One Man’s Years-Long Quest to Get Quest

A former insider sues the firm, alleging massive Medicare fraud

Health-care executive Andrew Baker has an idea to help tame both the nation’s soaring medical bills and its towering federal deficits. He wants the government to crack down on what he says is a pattern of kickbacks in the medical testing business. The alleged scheme costs American taxpayers hundreds of millions of dollars a year, he claims. And if the federal government buys his allegations, Baker stands to pocket millions.

Baker has laid out his accusations in a lawsuit against Quest Diagnostics, one of the largest medical testing labs in the U.S. The former chief executive officer of a lab company that Quest acquired, Baker accuses the Madison (N.J.) corporation of cutting prices for major private insurance companies in exchange for the insurers pressing physicians to refer government-subsidized Medicare and Medicaid patients to Quest. The company denies any wrongdoing.

Baker partnered with two others to file suit in federal court in New York in 2005, and the case has crawled through the system. He estimates that Quest’s alleged abuses cost the federal government more than $1 billion in inflated lab bills from 1996 through 2005 and hundreds of millions more in the six years since. He brought the case under the federal False Claims Act, which gives individuals standing to sue companies over alleged fraud against the government. As an incentive to expose wrongdoing, the law allows private citizens to collect a share of any recovery. “Yes, I stand to gain a lot of money,” says Baker, who today serves as chairman and CEO of Huntingdon Life Sciences, a privately held drug-testing company. “The American taxpayer stands to gain more.” The U.S. Justice Dept. is expected to announce shortly whether it will intervene to back the plaintiffs, a development that could strengthen the legal action.

Quest says Baker’s suit misconstrues its practices. “The allegations … that we offer kickbacks to physicians or health insurers to induce them to arrange referrals of government work are false, and we vehemently deny them,” Senior Vice-President and General Counsel Michael E. Prevoznik said in a written statement. For the moment, the company has the upper hand in court. In April, U.S. District Judge Robert P. Patterson in New York dismissed the Baker suit after determining that one of Baker’s partners, a former in-house lawyer at the Quest subsidiary, had disclosed confidential information about his ex-employer in violation of his attorney-client obligations. Judge Patterson did not rule on the substance of the False Claims Act allegations. Baker and his partners are appealing the dismissal and are seeking to get their suit reinstated.

One reason to pay attention to this imbroglio is that Quest recently agreed to pay $241 million to settle another suit that included similar kickback allegations. While denying any impropriety, the company said in May that it would settle state claims that it overcharged California’s public medical program for the poor. The recovery was the largest in the history of California’s state version of the False Claims Act, Attorney General Kamala D. Harris said in an announcement on her website.

The California settlement resolved a separate 2005 suit filed by a different whistle-blower who alleged that Quest overcharged the Medi-Cal program for more than 15 years and gave kickbacks in the form of discounted testing to doctors, hospitals, and clinics that referred patients to the labs, Harris said. Quest reiterated in a statement to Bloomberg Businessweek that its conduct in California “was at all times lawful and in compliance with applicable statutory and regulatory requirements.”

Baker sees it differently: “My point is that if Quest had to settle the same kind of allegations in California, why shouldn’t they be held accountable on a national basis?” Before he has a chance to pursue that question, he’ll have to persuade the federal appeals court in New York to take his stalled lawsuit off the shelf.

    BOTTOM LINE -

    The bottom line: Quest Diagnostics, which settled a California case accusing it of kickbacks and inflated fees, is battling similar allegations in federal court.

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