"It's a physician's duty to expose fraud if he suspects it"

That's the belief of dermatologist Andrew Hendricks, who blew the whistle on a giant lab. After several tense years, his lawsuit reaped $182 million for the Feds.

"It's a physician's duty to expose fraud if he suspects it"

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Choose article section...A new Medicare policy opens the door for labsA call to the fraud hotline, but does anyone care?A little-used law gives the doctor an openingThe suit goes forward with frustrating silenceFinally, a settlement resolves the caseQui tam lawsuits: They're tough on whistleblowers, tooA whistleblower offers advice to those following his lead

By Berkeley Rice, Senior Editor

That's the belief of dermatologist Andrew Hendricks (below),who blew the whistle on a giant lab. After several tense years, his lawsuitreaped $182 million for the Feds.

To encourage private citizens to unearth health fraud, the federalgovernment now offers a bounty of up to $1,000 to patients who report deceitfulMedicare billing. But anyone--including a physician--can file a whistlebloweror qui tam suit on behalf of the government against those suspected of healthfraud.

The government, which is stepping up its antifraud efforts with newvigor and increased funding ("The search for Medicare fraud,"Medical Economics, June 21, 1999), also offers whistleblowers a healthyshare of whatever it recovers in these cases.

The stories behind many whistleblower suits never get told. This oneis being told now, three years after the suit's conclusion, because a keyfigure has finally agreed to talk in detail about his role. --TheEditors

In 1996, the federal government settled a false claims case against thenation's largest chain of clinical laboratories for a whopping $182 million.The whistleblower who filed a vital qui tam suit in that case was AndrewHendricks, a dermatologist in a small town in southeastern North Carolina.His outrage at the laboratories' billing practices and his tenacity in pursuingthe case were essential to the final result.

Until recently, for reasons of privacy, Hendricks, now 51, has been reluctantto talk publicly about his role in the case. But he agreed to tell his storyto Medical Economics because he wants to encourage other physicianswho suspect health fraud to follow his example. In fact, he's set up hisown organization to help would-be whistleblowers.

The following account is based on interviews with Hendricks and his lawyer,details gleaned from his suit and the settlement, and comments from governmentofficials involved in the case. The defendants declined a request for interviews,but did review and comment on an early draft of this article.

A new Medicare policy opens the door for labs

For many years, Hendricks routinely sent blood samples to Roche BiomedicalLaboratories and National Health Laboratories, two of the largest chainsin the country. In the late 1980s, to encourage doctors to send it morebusiness, Roche began offering panels of tests at prices much lower thanif the tests were ordered separately. For example, Roche charged Hendricks$10.30 for its standard diagnostic multi-chem profile, which included about20 different blood tests. The company offered a more comprehensive packageof tests called "executive profile" for $14.70, which includedCBC and urinalysis.

Hendricks took advantage of this offer and switched much of his lab businessto Roche. In August 1991, however, while going over some lab reports, henoticed that Roche's executive profile included a TSH test that he hadn'tordered. He had his nurse tell the company not to do the TSH test unlesshe specifically ordered it. Several months later, he saw that Roche wasstill doing the TSH test without his request.

About the same time, Hendricks discovered that Roche was routinely addinga test for HDL cholesterol whenever he ordered the standard multi-chem profile.Since that panel already included a test for total cholesterol, he feltthe additional HDL test wasn't necessary. "If the patient had a historyof heart disease or high cholesterol, I might have ordered that extra test,"says Hendricks. "But only then."

The next time Roche's sales rep showed up, Hendricks complained aboutthe unnecessary tests. As he recalls, the rep told him, "What are youworrying about? They're not costing you anything."

Technically, that was true. Hendricks would typically pass those billson to the patient's health insurer, adding a fee to cover his interpretationand evaluation of the test reports. However, he never saw the lab billsfor his Medicare and Medicaid patients, who constituted the majority ofhis practice. Roche would send him their test reports, but bill the governmentdirectly.

Under this new arrangement, neither the doctors nor their Mediplan patientssaw the lab bills unless a problem developed. In December 1992, one of Hendricks'patients came to him with a bill from Roche that had been rejected by Medicare.Hendricks saw that Roche was charging Medicare far more than the lab wasbilling him for the same panel of blood tests. "What they had done,"he explains, "was to unbundle the individual tests and charge for themseparately, including the ones I hadn't ordered."

A call to the fraud hotline, but does anyone care?

Unsure whether that was a solitary clerical error, Hendricks called Medicareto request copies of Roche's blood test bills for some of his patients.He was told that Medicare "cannot share that information with physicians."

Hendricks consulted several colleagues, but none had noticed any overbillingby the labs. He also called experts at Johns Hopkins Medical Center, wherehe'd done his residency, to ask if there were medical grounds for doingHDL and thyroid tests on every patient. They told him No.

In December 1992, Hendricks called North Carolina's Medicare fraud hotlineto report his discovery. "They told me they were too busy to deal withmy complaint," he recalls. He next called the national Medicare hotline,but the phone just rang and rang.

Hendricks was plagued by self-doubt: "I wasn't sure this was reallya case of fraud," he recalls, "and I didn't want to make falseaccusations. Even if it was fraud, I wasn't sure I could stop it.But I also believe in the Hippocratic oath, and in doing the right thing.If the company was doing this to patients all over the country, then I believedthey were stealing the taxpayers' money, and someone had to stop it."

A little-used law gives the doctor an opening

In January 1993, Hendricks read an article about health fraud that mentionedqui tam suits filed by individuals on behalf of the government. The articlementioned a New York City law firm of Getnick & Getnick, which specializesin such cases. "I had never heard of qui tam before," Hendricksrecalls, "and I had no idea how complicated and how long a processit could be. But it sounded appropriate for my case because it compels thegovernment to pay attention when a private citizen files a suit."

Hendricks met with attorney Neil Getnick, who asked him to send whateverdocumentation he had to back up his fraud claim. "Dr. Hendricks gaveus enough evidence to convince us the case was worth pursuing," saysGetnick, "but we asked him to gather more, as part of our investigation.For a successful qui tam suit, we needed enough to persuade the governmentto join the case."

At Getnick's request, Hendricks went through his charts and checked Roche'slab test reports for about 100 Medicare and Medicaid patients over the precedingyear. He found that Roche had done the extra HDL or TSH tests on most ofthem. He then asked several patients to write to Medicare and ask for copiesof those bills. "I had to help some of them do it," he says, "becauseit was a complicated process."

When those patients brought in the copies of their test reports, Hendrickssaw that Roche was routinely charging the government $20.90 for each TSHtest and $12.50 for each HDL test, even though he hadn't ordered them. Therewas more involved than unnecessary tests, however.

As Hendricks discovered, Roche was billing Medicare $138 for each executiveprofile, more than nine times the $14.70 it was charging him for the sametest panel. For the multi-chem profile, Roche was charging Medicare $46.50,vs $10.30 when billing Hendricks directly. One reason for the higher priceswas that when billing Medicare, Roche was unbundling the charges for thedifferent tests, instead of including them all under one fee, as the labdid when billing doctors directly.

In August 1993, Hendricks attended an educational seminar in Orlando--sponsoredin part by Roche Biomedical Labs--on diagnosing and treating thyroid conditions.At that conference, Roche's medical director introduced the main speaker,an endocrinologist who described himself as a Roche consultant. While admittingthat the American Thyroid Association does not recommend thyroid screeningfor every patient, the speaker insisted that Roche's executive profile panel,including the TSH test, was so inexpensive that it made sense to screeneveryone.

The suit goes forward with frustrating silence

That same month of '93, Getnick filed Hendricks' false claims suit againstRoche Biomedical Labs. The suit accused the company of manipulating thepackaging and pricing of lab tests, billing Medicare and Medicaid for teststhat were medically unnecessary, and defrauding the government by chargingmore than eight times the prices the lab charged doctors for the same tests.

Although Getnick's firm handled the case, Hendricks remained deeply involved.He took several days off work to meet with Getnick and, later, with Departmentof Justice lawyers in Washington, DC. "Dr. Hendricks was an essentialmember of our team," says Getnick. "He did much of our researchon the appropriateness of various blood tests."

Hendricks and his wife worried about his role in taking on a major nationalcorporation. They were aware that whistleblowers in other qui tam suitshad been fired or demoted by their employers. Although as a solo practitionerhe had no employer, he was understandably nervous. "In a case likethis," he explains, "you worry that with so much money at stake,someone might try to stop you."

To give the government time to investigate Hendricks' claim and to pursuethe case on a nationwide basis, the suit was kept under court-ordered sealfor three years, and Hendricks was sworn to secrecy. Both actions are customaryin such cases. Federal agents listened to his accounts and accepted thedocumentation he provided. But they wouldn't reveal--at least to him--whetherthey believed his charges. "It was like going to a bad cocktail party,"Hendricks recalls. "No one would acknowledge what I was saying."

The government's investigation of the labs, which had begun before Hendricksfiled his suit, was conducted by the Department of Justice, US attorneysin New York, North Carolina, and California, Health and Human Services'Office of Inspector General, and the FBI. Based on its investigation, thegovernment broadened the case to include similar false claim charges againstNational Health Labs and Allied Clinical Labs, two of Roche's main competitors.

The case became even more complex in 1995, when Roche merged with NationalHealth Labs (which had acquired Allied Clinical Labs) to form LaboratoryCorporation of America, thereby becoming the largest clinical lab in theworld.

Based on a computerized analysis of bills from the three labs for theentire country over several years, the Justice department estimated thetotal amount paid by the government for unnecessary tests at more than $200million. Under the False Claims Act, if the case had gone to trial, andthe government had proven the alleged damages, LabCorp could have facedtreble damages of more than $600 million, plus a substantial penalty foreach false claim, and attorneys' fees.

Finally, a settlement resolves the case

In November 1996, LabCorp agreed to pay $182 million to resolve the falseclaims case against Roche, NHL, and Allied Labs. At the time, it was thelargest recovery from any qui tam false claims suit, the largest settlementof any kind involving a clinical laboratory, and the third largest involvingclaims of health care fraud. (In 1997, SmithKline Beecham Clinical Laboratoriessettled a false claims suit for $325 million.)

In the settlement, the government alleged that Roche had violated theFalse Claims Act through the "marketing, sale, pricing, and billing"of its test panels. The government also alleged that Roche had "routinelyadded" HDL tests to its multi-chem profiles, and TSH tests to its executiveprofiles, "knowing those tests were not specifically ordered by physician-clients,and were not reasonable and necessary for the diagnosis or treatment ofillness."

In the settlement, LabCorp denied the government's allegations. The companydid agree, however, to institute a government-imposed "corporate integrity"program to prevent such billing problems from happening.

In a letter to Medical Economics, responding to an early draftof this article, LabCorp's attorney, David King, insists that the companywas "anxious to prove in litigation that it did not submit any falseclaims." In addition to the time and cost of a protracted legal battle,however, LabCorp had another powerful motive to settle: According to King,the government threatened to suspend the company from the Medicare and Medicaidprograms during litigation, which would have cut its revenues by about 25percent.

Getnick sees LabCorp's denial as a face-saving gesture: "When acompany pays $182 million to settle a case and agrees to a corporate complianceprogram, I think that speaks for itself."

Hendricks will not reveal his share of the settlement. But qui tam filerstypically receive 15 to 25 percent of the government's total recovery, dependingon the extent of their role in initiating and developing the case. And sinceRoche was responsible for the biggest part of the settlement, the whistleblower'sshare probably came close to $10 million.

At Hendricks' insistence, his name wasn't mentioned in the governmentpress releases announcing the huge settlement. His role in the case eventuallybecame known, however, when reporters found his name in the court papers.The Wall Street Journal, The New York Times, and the Associated Press ranstories with relatively little detail on the settlement, followed by localpapers in North Carolina.

When reporters called Hendricks for interviews, he refused. Now, threeyears after the settlement, he's more willing to speak out.

"I didn't want any credit for the case," says Hendricks, "andI didn't want my name in the papers. I was worried about negative effectsof any publicity over the amount of my reward. I was afraid of getting crankcalls from people looking for money, and my wife was worried about the safetyof our family."

Hendricks had also been concerned about the reactions from his medicalcolleagues. But most were proud that a local doctor had stepped forward."Some of them told me afterward that they had also noticed somethingfunny about their lab test," says Hendricks, "but they didn'tthink there was much they could do about it. My patients were also pleasedat the news, particularly those who had had billing problems with Roche.One brought me a gold whistle as a symbol for being a whistleblower."

Today, there's not much about Hendricks' lifestyle to suggest that he'sthe recipient of a multimillion-dollar bounty. He still practices full timein the same modest office in the middle of town. He and his family stilllive in the same home they've owned for 15 years, and he still drives a1983 Toyota wagon with 85,000 miles on it. The only significant change:He takes Friday afternoons off.

Having worked closely with Hendricks for several years on the case, attorneyNeil Getnick isn't surprised by his nondisplay of wealth. "This guyis the genuine article," says Getnick. "It's unusual to find someoneas committed as he is to doing the right thing, and who's really not motivatedby personal gain."

Looking back on the case, Hendricks views it not as a battle againstRoche, but as a fight for patients. "I believe it's a physician's dutyto expose fraud if he suspects it," he says. "If something doesn'tlook right, it may be wrong."


Qui tam lawsuits: They're tough on whistleblowers, too

Qui tam lawsuits, also known as whistleblower suits, are filed by individualson behalf of the federal government under the False Claims Act.

Congress enacted that law during the Civil War to stop sales of defectivemilitary supplies to the Union Army. The act was amended in 1986 to encourageprivate citizens to expose fraud by federal contractors. It now rewardswhistleblowers with up to 30 percent of any funds recovered, depending onthe extent of their help--and the government's involvement--in the case.The amount of recovery can be substantial, since the law calls for penaltiesof up to $10,000 for each false claim, plus treble damages based on thetotal overpayment.

These suits can be very difficult to pursue, however, and they're sometimesemotionally draining for the whistleblower. They typically drag on for severalyears, and are kept under court-ordered seal during that time to preventthe target company from being alerted. For the same reason, the governmentcan't offer the whistleblower any official support or encouragement duringthis period. If the government declines to join the case, it's often impossiblefor the whistleblower alone to gather enough evidence for the suit to standup in court.

Also, the whistleblower's job may be endangered if the defendant seeksretribution. Under the False Claims Act, however, such retaliation can begrounds for a separate suit by the victim.

Instead of filing a qui tam suit, a physician who wants to report suspectedhealth fraud involving Medicare, Medicaid, or other federal agencies can:

  • Call the HHS Inspector General's hotline at 800-447-8477.
  • Send an e-mail to HTips@os.dhhs.gov.
  • Write to Office of Inspector General, Department of Health and Human Services, 330 Independence Ave. SW, Washington, DC 20201.

A whistleblower offers advice to those following his lead

Dermatologist Andrew Hendricks, who successfully pursued a qui tam lawsuitover laboratory billings, has created Professionals Against Fraud, an organizationthat offers free advice and assistance to would-be whistleblowers. Its hotline(800-245-7154) is answered by his office secretary.

Hendricks promotes the service at medical meetings, and the hotline receivesseveral calls a week from doctors, nurses, office staffers, and patients.The calls have produced several potential cases, he says.

But many callers' claims are not legitimate or not worth pursuing, Hendricksnotes. "Most people who suspect health fraud have no idea what's reallyillegal," he says. "For example, we get calls from people whothink their doctor has overcharged them. Even if those claims are true,they're usually not fraud. Often there are good reasons why the doctor didwhat he did. Or his action may have been unethical, but it wasn't illegal."

Even with calls that suggest legitimate claims of fraud, Hendricks haslearned to be cautious. "You can't trust every allegation by an angrypatient or a disgruntled office clerk," he explains. "You needevidence and documentation to back up those claims. And you need more thanan occasional example of fraud; you must establish a clear pattern overa period of time. And the fraud must be substantial enough to justify thetime and effort it takes to bring a suit.

"Say we get a call from an office staffer about a doctor who's occasionallyupcoding. It may be true, but it's not economically feasible to bring aqui tam case against one doctor for occasional offenses. Those problemscan be reported to the local Medicare carrier. Qui tam suits make more economicsense when they involve an HMO, a big lab, a large hospital, or a big medicalgroup that's systematically overbilling the government or charging for servicesthey're not actually performing."

One recent hotline caller reported a cardiologist who's allegedly billingMedicare for stress tests administered by his office nurse while he's atthe hospital. "Now that's a clear case of fraud," says Hendricks,"because he can't bill for that procedure unless he's doing it himself.If he's charging $600 or more for each stress test, and he's billing thegovernment for 200 or so each year, that adds up to a substantial fraud."

Hendricks cites other examples of possible fraud that have spurred callsto his hotline:

  • A cardiologist gives every patient a treadmill test and finds hypertension or some other abnormality.
  • An internist bills the government $150 for each complete physical after spending only five minutes with the patient. "The nurses in his office know what's going on," says Hendricks, "and one of them called us."
  • General surgeons, plastic surgeons, and dermatologists do skin biopsies, then bill for an excision after just shaving the skin. "If you do a few hundred of those a year and bill them as excisions, you can get paid an extra $10,000," says Hendricks. "But anyone who analyzes that doctor's bills should notice the high rate of excisions."

For callers with promising leads, Hendricks offers advice about gatheringevidence and refers them to law firms around the country that specializein health fraud cases. But he also urges caution and warns that such casescan take a great deal of time and energy. There's no guarantee of success,he emphasizes--while the whistleblower risks retaliation.

Hendricks tells of one caller, an ob/gyn with the Indian Health Service,who claimed that his hospital was overcharging the government. He even wentto Washington, DC, to present his case to agency officials. When he returnedto work, he was fired. He has appealed, but still doesn't have his job back.

Despite such risks, Hendricks encourages those with legitimate suspicionsof fraud to pursue them. "I believe that's part of the Hippocraticoath," he says.

By Berkeley Rice, Senior Editor

Berkeley Rice. "It's a physician's duty to expose fraud if he suspects it".

Medical Economics


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