from referral sources is supported by a written agreement that accurately describes the services or investment interest at issue.

Second, compensation should be reviewed for fair market value and commercial reasonableness. Payments should not be based on the volume or value of federal healthcare program referrals.

Third, healthcare businesses should be cautious with MSO structures that distribute money to physicians who are in a position to order or refer federally reimbursed services. Even if an MSO has a legitimate business purpose, physician distributions can create substantial risk if they appear to function as referral rewards. MSO arrangements are not inherently unlawful. Many MSOs provide legitimate administrative, billing, staffing, consulting, or operational support. The problem arises when an MSO is used as a vehicle to funnel money to physicians or other referral sources in exchange for business paid for by federal healthcare programs.

The DOJ’s press release states that, since 2019, the Department has secured more than $61 million in civil False Claims Act settlements involving kickbacks to healthcare providers allegedly disguised as MSO investment distributions, including recoveries from more than 50 physicians. That is an important data point for providers. These cases are not isolated. DOJ appears to view MSO-related physician payment arrangements as a recurring enforcement category.

Fourth, internal warnings should be taken seriously. If compliance personnel, counsel, consultants, auditors, or business leaders raise concerns about a referral arrangement, the organization should document a meaningful review and take appropriate corrective action.

Finally, companies should remember that settlement language often states that the resolved claims are allegations only, with no determination of liability. But from a risk-management perspective, the cost of defending these investigations, the disruption to the business, and the reputational consequences can be severe even without an admission of wrongdoing.

GWB represents healthcare providers in connection with government investigations and False Claims Act litigation. If you need assistance with such a matter, contact us today.