Case 1:18-cv-01304-MLB Document 28 Filed 05/14/18 Page 1 of 90

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

Blue Cross and Blue Shield of
Georgia, Inc.; Blue Cross of California,
Inc. d/b/a/ Anthem Blue Cross; Anthem
Blue Cross Life and Health Insurance
Company; Rocky Mountain Hospital and
Medical Service, Inc. d/b/a Anthem Blue
Cross and Blue Shield; Anthem Health
Plans, Inc. d/b/a Anthem Blue Cross
and Blue Shield; Blue Cross Blue Shield
Healthcare Plan of Georgia, Inc.; Anthem
Insurance Companies, Inc. d/b/a
Anthem Blue Cross and Blue Shield;
Anthem Health Plans of Kentucky, Inc.
d/b/a Anthem Blue Cross and Blue
Shield; Anthem Health Plans of Maine,
Inc. d/b/a Anthem Blue Cross and Blue
Shield; RightCHOICE Managed Care,
Inc.; Healthy Alliance Life Insurance
Company; HMO Missouri, Inc.; Anthem
Health Plans of New Hampshire, Inc.
d/b/a Anthem Blue Cross and Blue
Shield; Empire HealthChoice Assurance,
Inc. d/b/a Empire Blue Cross and Blue
Shield; Community Insurance Company
d/b/a Anthem Blue Cross and Blue
Shield; Anthem Health Plans of Virginia,
Inc. d/b/a Anthem Blue Cross and Blue
Shield; HMO Healthkeepers, Inc. d/b/a
Anthem Blue Cross and Blue Shield; Blue
Cross Blue Shield of Wisconsin d/b/a
Anthem Blue Cross and Blue Shield;

SECOND AMENDED
COMPLAINT
JURY TRIAL DEMANDED
Civil Action No.:
1:18-cv-01304-MLB

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Compcare Health Services Insurance
Corporation d/b/a Anthem Blue Cross
and Blue Shield; Blue Cross Blue Shield
of Michigan Mutual Insurance Company;
BCBSM, Inc. d/b/a BlueCross
BlueShield of Minnesota; Regence
BlueCross BlueShield of Oregon;
Regence BlueCross BlueShield of Utah;
Regence BlueShield; and Regence
BlueShield of Idaho,
Plaintiffs,
v.
DL Investment Holdings, LLC f/k/a
Durall Capital Holdings, LLC d/b/a
Chestatee Regional Hospital, Reliance
Laboratory Testing, Inc., Medivance
Billing Serv., Inc., Aaron Durall, Jorge
Perez, and Neisha Carter Zaffuto,
Defendants.

Plaintiffs Blue Cross and Blue Shield of Georgia, Inc. (“BCBS Georgia”);
Blue Cross of California, Inc. d/b/a/ Anthem Blue Cross; Anthem Blue Cross
Life and Health Insurance Company; Rocky Mountain Hospital and Medical
Service, Inc. d/b/a Anthem Blue Cross and Blue Shield; Anthem Health Plans,
Inc. d/b/a Anthem Blue Cross and Blue Shield; Blue Cross Blue Shield
Healthcare Plan of Georgia, Inc.; Anthem Insurance Companies, Inc. d/b/a
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Anthem Blue Cross and Blue Shield; Anthem Health Plans of Kentucky, Inc.
d/b/a Anthem Blue Cross and Blue Shield; Anthem Health Plans of Maine, Inc.
d/b/a Anthem Blue Cross and Blue Shield; RightCHOICE Managed Care, Inc.;
Healthy Alliance Life Insurance Company; HMO Missouri, Inc.; Anthem Health
Plans of New Hampshire, Inc. d/b/a Anthem Blue Cross and Blue Shield;
Empire HealthChoice Assurance, Inc. d/b/a Empire Blue Cross and Blue Shield;
Community Insurance Company d/b/a Anthem Blue Cross and Blue Shield;
Anthem Health Plans of Virginia, Inc. d/b/a Anthem Blue Cross and Blue
Shield; HMO Healthkeepers, Inc. d/b/a Anthem Blue Cross and Blue Shield;
Blue Cross Blue Shield of Wisconsin d/b/a Anthem Blue Cross and Blue Shield;
Compcare Health Services Insurance Corporation d/b/a Anthem Blue Cross and
Blue Shield; Blue Cross Blue Shield of Michigan Mutual Insurance Company;
BCBSM, Inc. d/b/a BlueCross BlueShield of Minnesota; Regence BlueCross
BlueShield of Oregon; Regence BlueCross BlueShield of Utah; Regence
BlueShield; and Regence BlueShield of Idaho (collectively, “Plaintiffs”) by and
through the undersigned counsel, hereby file this Complaint against Defendants
DL Investment Holdings, LLC, which does business as Chestatee Regional
Hospital, and was formerly known as Durall Capital Holdings, LLC

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(“Chestatee” or “Durall Capital”),1 Reliance Laboratory Testing, Inc. (“Reliance
Labs”), Medivance Billing Service, Inc. (“Medivance”), Aaron Durall, Jorge
Perez, and Neisha Carter Zaffuto (collectively, “Defendants”).
Plaintiffs further state and allege as follows:
NATURE OF THE ACTION
1.

Since at least 2016, Defendants have engaged in a widespread

fraudulent scheme to enrich themselves at Plaintiffs’ expense by billing for
laboratory services that were not payable, were fraudulent, were in violation of
contracts between BCBS Georgia and Chestatee Regional Hospital, and were
otherwise unlawful.
2.

Chestatee Regional Hospital is a 49-bed hospital located in

Dahlonega, Georgia.
3.

Until August 2016, Chestatee Regional Hospital was owned by

Southern Health Corporation of Dahlonega.

1

“Chestatee” and “Durall Capital” both refer to Defendant DL Investment Holdings, LLC f/k/a
Durall Capital Holdings, LLC, the entity that acquired Chestatee Regional Hospital in August 2016
and now does business under that name. Where used, “Durall Capital” refers to this entity prior to
its acquisition of Chestatee Regional Hospital.
“Chestatee Regional Hospital” refers to the hospital in Dahlonega, Georgia, including prior to its
purchase by Durall Capital or when distinguishing between the off-site operations of Durall Capital
(in Florida) and the on-site operations of the hospital (in Georgia) after the acquisition.

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4.

BCBS Georgia’s relationship with Southern Health Corporation of

Dahlonega was governed by three contracts. The contracts rendered Chestatee
Regional Hospital a participating provider in BCBS Georgia’s provider network
and established the rates at which BCBS Georgia would reimburse Chestatee
Regional Hospital for the provision of medically necessary services to enrollees
of health plans offered by BCBS Georgia and its affiliates.
5.

In August 2016, Defendant Durall Capital purchased Chestatee

Regional Hospital from Southern Health Corporation of Dahlonega for
$15 million.
6.

BCBS Georgia allowed Southern Health Corporation of Dahlonega

to assign its rights, duties, and obligations under the contracts to Durall Capital.
7.

Unbeknownst to BCBS Georgia, as soon as it took control of

Chestatee Regional Hospital, Durall Capital agreed with Defendant Reliance
Labs, a non-participating toxicology laboratory located in Sunrise, Florida, to
fraudulently bill BCBS Georgia for testing performed at and by Reliance Labs (or
other non-participating laboratories engaged by Defendants), as if the testing had
been performed at and by Chestatee Regional Hospital.

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8.

When referring providers ordered the testing, they ordered it from

Reliance Labs (or other non-participating laboratories), and not from Chestatee
Regional Hospital.
9.

Upon information and belief, these non-participating laboratories

were fully capable of performing the testing ordered. Yet, Durall Capital,
Reliance Labs, and the other Defendants billed the testing through Chestatee
because BCBS Georgia would pay Chestatee Regional Hospital substantially
more than Reliance Labs would receive if it billed BCBS Georgia directly.
10.

Aaron Durall is the President of Reliance Labs, the Chief Executive

Officer of Chestatee, and the Manager of Durall Capital. He arranged for Durall
Capital’s acquisition of Chestatee Regional Hospital, and caused Chestatee to
enter into the agreement with Reliance Labs.
11.

Aaron Durall and Chestatee engaged Defendant Jorge Perez to assist

in the management of the scheme described herein.
12.

Aaron Durall and Chestatee engaged Defendant Medivance to

provide the billing and collections support necessary for the scheme alleged
herein. In that capacity, Medivance submitted the claims to BCBS Georgia on
behalf of the other Defendants.

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13.

Defendant Neisha Carter Zaffuto is President of Medivance and was

responsible for overseeing and directing the submission of the claims at issue to
BCBS Georgia, on behalf of the other Defendants.
14.

Defendants conspired to bill BCBS Georgia for the laboratory tests as

if the tests had been performed at and by Chestatee, and as if they had been
ordered from Chestatee, when in fact they were ordered from, and performed at
and by, Reliance Labs (or other non-participating laboratories). This conspiracy
was designed to take advantage of Chestatee’s participating status—and
favorable reimbursement rates—with BCBS Georgia.
15.

The claims at issue include, but are not limited to, claims for urine

drug testing (“UDT”) and blood drug testing (“BDT”).
16.

This type of arrangement—where claims are billed by an entity

different than the one that performed the service—is commonly known as “passthrough billing.”
17.

Defendants leveraged a nationwide network of referring providers

and laboratories, who provided their patients’ specimens. Some referring
providers provided their patients’ specimens in exchange for a cut of the amount
that Chestatee was reimbursed by BCBS Georgia.

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18.

The patients were never present at Chestatee, were never treated by

Chestatee-credentialed healthcare providers, and were located in areas not
serviced by Chestatee. Their only connection to Chestatee was that their testing
was billed through Chestatee by Defendants, to take advantage of Chestatee’s
participating status and favorable reimbursement rates with BCBS Georgia.
19.

Had the claims been billed to BCBS Georgia directly by these non-

participating laboratories, many would not have been paid, and those that were
would have been paid at substantially lower rates.
20.

The increased volume of UDT claims billed by Chestatee because of

this scheme is staggering. Specifically, in the year before the implementation of
the scheme, Chestatee submitted an average of approximately 30 UDT claims per
month to BCBS Georgia. In the year after the implementation of the scheme,
Chestatee submitted an average of approximately 4,800 UDT claims per month to
BCBS Georgia (an increase of 16,000%).
21.

UDT also became the vast majority of the claims that Chestatee

submitted to BCBS Georgia. Specifically, between the implementation of the
scheme and late 2017, Chestatee submitted, on average, approximately $12.7
million per month in claims for UDT from BCBS Georgia, when it billed only
about $1.2 million per month to BCBS Georgia for all other hospital claims.
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22.

Defendants implemented the pass-through scheme in spite of the

fact that they knew that the claims they caused to be submitted were not payable
by BCBS Georgia, were fraudulent, were in violation of Chestatee’s contracts
with BCBS Georgia, and were otherwise unlawful.
23.

The purpose of the scheme was to increase the amount that

Defendants received from BCBS Georgia, without regard to the reasonableness
or medical necessity of the underlying testing.
24.

Plaintiffs bring this action in order to put a stop to Defendants’

unlawful scheme.
25.

Plaintiffs seek compensation and equitable relief for the injuries that

they have incurred because of Defendants’ conduct. Similarly, Plaintiffs seek the
imposition of punitive damages, and request injunctive relief (a) prohibiting
Defendants from further perpetrating the scheme and (b) requiring Chestatee to
comply with its contractual obligations to BCBS Georgia.
JURISDICTION AND VENUE
26.

This Court has subject-matter jurisdiction over this action pursuant

to 28 U.S.C. § 1332, because the matter in controversy is in excess of $75,000,
exclusive of interest and costs, and is between citizens of different states.

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27.

This Court also has subject-matter jurisdiction over this action

pursuant to 28 U.S.C. § 1331, because Plaintiffs’ claims arise under the
Constitution, laws, or treaties of the United States.
28.

The Court has supplemental jurisdiction over the state law claims

pursuant to 28 U.S.C. § 1367, because the state law claims are so related to the
claims within the Court’s original jurisdiction that they form part of the same
case or controversy under Article III of the United States Constitution.
29.

Venue is proper in this District pursuant to 28 U.S.C. § 1391(b)(2)

because a substantial part of the events or omissions giving rise to the claims
asserted herein occurred in this District.
THE PARTIES
PLAINTIFFS
30.

Plaintiff Blue Cross and Blue Shield of Georgia, Inc. is incorporated

and headquartered in Georgia.
31.

Plaintiff Blue Cross Blue Shield Healthcare Plan of Georgia, Inc. is

incorporated and headquartered in Georgia.
32.

Plaintiff Blue Cross of California d/b/a Anthem Blue Cross is

incorporated and headquartered in California.
33.

Plaintiff Anthem Blue Cross Life and Health Insurance Company is
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incorporated and headquartered in California.
34.

Plaintiff Rocky Mountain Hospital and Medical Service, Inc. d/b/a

Anthem Blue Cross and Blue Shield, is incorporated and headquartered in
Colorado.
35.

Plaintiff Anthem Health Plans, Inc. d/b/a Anthem Blue Cross and

Blue Shield is incorporated and headquartered in Connecticut.
36.

Plaintiff Anthem Insurance Companies, Inc. d/b/a Anthem Blue

Cross and Blue Shield is incorporated and headquartered in Indiana.
37.

Plaintiff Anthem Health Plans of Kentucky, Inc. d/b/a Anthem Blue

Cross and Blue Shield is incorporated and headquartered in Kentucky.
38.

Plaintiff Anthem Health Plans of Maine, Inc. d/b/a Anthem Blue

Cross and Blue Shield is incorporated and headquartered in Maine.
39.

Plaintiff RightCHOICE Managed Care, Inc. is incorporated in

Delaware and headquartered in Missouri.
40.

Plaintiff Healthy Alliance Life Insurance Company is incorporated

and headquartered in Missouri.
41.

Plaintiff HMO Missouri, Inc. is incorporated and headquartered in

Missouri.
42.

Plaintiff Anthem Health Plans of New Hampshire, Inc. d/b/a
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Anthem Blue Cross and Blue Shield is incorporated and headquartered in New
Hampshire.
43.

Plaintiff Empire HealthChoice Assurance, Inc. d/b/a Empire Blue

Cross and Blue Shield is incorporated and headquartered in New York.
44.

Plaintiff Community Insurance Company d/b/a/ Anthem Blue

Cross and Blue Shield is incorporated and headquartered in Ohio.
45.

Plaintiff Anthem Health Plans of Virginia, Inc. d/b/a/ Anthem Blue

Cross and Blue Shield is incorporated and headquartered in Virginia.
46.

Plaintiff HMO HealthKeepers, Inc. d/b/a Anthem Blue Cross and

Blue Shield is incorporated and headquartered in Virginia.
47.

Plaintiff Blue Cross Blue Shield of Wisconsin d/b/a Anthem Blue

Cross and Blue Shield is incorporated and headquartered in Wisconsin.
48.

Plaintiff Compcare Health Services Insurance Corporation d/b/a

Anthem Blue Cross and Blue Shield is incorporated and headquartered in
Wisconsin.
49.

Plaintiff Blue Cross Blue Shield of Michigan Mutual Insurance

Company is incorporated and headquartered in Michigan.
50.

Plaintiff BCBSM, Inc. d/b/a BlueCross BlueShield of Minnesota is

incorporated and headquartered in Minnesota.
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51.

Plaintiff Regence BlueCross BlueShield of Oregon is incorporated

and headquartered in Oregon.
52.

Plaintiff Regence BlueCross BlueShield of Utah is incorporated and

headquartered in Utah.
53.

Plaintiff Regence BlueShield is incorporated and headquartered in

Washington.
54.

Plaintiff Regence BlueShield of Idaho is incorporated and

headquartered in Idaho.
DEFENDANTS
55.

Defendant DL Investment Holdings, LLC f/k/a Durall Capital

Holdings, LLC d/b/a Chestatee Regional Hospital, is a Florida limited liability
company. Upon information and belief, all of the members of this entity are
residents of Florida.
56.

Defendant Reliance Laboratory Testing, Inc. is incorporated and

headquartered in Florida. Specifically, the company operates a toxicology
laboratory located in Sunrise, Florida.
57.

Defendant Medivance Billing Service, Inc. is incorporated and

headquartered in Florida. Specifically, its headquarters is located in Sunrise,
Florida.
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58.

Defendant Aaron Durall is a Florida resident and an attorney

admitted to practice in that state.
59.

Defendant Neisha Carter Zaffuto is a Florida resident.

60.

Defendant Jorge Perez is a Florida resident.
THE BCBS PLANS
THE BLUECARD PROGRAM

61.

Plaintiffs are independent licensees (or subsidiaries of independent

licensees) of the Blue Cross and Blue Shield Association (“BCBS Association”).
62.

Each of the Plaintiffs is a participant in the BCBS Association’s

BlueCard program, which allows members of one licensee’s health plans to
obtain healthcare in another licensee’s service area (e.g., where a member is
traveling or living outside of their home plan’s service area).
63.

Because Chestatee is located in BCBS Georgia’s service area, services

billed by Chestatee for any BCBS Association licensee’s members were billed to
BCBS Georgia.
64.

BCBS Georgia then reconciled the cost of the services billed by

Chestatee with the BCBS Association licensee responsible for each member.2

2

For example, if a BCBS Illinois member received treatment in Georgia from a healthcare provider that
is in-network with BCBS Georgia, the BCBS Illinois member would be treated as in-network by the
Georgia healthcare provider. Under the BlueCard program, the provider would submit its claim to

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65.

As a result, each of the Plaintiffs was harmed by the fraudulent

scheme alleged herein.
ASSIGNMENT OF LEGAL CLAIMS FOR MONEY OWED BY OTHER
LICENSEES OF THE BCBS ASSOCIATION
66.

Other independent licensees of the BCBS Association (who similarly

participate in the BlueCard program) have been injured by this pass-through
scheme in the same way as Plaintiffs.
67.

As a result, the following licensees of the BCBS Association have

assigned to BCBS Georgia their legal claims for money owed as a result of
Defendants’ pass-through billing scheme alleged herein (collectively, the
“Assignor BCBS Plans”):
a.

Blue Cross and Blue Shield of Alabama;

b.

USAble Mutual Insurance Company d/b/a Arkansas Blue
Cross and Blue Shield; HMO Partners, Inc. d/b/a Health
Advantage;

c.

Blue Shield of California;

d.

CareFirst of Maryland, Inc., CareFirst BlueChoice, Inc., CFA,
LLC; Group Hospitalization and Medical Services, Inc.;

BCBS Georgia. BCBS Georgia would pay the healthcare provider for the services rendered, and
would then reconcile the cost of those services with BCBS Illinois.

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e.

Blue Cross and Blue Shield of Florida, Inc.;

f.

Health Care Service Corporation;

g.

Hawaii Medical Service Association;

h.

Highmark, Inc., Highmark West Virginia Inc., Highmark
BCBSD Inc., and Highmark Choice Company;

i.

Horizon Blue Cross Blue Shield of New Jersey;

j.

Blue Cross and Blue Shield of Kansas, Inc.;

k.

Blue Cross of Idaho Health Service, Inc.;

l.

Independence Blue Cross, LLC;

m.

Blue Cross and Blue Shield of Kansas City;

n.

Louisiana Health Service & Indemnity Company d/b/a Blue
Cross and Blue Shield of Louisiana;

o.

Blue Cross and Blue Shield of Massachusetts, Inc.;

p.

Blue Cross & Blue Shield of Mississippi, Inc.;

q.

Blue Cross and Blue Shield of Nebraska;

r.

Blue Cross and Blue Shield of North Carolina;

s.

Noridian Mutual Insurance Company d/b/a Blue Cross Blue
Shield of North Dakota;

t.

Premera Blue Cross;
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68.

u.

Blue Cross & Blue Shield of Rhode Island;

v.

Blue Cross and Blue Shield of South Carolina;

w.

BlueCross BlueShield of Tennessee;

x.

Blue Cross Blue Shield of Wyoming;

y.

Blue Cross and Blue Shield of Arizona, Inc.; and

z.

Wellmark, Inc.

The assignments completed by the Assignor BCBS Plans state, in

pertinent part, that each Assignor BCBS Plan “assigns and transfers to BCBS
Georgia the rights, title and interest to legal claims for money owed, to the extent
permitted by applicable law, that [the Assignor BCBS Plan] may assert against
any individual or entity, known or unknown, because of their participation in the
Chestatee Pass-Through Scheme.”3
69.

Collectively, Plaintiffs and the Assignor BCBS Plans are referred to

herein as the “BCBS Plans.”
MANAGED CARE AND THE BCBS PLANS
70.

The BCBS Plans are insurers and third-party claims administrators

for group health plans that provide benefits to covered individuals and
dependents.

3

BCBS Assignor Plan Wellmark, Inc. restricted its assignment to its self-funded plans.

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71.

The BCBS Plans may insure group health plans directly (the “Fully-

Insured Health Plans”). For the Fully-Insured Health Plans, the BCBS Plans
resolve claims and makes benefit payments from their own assets.
72.

The BCBS Plans also provide administrative services to self-funded

group health plans (the “Self-Funded Health Plans”). The BCBS Plans deliver
these services pursuant to Administrative Services Agreements between the
BCBS Plans and the group health plan’s sponsor (usually an employer), which
identify the rights and obligations of each party. Many of the group health plans
sponsored by private employers are governed by ERISA, 29 U.S.C. § 100 et seq.
The BCBS Plans provide insurance and/or administrative services to these
employer-sponsored group health plans, including the processing of claims for
reimbursement of medical services provided to the individuals covered by these
benefit plans.
73.

The BCBS Plans paid claims to Chestatee on behalf of a number of

Self-Funded Health Plans, and seek redress in this lawsuit for those Self-Funded
Health Plans.
74.

The BCBS Plans have prepared an exhibit listing the impacted Self-

Funded Health Plans, and will seek the Court’s leave to file the document once a

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protective order is in effect, given the confidential and sensitive nature of such a
document listing many of the BCBS Plans’ customers.
75.

Plaintiffs and the Assignor BCBS Plans’ agreements with their

customers expressly give Plaintiffs and the Assignor BCBS Plans authority and
discretion to recover overpayments on behalf of their customers.
76.

Accordingly, the BCBS Plans have authority and standing to seek

recovery on behalf of the impacted Self-Funded Health Plans and for payments
made by the Fully-Insured Health Plans.
ANTHEM’S NETWORK OF PARTICIPATING PROVIDERS
77.

Enrollees of BCBS Plans are considered the BCBS Plans’ “members.”

78.

The BCBS Plans rely upon networks of participating (also known as

“in-network”) healthcare providers. Participating providers contract with BCBS
Plans to accept a negotiated rate for their services, in exchange for, among other
things, increased access to members of BCBS Plans (due to the savings available
to the BCBS Plans’ members who receive treatment from participating providers)
and increased certainty with respect to the amount that they will receive from
BCBS Plans for their services.
79.

On the other hand, non-participating (also known as “out-of-

network”) providers have not contracted with the BCBS Plans. The
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reimbursement rates that BCBS Plans are required to pay non-participating
providers are often less than BCBS Plans are contractually obligated to pay
participating providers, and BCBS Plans’ members are typically personally
responsible for a larger share of the cost of those services.
80.

Chestatee is one of BCBS Georgia’s participating providers.

81.

None of the other Defendants are participating providers, nor do

any of them have contracts with BCBS Georgia or the other BCBS Plans.
THE BCBS GEORGIA-CHESTATEE CONTRACTS
82.

The claims at issue in this lawsuit were submitted by Chestatee to

BCBS Georgia under three contracts that govern the parties’ relationship.
83.

In January 1987, BCBS Georgia entered into a Participating Hospital

Agreement with St. Joseph Hospital of Dahlonega, Inc., d/b/a Chestatee
Regional Hospital (the “PAR Contract”). A true and correct copy of the PAR
Contract, as subsequently amended, is attached as Exhibit A hereto.
84.

In May 1998, HMO Georgia, Inc., a subsidiary of BCBS Georgia,

entered into a Contract with Chestatee Regional Hospital (the “HMO Contract”).
A true and correct copy of the HMO Contract, as amended, is attached as
Exhibit B hereto.
85.

Also in May 1998, BCBS Georgia entered into a Hospital Agreement
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for Preferred Provider Program with Chestatee Regional Hospital (the “PPO
Contract”). A true and correct copy of the PPO Contract, as amended, is
attached as Exhibit C hereto.
86.

On August 19, 2016, the day that Durall Capital acquired Chestatee

Regional Hospital, Southern Health Corporation of Dahlonega assigned the three
contracts (PAR Contract, HMO Contract, and PPO Contract) to Durall Capital.
87.

Unaware of Chestatee’s fraudulent intentions, BCBS Georgia

consented to the assignments.
88.

Through the assignments, Durall Capital agreed “to be bound by all

terms and conditions of” the Contracts, and BCBS Georgia and Durall Capital
agreed that “all other terms and conditions of [the Contracts] remain[ed] in full
force and effect.” (See Exs. A-C.)
THE PAR CONTRACT
89.

The PAR Contract contains a number of provisions that make clear

that BCBS Georgia was contracting to reimburse Chestatee only for hospital
services provided by Chestatee to BCBS members.
90.

The PAR Contract states that Chestatee “shall provide Medically

Necessary Hospital Services to Subscribers as provided in the applicable Benefit
Agreement when ordered by a licensed physician or other licensed medical
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professionals and are within the bylaws of the hospital.” (Ex. A at ¶ 4.1
(emphasis added).)
91.

Similarly, the first provision relating to BCBS Georgia’s

responsibilities under the PAR Contract states that BCBS Georgia must
compensate Chestatee for “Covered Services rendered to Subscribers pursuant to
the provisions of [the PAR Contract].” (Ex. A at ¶ 5.1. (emphasis added).)
92.

Other provisions of the PAR Contract make clear that it was

intended to cover only services provided at and by Chestatee, including without
limitation:
a.

Chestatee and BCBS Georgia agreed that the latter would

“pay [Chestatee] directly for Covered Services rendered to Subscribers”
pursuant to the PAR Contract. (Ex. A at ¶ 5.1 (emphasis added).)
b.

Chestatee’s agreement to permit BCBS Georgia to conduct bill

and utilization audits, and to conduct “such other activities as are deemed
mutually necessary to ensure correct payment to [Chestatee] for Covered
Services rendered to a Subscriber.” (Ex. A at ¶ 4.7 (emphasis added).)
c.

The PAR Contract described payment for services not

rendered at Chestatee Regional as being “made in error.” (Ex. A at ¶ 6.4.)

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93.

Chestatee was obligated to maintain “all appropriate records on

Subscribers” receiving services at Chestatee. (Ex. A at ¶ 8.1.)
94.

Other terms of the PAR Contract relevant hereto include that

Chestatee explicitly agreed that BCBS Georgia would be “permitted to recover
from [Chestatee] amounts due to [BCBS Georgia] because of,” among other
things, “inaccurate payments, including payments based upon erroneous or
incomplete information provided by [Chestatee.]” (Ex. A at ¶ 6.4.)
95.

Chestatee agreed not to assign its “rights, duties or obligations of the

[Contract],” and not to subcontract the PAR Contract, or any portion thereof,
without written consent from BCBS Georgia. (Ex. A at ¶¶ 13.1–13.2.)
96.

The PAR Contract provides that, in the event of a dispute that the

parties cannot resolve, Chestatee and BCBS Georgia agree to submit the dispute
to the Hospital Service Committee of the BCBS Georgia’s Board of Directors.
(Ex. A at ¶ 10.2.) However, there is no longer a Hospital Service Committee of
BCBS Georgia’s Board of Directors, nor is there a standing BCBS Georgia-specific
Board of Directors. In addition, the process would be futile, as it represents a
non-binding resolution, and the BCBS Plans have no reason to believe that
Chestatee will meaningfully participate in that process.

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THE HMO CONTRACT
97.

The HMO Contract establishes the contractual obligations of BCBS

Georgia and Chestatee for the provision of health care services at Chestatee to
enrollees of BCBS Georgia and its affiliates’ health maintenance organization
(“HMO”) plans.
98.

The HMO Contract contains a number of provisions that make clear

that BCBS Georgia contracted to reimburse Chestatee only for services provided
by Chestatee.
99.

Indeed, the first substantive provision of the HMO Contract, which

details Chestatee’s responsibilities under the Contract, states that Chestatee
“shall provide to Members and Guest Members” in the hospital’s service area
“Covered Services in accordance with this Agreement, when such services are
ordered by a Physician or other licensed health professional.” (Ex. B at ¶ 3.1
(emphasis added).)
100.

Similarly, the first provision relating to BCBS Georgia’s

responsibilities states that BCBS Georgia must compensate Chestatee for
“Covered Services rendered by [Chestatee] to Members[.]” (Ex. B at ¶ 5.2
(emphasis added).)

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101.

Other provisions of the HMO contract make abundantly clear that it

was intended to cover only services provided by Chestatee Regional, including:
a.

Chestatee agreed to “accept [BCBS Georgia’s payments], as

payment in full for Covered Services.” (Ex. B at ¶ 5.2.)
b.

Chestatee agreed that its “charges for Covered Services

rendered to Members” would not exceed its regular billed charges made to
non-members for the same services. (Ex. B at ¶ 5.3 (emphasis added).)
c.

Chestatee agreed to provide, upon request, “all information

reasonably required [by BCBS Georgia], . . . including, but not limited to,
complete and accurate descriptions of health care services performed and
charges made, with diagnoses and procedure codes approved [by BCBS
Georgia].” (Ex. B at ¶ 5.5.)
d.

Chestatee agreed to use its best efforts to submit all bills for

“Covered Services provided to Members within thirty (30) days after the
services [were] rendered[.]” (Ex. B at ¶ 5.10 (emphasis added).)
e.

Chestatee was obligated to maintain records on HMO

members “receiving Covered Services at [Chestatee].” (Ex. B at ¶ 8.1.)
102.

Other terms of the HMO Contract include that Chestatee agreed that

BCBS Georgia would be “permitted to recover from [Chestatee] . . . amounts paid
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by [BCBS Georgia] because of,” among other things, “inaccurate payments,
including, but not limited to, payments based upon erroneous or incomplete
information provided by [Chestatee.]” (Ex. B at ¶ 5.6.)
103.

Chestatee agreed not to assign its “rights, duties or obligations of the

[Contract].” (Ex. B at ¶ 14.2.)
104.

Chestatee further agreed to “indemnify and hold [BCBS Georgia]

harmless from any and all liability, loss, damage, claim or expense of any kind,
including costs and attorney’s fees, … which results from negligent or willful acts or
omissions by [Chestatee], its agents or employees regarding the duties and
obligations of [Chestatee] under [the HMO Contract.]” (Ex. B at ¶ 9.2 (emphasis
added).)
105.

Further, Chestatee was required to maintain comprehensive general

liability insurance, and such other insurance as would be necessary to insure
Chestatee and its employees “against any and all claims for damages arising
from the duties and obligations of [the HMO Contract.]” (Ex. B at ¶ 9.5.)
106.

The HMO Contract provides that, in the event of a dispute that the

parties cannot resolve, Chestatee and BCBS Georgia agree to submit the dispute
to the BCBS Georgia’s Board of Directors. (Ex. B at ¶ 11.2.) However, there is no
longer a standing BCBS Georgia-specific Board of Directors. In addition, the
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process would be futile, as it represents a non-binding resolution, and the BCBS
Plans have no reason to believe that Chestatee will meaningfully participate in
that process.
THE PPO CONTRACT
107.

The PPO Contract also makes clear that BCBS Georgia contracted to

reimburse Chestatee only for services provided by Chestatee.
108.

Indeed, the first substantive provision of the PPO Contract, which

details Chestatee’s responsibilities under the Contract, states that Chestatee
“shall provide to PPO Covered Persons PPO Eligible Services which are Medically
Necessary in accordance with [the PPO Contract], when such services are
ordered by a licensed physician or other licensed health professional.” (Ex. C at
¶ 2.1 (emphasis added).)
109.

Similarly, the first provision of the PPO Contract addressing BCBS

Georgia’s responsibilities states that BCBS Georgia must compensate Chestatee
for eligible services “which [Chestatee] performs for PPO Covered Persons
pursuant to the provisions of [the PPO Contract].” (Ex. C at ¶ 3.1 (emphasis
added).)
110.

Other provisions of the Contract make abundantly clear that it was

intended to cover only services provided by Chestatee, including that:
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a.

Chestatee agreed to “accept [BCBS Georgia’s] payments, as

provided in [the Contract], as payment in full for Eligible Services provided
to PPO Covered Persons.” (Ex. D at ¶ 2.3 (emphasis added).)
b.

Chestatee agreed to allow BCBS Georgia to conduct hospital

bill and utilization audits, and to “permit such other activities as are
deemed necessary by [BCBS Georgia] to ensure correct payment to
[Chestatee] for PPO Eligible Services rendered to PPO Covered Persons.”
(Ex. C at ¶ 2.11 (emphasis added).)
c.

Chestatee agreed that BCBS Georgia would “pay [Chestatee]

for the provision of medically necessary and appropriate PPO Eligible
Services rendered to PPO Covered Persons in accordance with the
provisions of [the PPO Contract.]” (Ex. C at ¶ 4.1 (emphasis added).)
d.

Chestatee agreed to use its best efforts to submit all bills for

“Eligible Services provided to PPO Covered Persons within sixty (60) days
after the services [were] rendered[.]” (Ex. C at ¶ 4.11 (emphasis added).)
e.

BCBS Georgia explicitly reserved the right to “review any

PPO claim for Medical Necessity, Appropriateness, and/or to determine
that services provided are Eligible Services under the terms of the PPO

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Covered Person’s Membership Agreement prior to payment.” (Ex. C at
¶ 5.7 (emphasis added).)
111.

Chestatee also explicitly agreed that BCBS Georgia would be

“permitted to recover from [Chestatee] amounts due to [BCBS Georgia] because
of,” among other things, “inaccurate payments including payments based upon
erroneous or incomplete information provided by [Chestatee.]” (Ex. C at ¶ 4.6.)
112.

Similarly, BCBS Georgia’s obligation to pay for claims was

contingent upon Chestatee’s bills being “accurate, complete, properly itemized
and clearly for medically necessary and appropriate PPO Eligible Services.”
(Ex. C at ¶ 3.2.)
113.

Chestatee agreed not to assign its “rights, duties or obligations of the

[PPO Contract],” and that it would not subcontract the PPO Contract, or any
portion thereof, without written consent from BCBS Georgia. (Ex. C at ¶¶ 13.113.2.)
114.

Chestatee further agreed to “indemnify and hold [BCBS Georgia]

harmless from any and all liability, loss, damage, claim or expense of any kind,
including costs and attorney’s fees, … which results from negligent or willful acts or
omissions by [Chestatee], its agents or employees regarding the duties and

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obligations of [Chestatee] under [the PPO Contract.]” (Ex. C at ¶ 8.2 (emphasis
added).)
115.

The PPO Contract further provides that, in the event of a dispute

that the parties could not resolve, disputes between BCBS Georgia and Chestatee
are to be arbitrated. No such provision governs BCBS Georgia’s relationship
with the remaining Defendants.
SUMMARY OF THE BCBS PLANS’ CLAIMS
116.

Since August 2016, Chestatee has inappropriately billed BCBS

Georgia more than $174 million for the laboratory claims at issue in this lawsuit,
causing the BCBS Plans to reimburse Chestatee approximately $111 million.
117.

Under the HMO Contract, Chestatee inappropriately billed BCBS

Georgia approximately $3 million, causing the BCBS Plans to reimburse
Chestatee approximately $1.9 million. Through this lawsuit, the BCBS Plans seek
recovery of this entire amount from all Defendants.
118.

Under the PAR Contract, Chestatee inappropriately billed BCBS

Georgia approximately $7.4 million, causing the BCBS Plans to reimburse
Chestatee approximately $5.6 million. Through this lawsuit, the BCBS Plans seek
recovery of this entire amount from all Defendants.

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119.

Under the PPO Contract, Chestatee inappropriately billed BCBS

Georgia approximately $164 million, causing the BCBS Plans to reimburse
Chestatee approximately $103 million. Through this lawsuit, the BCBS Plans
seek recovery of this entire amount from all Defendants, although the portion of
the dispute between BCBS Georgia and Chestatee must be arbitrated.
FACTUAL BACKGROUND
URINE DRUG TESTING
120.

Drug tests are laboratory analyses used to aid in the detection of

prescription, recreational, or illicit substances in human specimens. Drug testing
may be used to meet state requirements, evaluate therapeutic compliance and
drug aberrant behavior (e.g., abuse or diversion), or to evaluate for child and
elder abuse. It can include analysis for most drugs, chemicals, and/or plant
products that are known to be misused, including for recreational use.
121.

Although drug tests may be performed on a variety of specimen

types, UDT is the most commonly used because it is widely available, minimally
invasive, and generally the least expensive for drug detection and monitoring.
122.

This is consistent with Anthem’s Clinical UM Guideline, entitled

“Drug Testing or Screening in the Context of Substance Use Disorder and
Chronic Pain” (the “Anthem Drug Testing Policy”) which states that “the use of
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blood samples as an alternative to urine for drug testing is considered medically
necessary when the use of urine is not feasible[.]”
123.

UDT falls into two categories of testing: presumptive and definitive.

124.

Presumptive testing is used, when medically necessary, to

determine the presence or absence of one or more drugs or drug classes.
Presumptive testing is typically performed via immunoassay, and results are
expressed as negative, positive, or numeric. It is also referred to as “screening”
or “qualitative” testing.
125.

Definitive testing is a follow-up test performed on a separate portion

of the original specimen, when medically necessary, to validate the identity and
quantity of a specific drug or metabolite. Definitive testing is typically
performed using either gas chromatography-mass spectrometry or liquid
chromatography-mass spectrometry, and results are expressed as a concentration
of a particular metabolite or analyte (e.g., nanograms per milliliter (ng/mL)). It is
also referred to as “confirmation” or “quantitative” testing.
126.

Definitive testing is typically reasonable and necessary only in

certain circumstances.
127.

The Anthem Drug Testing Policy states that definitive testing is

medically necessary only when all of the following criteria are met:
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a.

the presumptive UDT was done for a medically necessary

reason; and
b.

the presumptive test was negative for prescribed medications,

positive for a prescription drug with abuse potential which was not
prescribed, or positive for an illegal drug (for example, but not limited to,
methamphetamine or cocaine), and
i.

the specific definitive test(s) ordered are supported by

documentation specifying the rationale for each [definitive] test
ordered, and
ii.

clinical documentation reflects how the result of the

test(s) will be used to guide clinical care.
THE TOXICOLOGY LABORATORY INDUSTRY
128.

In recent years, government enforcement, private lawsuits, and

investigative journalism have helped identify widespread fraud within the
toxicology laboratory industry.
129.

For example, in a November 2014 article about the massive increases

in the amount of UDT being paid for by Medicare, the Wall Street Journal
summarized the then-recent history of the industry:
Spending on the [urine drug] tests took off after
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Medicare cracked down on what appeared to be
abusive billing for simple urine tests. Some doctors
moved on to high-tech testing methods, for which
billing wasn’t limited.
They started testing for a host of different drugs—
including illegal ones that few seniors ever use—and
billing the federal health program for the elderly and
disabled separately for each substance.
Medicare’s spending on 22 high-tech tests for drugs of
abuse hit $445 million in 2012, up 1,423% in five years.4
130.

In another example, in October 2015, the former Millennium

Laboratories agreed to pay $256 million to the U.S. Department of Justice to
resolve allegations that it billed Medicare “many millions of dollars’ worth” of
UDT claims that were “not reasonable and necessary or that were furnished
pursuant to prohibited referrals” in violation of the Anti-Kickback Statute, 42
U.S.C. § 1320a-7b(b), and other statutes.
131.

Because of concerns about the frequency, cost, and manner with

which toxicology laboratories were billing payors, a number of changes were put
into place as to how laboratories test and bill for UDT.

4

Christopher Weaver and Anna Wilde Mathews, Doctors Cash In on Drug Tests for Seniors, and Medicare
Pays
the
Bill,
THE
WALL
STREET
JOURNAL,
Nov.
10,
2014
(available
at:
https://www.wsj.com/articles/doctors-cash-in-on-drug-tests-for-seniors-and-medicare-pays-thebill-1415676782).

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132.

For example, the Centers for Medicare and Medicaid Services

(“CMS”) changed the way that UDT is billed, in part because of a “concern about
the potential for overpayment when billing for each individual drug test rather
than a single code that pays the same amount regardless of the number of drugs
that are being tested.”
133.

Because these changes have decreased the rate at which toxicology

laboratories are reimbursed for UDT, many laboratories have sought out other
ways to access more favorable reimbursement rates, including—as here—passing
their claims through hospitals to take advantage of the hospitals’ participating
status and favorable reimbursement rates with payors.
134.

Indeed, the website of one entity that recruited toxicology

laboratories to pass their claims through a different network of pass-through
hospitals makes clear the motives of the arrangement:

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135.

In other words, because of “recurring compliance and quality

issues,” CMS and commercial payors restricted certain laboratories from their
networks. This led some of the remaining laboratories—including those who
were restricted from payors’ networks for compliance and quality issues—to use
hospitals like Chestatee Regional Hospital to hide the true identity of the
laboratory performing the UDT, and take advantage of the hospitals’
participating status and favorable reimbursement agreements with payors.

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THE DEFENDANTS’ PASS-THROUGH BILLING SCHEME
136.

Durall Capital purchased Chestatee in August 2016.

137.

Around the same time, Aaron Durall (individually or through

Durall Capital) engaged Jorge Perez to manage Chestatee’s finances and help
oversee the scheme.
138.

Jorge Perez owns or manages, indirectly, a number of other small

hospitals, through which he has engaged in similar schemes.
139.

Jorge Perez and Aaron Durall previously conspired to implement at

least one other known pass-through billing scheme, at Campbellton-Graceville
Hospital in Graceville, Florida. There, Perez served as Campbellton-Graceville’s
Chief Executive Officer after it was acquired by The People’s Choice
Hospital, LLC.5 At the direction of Aaron Durall, Reliance Labs performed
laboratory tests at Reliance Labs that were improperly billed to insurers as if
performed at and by Campbellton-Graceville Hospital. Through the
Campbellton-Graceville scheme, Reliance Labs received approximately
$25,000,000 in improper reimbursements.

5

People’s Choice is itself the defendant in separate actions arising from yet more fraudulent billing
schemes. One arose due to its relationship with the Campbellton-Graceville Hospital. See
Campbellton-Graceville Hosp. Corp. v. Peoples Choice Hosp., No. 5:16-cv-00222 (N.D. Fla. filed Aug. 3,
2016). Another was perpetrated in Oklahoma. See Aetna Inc. v. The People’s Choice Hosp., LLC, No.
2:17-cv-04354 (E.D. Pa. filed Sept. 29, 2017) (recently transferred to the Western District of Texas).

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140.

Jorge Perez is also vice president of Hospital Partners, Inc., which

implemented a scheme in Missouri similar to the one alleged herein. That
arrangement was the subject of an audit by the State Auditor of Missouri, who
described it as a “billing scheme” whereby the hospital was “reduc[ed] to what is
essentially a shell organization for labs across the country.”6
141.

Immediately after Durall Capital acquired Chestatee Regional

Hospital, it began billing BCBS Georgia for high volumes of UDT.
142.

As described herein, Chestatee and Reliance Labs agreed to

camouflage laboratory claims from Reliance Labs so that BCBS Georgia would be
more likely to pay them, and would pay them at the rates that Chestatee was
entitled to under the HMO, PAR, and PPO Contracts, which were substantially
higher than the rates that Reliance Labs would have received had it billed the
claims directly to BCBS Georgia.
143.

When referring providers ordered the testing, they ordered it from

Reliance Labs (or other non-participating laboratories), and not from Chestatee
Regional Hospital.

6

The State Auditor’s report, which is incorporated herein, is accessible via the following link:
https://www.auditor.mo.gov/content/auditor-galloway-uncovers-evidence-90-million-billingscheme-putnam-county-memorial-hospital (last visited Feb. 22, 2018). The State Auditor’s press
release announcing its findings is available via the following link:
https://auditor.mo.gov/content/auditor-galloway-uncovers-evidence-90-million-billing-schemeputnam-county-memorial-hospital (last visited Feb. 22, 2018).

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144.

Upon information and belief, these non-participating laboratories

were fully capable of performing the testing ordered. Yet, Durall Capital,
Reliance Labs, and the other Defendants billed the testing through Chestatee
because BCBS Georgia would pay Chestatee Regional Hospital substantially
more than Reliance Labs would receive if it billed BCBS Georgia directly.
145.

Aaron Durall directed the scheme in his capacity as CEO of

Chestatee Regional Hospital, President of Reliance Labs, and Manager of DL
Investment Holdings, LLC.
146.

In exchange for their respective acts in furtherance of the pass-

through scheme, Defendants split the proceeds, which were substantially greater
than what each Defendant would have received if they billed BCBS Georgia only
for the tests that they each performed, and at the rates to which they were
individually entitled.
147.

To increase the revenues that they could generate from the pass-

through scheme, Defendants relied upon a network of referring healthcare
providers who ordered large volumes of laboratory testing (including, most
notably, pain clinics and drug detoxification and rehabilitation facilities).

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148.

To ensure that they received the specimens referred by these

providers, Reliance Labs paid them kickbacks by, for example, promising them a
portion of the reimbursement that Chestatee received for the tests.
149.

Once ordered by a referring healthcare provider, the tests were

conducted at and by Reliance Labs.
150.

After the specimens were tested by Reliance Labs, they were

sometimes sent to Chestatee Regional Hospital’s on-site laboratory for further
testing. However, upon information and belief, that testing was not medically
necessary and provided no additional clinically useful information.
151.

Upon information and belief, Aaron Durall instructed personnel at

Chestatee Regional Hospital’s on-site laboratory to destroy the lab results created
by the laboratory equipment there, apparently to avoid creating documentary
proof of which tests were conducted on-site (as opposed to at Reliance Labs).
152.

Upon information and belief, one reason for this instruction was that

the equipment at Chestatee Regional Hospital’s on-site laboratory was only
capable of testing in panels of eight or fewer drugs or metabolites. However,
Chestatee billed BCBS Georgia for panels of up to 24 drugs or metabolites.

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153.

Billing for the scheme was performed at the Florida offices of

Medivance, under the direction of Neisha Carter Zaffuto, and in accordance with
Defendants’ collective agreement.
154.

The claims were submitted to BCBS Georgia by Medivance, on

behalf of Chestatee, as if the testing was performed at and by Chestatee and was
reimbursable under the HMO, PAR, and PPO Contracts.
155.

Chestatee, Medivance, Reliance Labs, Aaron Durall, Jorge Perez, and

Neisha Carter Zaffuto agreed to submit the claims in this manner, and each took
the overt acts described herein to facilitate the submission of these claims to
BCBS Georgia.
156.

To facilitate the scheme, Chestatee, Medivance, Reliance Labs, Aaron

Durall, Jorge Perez, and Neisha Carter Zaffuto sought to hide from BCBS
Georgia the identity of the laboratory or laboratories actually performing the
testing.
157.

Indeed, had Defendants disclosed the laboratory or laboratories

actually performing the testing (i.e., a non-participating toxicology laboratory
such as Reliance Labs), the BCBS Plans would not have paid the claims at issue
or would have paid them at substantially lower rates.

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158.

Defendants also conspired to restrict Chestatee Regional Hospital’s

on-site billing staff from accessing information about the fraudulent claims.
159.

Upon information and belief, mail sent to Chestatee was forwarded

unopened to Aaron Durall or Neisha Carter Zaffuto, who facilitated the scheme
from Florida. Once the mail was reviewed in Florida, select communications that
would not reveal the existence of the scheme were returned to Chestatee
Regional Hospital’s facility in Georgia.
160.

The claims submitted to BCBS Georgia contained numerous material

misrepresentations intended to hide the fact that the testing was not performed
at Chestatee, by Chestatee-credentialed healthcare providers, or for BCBS Plans’
members present in Chestatee’s service area.
161.

The misrepresentations include, but are not limited to:
a.

provider name (misrepresented as Chestatee);

b.

provider street address (misrepresented as Chestatee);

c.

provider Tax ID and National Provider Identifier (“NPI”)

(misrepresented as Chestatee);
d.

type of bill (misrepresented as 141, which represents a

specimen submitted for analysis to a hospital);

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e.

admission type (misrepresented as “urgent” admission when

no patient was ever admitted at Chestatee Regional Hospital);
f.

source of admission (misrepresented as “information not

available,” when there was no admission);
g.

patient discharge status (misrepresented as a patient

discharged to home or self-care, when there was no admission or
discharge); and
h.

attending physician and attending physician’s NPI

(misrepresented as the provider purportedly ordering the UDT).
162.

When they submitted claims to BCBS Georgia, Chestatee,

Medivance, Reliance Labs, Aaron Durall, Jorge Perez, and Neisha Carter Zaffuto
falsely certified on each claim that the billing information was “true, accurate,
and complete[.]”
163.

Similarly, on each claim, these Defendants falsely certified that they

“did not knowingly or recklessly disregard or misrepresent or conceal material
facts.”
164.

The claim form also contains a notice that the submitter of the form

“understands that misrepresentation or falsification of essential information as
requested by this form, may serve as the basis for civil monetary penalties and
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assessments and may upon conviction include fines and/or imprisonment under
federal and/or state laws.”
165.

BCBS Georgia reasonably relied on the material misrepresentations

contained on Chestatee’s claims in deciding to pay the claims.
166.

Once Chestatee received payment from BCBS Georgia, Chestatee

shared the proceeds with the other Defendants.
167.

Upon information and belief, written contracts between the

Defendants identify the amount that each Defendant was entitled to in exchange
for its participation in this fraudulent scheme.
168.

From the payments made by BCBS Georgia, employees or agents of

Reliance Labs paid kickbacks to healthcare providers who referred their patients’
specimens to be used in the scheme.
169.

Upon information and belief, Durall Capital and Aaron Durall

purchased Chestatee Regional specifically to perpetrate this pass-through
scheme.
DEFENDANTS BEGIN TO ROUTE CLAIMS THROUGH CHESTATEE
170.

Before Durall Capital’s acquisition of Chestatee Regional Hospital,

Reliance Labs billed BCBS Georgia directly for UDT that it purportedly
performed for the BCBS Plans’ members.
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171.

Within one month of Durall Capital’s acquisition of the hospital,

BCBS Georgia began receiving claims from both Reliance Labs and Chestatee for
testing performed for the same BCBS Plans’ members.
172.

For example, over the course of two months, Reliance Labs and

Chestatee billed BCBS Georgia for 25 urine drug tests for one BCBS Plan member
located in St. Louis, Missouri.
173.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13

Those tests were billed to BCBS Georgia as follows:

Date
8-19-2016
8-21-2016
8-23-2016
8-25-2016
8-27-2016
8-29-2016
8-31-2016
9-02-2016
9-04-2016
9-06-2016
9-08-2016
9-10-2016
9-12-2016

174.

Billed By
Reliance Labs
Reliance Labs
Reliance Labs
Reliance Labs
Reliance Labs
Reliance Labs
Reliance Labs
Reliance Labs
Reliance Labs
Reliance Labs
Reliance Labs
Reliance Labs
Reliance Labs

No.
14
15
16
17
18
19
20
21
22
23
24
25

Date
9-14-2016
9-16-2016
9-18-2016
9-20-2016
9-23-2016
9-24-2016
9-26-2016
9-26-2016
9-28-2016
10-03-2016
10-05-2016
10-08-2016

Billed By
Chestatee Regional
Reliance Labs
Reliance Labs
Reliance Labs
Chestatee Regional
Reliance Labs
Reliance Labs
Chestatee Regional
Reliance Labs
Chestatee Regional
Chestatee Regional
Reliance Labs

This pattern—where UDT for a single member was billed by both

Chestatee and Reliance Labs during the same period—was typical in the months
following Durall Capital’s acquisition of Chestatee.

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175.

Upon information and belief, the facility performing the UDT for the

BCBS Plans’ members was Reliance Labs.
176.

Over time, more UDT was billed to BCBS Georgia by Chestatee, and

less was billed to BCBS Georgia by Reliance Labs, to exploit Chestatee’s innetwork contract with BCBS Georgia and maximize reimbursements.
177.

This transition toward billing the tests through Chestatee was

extremely lucrative for Defendants. When Reliance Labs billed BCBS Georgia
directly, BCBS Georgia typically paid between $100 and $300 per specimen
tested. On the other hand, when the testing was billed through Chestatee, BCBS
Georgia typically paid in excess of $1,400 per specimen tested.
DEFENDANTS’ EFFORTS TO DISRUPT BCBS GEORGIA’S
INVESTIGATION
178.

In April 2017, BCBS Georgia received a complaint from a member

located in West Virginia, who was surprised by a bill for testing purportedly
performed by Chestatee.
179.

In response, a BCBS Georgia representative spoke by phone with a

Chestatee Regional Hospital employee, who had been employed at the hospital
since before Durall Capital acquired it.

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180.

On the call, the employee reported that claims were being billed by

Chestatee for patients who were never seen at the hospital, and that the records
for these patients were maintained in Florida, not at the hospital in Georgia.
181.

The employee further stated that she advised Aaron Durall that

Chestatee could not bill for services that were not performed at or by Chestatee.
Aaron Durall assured her that the hospital’s billing was appropriate.
182.

The employee believed that since Durall Capital acquired the

hospital, insurers had paid Chestatee millions of dollars for testing that was not
performed by the hospital and was not reimbursable.
183.

As permitted by its Contract, BCBS Georgia sent a request to

Chestatee for all records relating to a sample of UDT claims billed to it.
184.

Chestatee provided only a fraction of the records requested.

185.

When a BCBS Georgia investigator contacted Chestatee Regional

Hospital’s on-site laboratory to ask follow-up questions about the production,
the hospital’s on-site laboratory director stated that she was unaware of BCBS
Georgia’s request for records.
186.

The BCBS Georgia investigator agreed to fax the records he had

received to Chestatee Regional Hospital’s on-site laboratory director.

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187.

Around the same time, the BCBS Georgia investigator received

multiple calls from Neisha Carter Zaffuto (from a number with a Florida area
code), requesting that he direct his questions to her, rather than to the hospital’s
on-site laboratory director.
188.

After reviewing the records from the BCBS Georgia investigator,

Chestatee Regional Hospital’s on-site laboratory director spoke with Jaquanda
Smith, Chestatee’s “Director of Operations/HIM.”
189.

Among other things, the on-site laboratory director informed

Jaquanda Smith that the test results identified by BCBS Georgia were for panels
of up to 24 drugs or metabolites, which the on-site laboratory director knew
could not have been performed at Chestatee Regional’s on-site laboratory.
190.

Jaquanda Smith told the on-site laboratory director that she would

respond to BCBS Georgia, and that the on-site laboratory director should not
discuss the matter with anyone else.
191.

Jaquanda Smith then wrote to the BCBS Georgia investigator:

“Chestatee Regional Hospital completed and generated reports for all the tests
you inquired about.”

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192.

In response to further questioning from the BCBS Georgia

investigator, Jaquanda Smith added: “I am affirming that the testing results were
completed at chestatee [sic].”
193.

At the time that Jaquanda Smith made these statements, in her

capacity as an employee of Chestatee, she knew that they were false, and made
them with the intent to further the fraudulent scheme described herein.
194.

One employee of Chestatee Regional Hospital also stated that,

because Chestatee was concerned that payors would conduct inspections of
Chestatee Regional Hospital’s on-site laboratory, Chestatee was rushing to install
a machine capable of testing panels of up to 24 drugs or metabolites.
195.

On April 12, 2017, the BCBS Georgia investigator sent a letter to

Aaron Durall summarizing BCBS Georgia’s analysis of the sample claims and the
records provided by Chestatee in support of the sample claims.
196.

The findings summarized included the following:
a.

much of the UDT billed by Chestatee was not medically

necessary;
b.

many tests were performed based upon standing orders that

were either signed or stamped blank prescriptions;
c.

definitive tests were frequently billed as presumptive tests;
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d.

the majority of the BCBS Plans’ members were tested at

excessive frequencies (often more than 24 times per calendar year);
e.

the frequency of testing was often too frequent (i.e., near

daily) to allow for meaningful use of the tests in medical decision-making,
as additional tests were often ordered before the healthcare providers
received the results of the previous tests;
f.

many members of the BCBS Plans had UDT billed by both

Reliance Labs and Chestatee and, when taking that volume into account,
the frequency with which members of the BCBS Plans were tested was
even more excessive;
g.

in some cases, the “client” field on the test results identified

other laboratories for UDT purportedly performed by Chestatee;
h.

Chestatee employees reported that they were not permitted to

talk to the BCBS Georgia investigator or cooperate with his requests; and
i.

the medical records provided by Chestatee in response to the

BCBS Georgia investigator’s request were prepared and submitted by
persons in Florida, and did not appear to be from Chestatee Regional
Hospital.

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197.

Even after being notified of the serious misrepresentations being

made in the claims submitted to BCBS Georgia, Defendants continued to execute
their scheme.
198.

In November 2017, in an effort to deter the fraudulent billing scheme

by reducing the financial incentives motivating the conduct, BCBS Georgia
amended its HMO, PAR, and PPO Contracts with Chestatee by adding a Lab Fee
Schedule that set specific prices that BCBS Georgia would pay Chestatee for
laboratory testing, including UDT and BDT. True and correct copies of the Lab
Fee Schedules are included in Exhibits A-C.
199.

The Lab Fee Schedules listed laboratory codes and the rates that

BCBS Georgia would pay Chestatee for each service.
200.

For any laboratory codes not listed on the Lab Fee Schedule, the

parties agreed that they would “price at $0.00.”
201.

In response, Defendants changed the way that they billed BCBS

Georgia for UDT in order to conceal from BCBS Georgia the claims that were
laboratory-related.

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202.

Specifically, prior to the implementation of the Lab Fee Schedule,

Defendants would submit claims using CPT and HCPCS7 codes that identified
the bills as laboratory-related. After the implementation of the Lab Fee Schedule,
Defendants began submitting claims without these CPT or HCPCS codes, and
instead used only revenue codes, in an effort to hide the fact that the bills were
for laboratory-related services.
SAMPLE CLAIMS
203.

As described above, BCBS Georgia requested that Chestatee

provide medical records, “including all testing results, requisition forms,
provider medical records and all supporting documentation” for a sample of the
claims at issue.
204.

From that documentation, the BCBS Plans have identified the

following claims as illustrative of Defendants’ scheme.
SAMPLE CLAIM SET #1
205.

On October 5, 2016, a doctor of osteopathic medicine affiliated with

a detoxification and rehabilitation facility in Costa Mesa, California completed a
“Standing Order” form for a BCBS Georgia member. That BCBS Plan member is
7

“CPT” stands for “Current Procedural Terminology,” and is a medical code set that is used to report
medical, surgical, and diagnostic procedures and services to entities such as physicians, health
insurance companies and accreditation organizations. “HCPCS” stands for “Healthcare Common
Procedure Coding System” and is a code set used by Medicare and health insurance providers to
standardize billing.

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referred to herein as Member #1.
206.

BCBS Georgia was billed four times by Chestatee for UDT collected

from Member #1 even before the Standing Order was signed. Chestatee failed to
provide an order form for any of these four tests.
207.

The Standing Order identifies Member #1’s name, date of birth, and

the date the Standing Order was completed. A section of the form where the
treating provider was to list Member #1’s prescriptions is blank. In the section
entitled “Dx,” where the treating provider was to provide a diagnosis, a notation
states “3x a week.” Upon information and belief, this indicates that Member #1
was to be subjected to UDT three times per week. Finally, the Standing Order
was stamped with the treating provider’s signature, rather than being signed.
208.

The first UDT results provided by Chestatee are for a specimen

collected from Member #1 on October 5, 2016.
209.

Those results have Chestatee’s logo, name, and address across the

top of their first page. The field for Chestatee’s phone number is blank.
210.

On the test results, the laboratory director identified as responsible

for the tests is “Mills Brinson III, CLD.”
211.

However, when contacted by BCBS Georgia, Brinson denied ever

being affiliated with Chestatee. He similarly denied being a lab director for
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Reliance Labs.
212.

However, Brinson stated that he was once the lab Director for

Regional General Hospital in Williston, Florida.
213.

Regional General Hospital was purchased by LifeBrite Hospital

Group in 2016. Jorge Perez is a Director of LifeBrite Hospital Group.
214.

The test result form states that Member #1 was prescribed

Metoprolol, a beta-blocker, yet the Standing Order includes no such notation.
215.

The test result form also states that the treating provider ordered

“CRH_FSCR FULL SCREEN” and “FSCR FULL SCREEN,” yet no such order
was produced by Chestatee.
216.

The test result form also includes the following diagnoses for

Member #1: (a) F19.20 – Other psychoactive substance d; (b) F11.20 – Opioid
dependence; and (c) F15.20 – Other stimulant dependence. Yet, the Standing
Order completed by the treating provider included none of these diagnoses.
217.

The test result form also includes a space for Member #1 to “consent

and agree” to provide his urine specimen “to the facility designated by [his]
doctor as described above.” However, none of the test result forms provided by
Chestatee were signed by Member #1. Further, the form containing this waiver
appears to have been created three days after the urine was collected from
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Member #1, and purports to have been created at Chestatee, thousands of miles
away from the rehabilitation facility at which Member #1 was receiving
treatment.
218.

Member #1’s urine specimen was purportedly subjected to

presumptive testing for 24 drug classes, all of which tested negative (i.e., not
present).
219.

Upon information and belief, these tests were performed at Reliance

220.

Yet, Chestatee billed BCBS Georgia, or caused BCBS Georgia to be

Labs.

billed, for the testing on a claim that misrepresented, among other things, the:
a.

provider (misrepresented as Chestatee);

b.

provider’s street address (misrepresented as Chestatee);

c.

provider’s Tax ID and NPI (misrepresented as Chestatee);

d.

type of bill (misrepresented as “141,” which represents a

specimen submitted for analysis to a hospital);
e.

admission type (misrepresented as “2,” which stands for

“urgent” admission, when there was no admission);
f.

source of admission (misrepresented as “9,” which stands for

“information not available,” when there was no admission);
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g.

patient discharge status (misrepresented as “01,” which

represents a patient discharged to home or self-care, when there was no
admission or discharge); and
h.

attending physician and attending physician’s NPI

(misrepresented the referring provider as an attending physician).
221.

The testing was billed to BCBS Georgia using one count of HCPCS

code G0479, for which Chestatee charged $2,700.
222.

BCBS Georgia allowed $1,792.31 based on the reimbursement

guidelines set forth in the PPO Contract. Member #1 owed no copay or
coinsurance, so BCBS Georgia paid Chestatee $1,792.31 for the test.
223.

Member #1 was not a Chestatee patient, was not treated by a

Chestatee-credentialed healthcare provider, and resided thousands of miles from
Chestatee Regional Hospital.
224.

But for Defendants’ scheme, Chestatee would not have submitted a

claim for this testing to BCBS Georgia and BCBS Georgia would not have paid
anything to Chestatee for the service.
225.

Between September 2016 and August 2017, Chestatee billed BCBS

Georgia for 88 urine drug tests for Member #1 that were substantially similar to
the one described in Paragraphs 205 through 224, above.
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226.

In reliance on those 88 fraudulent claims, BCBS Georgia paid

Chestatee more than $155,000.
SAMPLE CLAIM SET #2
227.

On September 22, 2016, a doctor affiliated with a sober living and

intensive outpatient treatment program in Houston, Texas digitally signed a
medical record for a BCBS Plan member.
228.

That BCBS Plan member is referred to herein as Member #2.

229.

Aside from providing basic biographical data, the treating

provider’s notes state only that he “reviewed psychosocial history and
recommend patient comply with the company policy of 3 UA’s/week.”
230.

Upon information and belief, “UA” refers to urinalysis, or UDT.

231.

According to the records provided by Chestatee, the treating

provider made identical notations in Member #2’s medical record on October 21,
2016, November 23, 2016, and December 22, 2016.
232.

In his notation on January 10, 2017, the treating provider

purportedly changed his notation slightly, to read, “have reviewed treatment
plan and recommend client comply with the company policy of 3 UA’s/week.”
233.

The first UDT results provided by Chestatee for Member #2 are for

a specimen collected from him on October 2, 2016.
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234.

The test results have Chestatee’s logo, name, and address across the

top of their first page. The field for Chestatee’s phone number is left blank.
235.

As with Sample Claim Set #1, the test results identify Mills Brinson

III, CLD as the lab Director responsible for the tests. Yet, Brinson denies ever
being affiliated with Chestatee or Reliance Labs.
236.

However, Brinson stated that he was once the lab director for

Regional General Hospital in Williston, Florida, which was purchased by
LifeBrite Hospital Group in 2016. Jorge Perez is a Director of LifeBrite Hospital
Group
237.

The test result form states that the referring provider ordered

“CHR_FSCR FULL SCREEN” and “SCRN FSCR W/O CONTININE,” yet no
such order was produced by Chestatee.
238.

The test result form states that Member #2’s treating provider

diagnosed Member #2 with “F19.20 – Other psychoactive substance d [sic].” Yet,
Chestatee provided no documentation showing that the treating provider
rendered this diagnosis.
239.

The test result form also includes a space for Member #2 to “consent

and agree” to provide his urine specimen “to the facility designated by [his]
doctor as described above.” However, the forms use an identical digital
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signature or are unsigned. In addition, the forms containing the waiver appear
to have been created days after each specimen was collected from Member #2,
and purportedly were created at Chestatee, hundreds of miles from the facility
where Member #2 received treatment.
240.

The urine specimen taken from Member #2 was purportedly

subjected to presumptive testing.
241.

Upon information and belief, these tests were performed at Reliance

242.

Yet, Defendants billed BCBS Georgia, or caused BCBS Georgia to be

Labs.

billed, for the testing on a claim that misrepresented, among other things:
a.

provider (misrepresented as Chestatee);

b.

provider street address (misrepresented as Chestatee);

c.

provider Tax ID and NPI(misrepresented as Chestatee);

d.

type of bill (misrepresented as “141,” which represents a

specimen submitted for analysis to a hospital);
e.

admission type (misrepresented as “2,” which stands for

“urgent” admission, when there was no admission);
f.

source of admission (misrepresented as “9,” which stands for

“information not available,” when there was no admission);
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g.

patient discharge status (misrepresented as “01,” which

represents a patient discharged to home or self care, when there was no
discharge); and
h.

attending physician and attending physician’s NPI

(misrepresented the treating provider as an attending physician).
243.

The testing was billed to BCBS Georgia using one count of HCPCS

code G0479, for which Chestatee charged $2,700.
244.

In accordance with the PPO Contract, BCBS Georgia allowed

$1,792.31. Member #2 owed no copay or coinsurance, so BCBS Georgia paid
Chestatee $1,792.31.
245.

Member #2 was not a Chestatee patient, was not treated by a

Chestatee-credentialed healthcare provider, and resided thousands of miles from
Chestatee.
246.

But for Defendants’ scheme, Chestatee would not have submitted a

claim for this testing to BCBS Georgia and BCBS Georgia would not have paid
anything to Chestatee for the service.
247.

Between October 2016 and February 2017, Chestatee billed BCBS

Georgia for 65 urine drug tests for Member #2 that were substantially similar to
the one described in Paragraphs 227 through 246, above.
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248.

In reliance on those 65 fraudulent claims, BCBS Georgia paid

Chestatee more than $104,000.
CAUSES OF ACTION
COUNT I
BREACH OF PAR CONTRACT
(Against Chestatee)
249.

The BCBS Plans incorporate by reference all preceding paragraphs

as if fully set forth herein and further allege as follows:
250.

BCBS Georgia has a contractual relationship with Chestatee, as

defined by the PAR Contract and all materials referenced or incorporated
therein.
251.

BCBS Georgia performed its obligations under the PAR Contract,

and all conditions precedent have been satisfied.
252.

Chestatee materially breached the PAR Contract, including by:
a.

Submitting claims to BCBS Georgia, or causing claims to be

submitted to BCBS Georgia, for services not performed by Chestatee. (See,
e.g., Ex. A at ¶¶ 4.1, 4.2, 4.5, 4.7, 5.1 6.1, 6.2, 6.4, 6.6, 6.10, 7.4, 8.1, 13.1, 13.2.)
b.

Assigning its rights, duties, and/or obligations under the

Contract, in whole or in part, to Reliance Labs, in violation of the Contract.
(See Ex. A at ¶ 13.1.)
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c.

Subcontracting its responsibilities to Reliance Labs, in

violation of the Contract. (See Ex. A at ¶ 13.2.)
d.

Submitting claims to BCBS Georgia, or causing claims to be

submitted to BCBS Georgia, that Chestatee knew were not accurate,
complete, and truthful, including but not limited to claims containing the
following misrepresentations:
i.

provider name;

ii.

provider street address;

iii.

provider Tax ID and NPI;

iv.

type of bill;

v.

admission type;

vi.

source of admission;

vii.

patient discharge status;

viii.

attending physician and NPI; and

ix.

identity of the lab director.

(See, e.g., Ex. A at ¶ 5.4.)
e.

Submitting claims to BCBS Georgia for medically

unnecessary UDT. (Ex. A at ¶ 4.1.)
253.

As a direct and proximate consequence of Chestatee’s material
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breaches of the PAR Contract, the BCBS Plans have suffered damages.
254.

Therefore, the BCBS Plans seek to recover, at a minimum, the

amount paid on the improper claims that Chestatee submitted or caused to be
submitted to BCBS Georgia.
COUNT II
BREACH OF HMO CONTRACT
(Against Chestatee)
255.

The BCBS Plans incorporate by reference all preceding paragraphs

as if fully set forth herein and further allege as follows:
256.

BCBS Georgia has a contractual relationship with Chestatee, as

defined by the HMO Contract and all materials referenced or incorporated
therein.
257.

BCBS Georgia performed its obligations under the HMO Contract,

and all conditions precedent have been satisfied.
258.

Chestatee materially breached the HMO Contract, including by:
a.

Submitting claims to BCBS Georgia, or causing claims to be

submitted to BCBS Georgia, for services not performed at or by Chestatee.
(See, e.g., Ex. B at ¶¶ 3.1, 3.3, 3.5, 3.6, 3.10, 3.11, 3.15, 4.1, 5.1, 5.3, 5.4, 5.5, 5.6,
5.11, 6.1, 7.1.)
b.

Assigning its rights, duties, and obligations under the HMO
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Contract, in whole or in part, to Reliance Labs. (See Ex. B at ¶ 14.2)
c.

Submitting claims to BCBS Georgia, or causing claims to be

submitted to BCBS Georgia, that Chestatee knew were not accurate,
complete, and truthful, including but not limited to claims containing the
following misrepresentations:
i. provider name;
ii. provider street address;
iii. provider Tax ID and NPI;
iv. type of bill;
v. admission type;
vi. source of admission;
vii. patient discharge status;
viii. attending physician and NPI; and
ix. the identity of the laboratory director
(See, e.g., Ex. B at ¶ 5.6.)
d.

Submitting claims to BCBS Georgia for medically

unnecessary UDT. (Ex. B at ¶ 3.1.)
259.

As a direct and proximate consequence of Chestatee’s material

breaches of the HMO Contract, the BCBS Plans have suffered damages.
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260.

Therefore, the BCBS Plans seek to recover, at a minimum, the

amount paid on the improper claims that Chestatee submitted or caused to be
submitted to BCBS Georgia.
COUNT III
BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING
FOR THE PAR CONTRACT
(Against Chestatee)
261.

The BCBS Plans incorporate by reference all preceding paragraphs

as if fully set forth herein and further allege as follows:
262.

Every contract implies a covenant of good faith and fair dealing in

the contract’s performance and enforcement.
263.

BCBS Georgia has a contractual relationship with Chestatee, as

defined by the PAR Contract and all materials referenced or incorporated
therein.
264.

Chestatee violated the implied covenant of good faith and fair

dealing by performing the acts described herein, including but not limited to, by
fraudulently billing BCBS Georgia for laboratory testing performed at and by
Reliance Labs as if it had been performed at and by Chestatee.
265.

In so doing, Chestatee failed to diligently and in good faith seek to

comply with all portions of the terms of the PAR Contract.
266.

As a direct and proximate consequence of Chestatee’s breach of the
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covenant of good faith and fair dealing, the BCBS Plans have suffered damages
in an amount to be determined at trial.
COUNT IV
BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING
FOR THE HMO CONTRACT
(Against Chestatee)
267.

The BCBS Plans incorporate by reference all preceding paragraphs

as if fully set forth herein and further allege as follows:
268.

Every contract implies a covenant of good faith and fair dealing in

the contract’s performance and enforcement.
269.

BCBS Georgia has a contractual relationship with Chestatee, as

defined by the HMO Contract and all materials referenced or incorporated
therein.
270.

Chestatee violated the implied covenant of good faith and fair

dealing by performing the acts described herein, including but not limited to, by
fraudulently billing BCBS Georgia for laboratory testing of non-Chestatee
patients that were performed at and by Reliance Labs as if it had been performed
at and by Chestatee.
271.

In so doing, Chestatee failed to diligently and in good faith seek to

comply with all portions of the terms of the HMO Contract.
272.

As a direct and proximate consequence of Chestatee’s breach of the
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covenant of good faith and fair dealing, the BCBS Plans have suffered damages
in an amount to be determined at trial.
COUNT V
FRAUD AND FRAUDULENT CONCEALMENT
(Against All Defendants)
273.

The BCBS Plans incorporate by reference all preceding paragraphs

as if fully set forth herein and further allege as follows:
274.

As alleged herein, Defendants, individually and in furtherance of

the fraudulent scheme alleged herein, made, or caused to be made, intentional
misrepresentations of material facts relating to the claims they submitted or
caused to be submitted to BCBS Georgia for reimbursement, with the intent to
induce BCBS Georgia to rely on those misrepresentations and pay those claims.
275.

Each Defendant knowingly participated in the fraud by agreeing to

submit the claims to BCBS Georgia as if the underlying laboratory testing were
performed at and by Chestatee.
276.

Each Defendant’s participation in the fraudulent scheme includes,

but is not limited to, the following:
a.

Chestatee: Durall Capital acquired Chestatee Regional

Hospital in order to gain access to the hospital’s participating status and
favorable reimbursement rates with BCBS Georgia, both of which were
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essential to the success of the scheme. Chestatee engaged the other
Defendants, including Medivance, Reliance Labs, Neisha Carter Zaffuto,
and Jorge Perez, to perform functions essential to the success of the
scheme, and to use Chestatee’s facility and billing information to submit
the claims to BCBS Georgia. Chestatee used the on-site laboratory at
Chestatee Regional Hospital as a front for its fraudulent scheme, and took
steps to undermine BCBS Georgia’s efforts to identify and stop the scheme.
Chestatee conspired with the other Defendants to submit the claims at
issue to BCBS Georgia while knowing that the claims contained material
misrepresentations and omissions. In addition, when payment was made
by BCBS Georgia to Chestatee, Chestatee shared such payment with the
other Defendants, in exchange for their participation in the fraudulent
scheme.
b.

Reliance Labs: Reliance Labs conducted the testing at issue in

this case, in spite of the fact that it conspired with the other Defendants to
submit the corresponding claims to BCBS Georgia as if the testing were
performed at and by Chestatee. In addition, when payment from BCBS
Georgia was passed on by Chestatee to Reliance Labs, Reliance Labs used
a portion of that payment to fund kickbacks to referring providers, thereby
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perpetuating the fraudulent scheme.
c.

Aaron Durall: Aaron Durall was responsible for the

management of the scheme, and used his control over Chestatee (as CEO)
and Reliance Labs (as President) to cause them to take the steps described
above. Aaron Durall was primarily responsible for the Defendants’
conspiracy to commit this fraudulent scheme, causing Chestatee and
Reliance’s agreement, hiring Jorge Perez, and engaging Medivance and
Neisha Carter Zaffuto to participate as well. Aaron Durall created Durall
Capital and, upon information and belief, arranged for its purchase of
Chestatee Regional Hospital specifically to carry out this fraudulent
scheme. Aaron Durall also hired a team of employees or agents of
Reliance Labs, through which he supervised and directed the payment of
kickbacks to referring providers in exchange for their patients’ specimens.
Further, upon information and belief, Aaron Durall has personally
received a substantial portion of the amount paid by the BCBS Plans as a
result of this fraudulent scheme.
d.

Medivance: Medivance agreed with Chestatee, Reliance Labs,

Aaron Durall, Jorge Perez, and Neisha Carter Zaffuto to prepare and
submit claims to BCBS Georgia on behalf of Chestatee, in spite of the fact
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that it knew the claims contained numerous material misrepresentations.
Medivance worked closely with Chestatee and Aaron Durall to manage
numerous functions of Chestatee Regional Hospital remotely from Florida
(including billing and contracting with payors), in order to prevent on-site
employees at Chestatee Regional Hospital and payors, including the BCBS
Plans, from identifying this fraudulent scheme. When BCBS Georgia
attempted to renegotiate its contracts with Chestatee to address the
fraudulent scheme, Medivance sought to stop the contractual changes to
perpetuate the fraudulent scheme. When BCBS Georgia implemented
contractual and process changes to stop payment on claims stemming
from this fraudulent scheme, Medivance modified its billing processes to
evade those efforts, in spite of the fact that it knew the claims were
fraudulent.
e.

Jorge Perez: Aaron Durall retained Perez to help manage

Chestatee’s finances and billing services, and to assist with overall
management of the scheme. Jorge Perez leveraged his healthcare
experience to assist Aaron Durall in perpetrating the pass-through billing
arrangement. Upon information and belief, Perez provided financial
assistance (directly or indirectly) to Durall Capital and Aaron Durall’s
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purchase of Chestatee Regional Hospital, with the expectation that the
hospital would be used to perpetrate this pass-through billing scheme.
Perez conspired with the other Defendants to submit the claims to BCBS
Georgia in spite of the fact that he knew the claims contained numerous
material misrepresentations. Further, upon information and belief, Jorge
Perez has received a substantial portion of the amount paid by the BCBS
Plans as a result of this fraudulent scheme.
f.

Neisha Carter Zaffuto: As President of Medivance, Neisha

Carter Zaffuto was responsible for Medivance’s agreement to submit the
claims at issue to BCBS Georgia on behalf of Chestatee, in spite of the fact
that she knew the claims were not payable by BCBS Georgia, were
fraudulent, and were in violation of multiple contracts between BCBS
Georgia and Chestatee Regional Hospital. After agreeing to participate in
the scheme, Neisha Carter Zaffuto oversaw and directed Medivance’s
submission of fraudulent claims to BCBS Georgia on behalf of Chestatee,
and caused Medivance to take the actions described above.
277.

Collectively, Aaron Durall, Jorge Perez, and Neisha Carter Zaffuto

directed the conduct of the remaining Defendants, thereby causing their
agreement to submit the fraudulent claims to BCBS Georgia.
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278.

The claims submitted by Defendants, or that Defendants caused to

be submitted, included the following material misrepresentations:
a.

provider name (misrepresented as Chestatee);

b.

provider street address (misrepresented as Chestatee);

c.

provider Tax ID and NPI (misrepresented as Chestatee);

d.

type of bill (misrepresented as “141,” which represents a

specimen submitted for analysis to a hospital);
e.

admission type (misrepresented as “2,” which stands for

“urgent” admission, when there was no admission);
f.

source of admission (misrepresented as “9,” which stands for

“information not available,” when there was no admission);
g.

patient discharge status (misrepresented as “01,” which

represents a patient discharged to home or self-care, when there was no
discharge); and
h.

attending physician and attending physician’s NPI

(misrepresented referring provider as an attending physician).
279.

Defendants falsely certified, or caused Chestatee to falsely certify,

that the billing information on each claim submitted to BCBS Georgia was “true,
accurate, and complete” and that they “did not knowingly or recklessly
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disregard or misrepresent or conceal material facts.”
280.

Defendants also failed to disclose, or caused Chestatee to fail to

disclose, material facts relating to the claims that Defendants submitted, or
caused to be submitted, including that:
a.

Chestatee, Medivance, Reliance Labs, Aaron Durall, Jorge

Perez, and Neisha Carter Zaffuto had conspired to participate in a passthrough scheme in breach of Chestatee’s HMO, PAR, and PPO Contracts
with BCBS Georgia;
b.

Aaron Durall and Reliance Labs paid kickbacks, or caused

kickbacks to be paid, to referring providers or laboratories in exchange for
their patient’s specimens, resulting in those claims being billed to BCBS
Georgia;
281.

Defendants intentionally designed and operated their scheme to

conceal from BCBS Georgia the identity of the laboratory performing the testing,
as well as the identities of the participants in their conspiracy.
282.

Defendants had a duty to disclose to BCBS Georgia information

material to the claims that Defendants submitted, or caused to be submitted, to
BCBS Georgia, so as not to mislead BCBS Georgia.
283.

Defendants took on this obligation every time they filed a claim, or
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caused a claim to be filed, as they certified that the claim was not “knowingly or
recklessly disregard[ing] or misrepresent[ing] or conceal[ing] material facts.”
284.

At the time that Defendants submitted the claims, or caused the

claims to be submitted, they knew that the representations described above were
false, and that the claims contained the above-described omissions.
285.

These misrepresentations and omissions were material to BCBS

Georgia’s determination of whether the claims were payable.
286.

Defendants intended for BCBS Georgia to rely on their material

misrepresentations and omissions, such that BCBS Georgia would pay Chestatee
for the claims arising from this pass-through scheme.
287.

In failing to disclose the aforementioned material omissions to BCBS

Georgia, Defendants acted in bad faith.
288.

BCBS Georgia reasonably relied on the claims submitted to it by

Defendants, including the misrepresentations and omissions, when determining
whether to pay each claim.
289.

Had BCBS Georgia been aware that the claims contained material

misrepresentations, or omitted material information, it would not have made the
payments it did.
290.

Defendants had superior and special knowledge of their pass74

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through scheme, as set forth herein, and took steps to prevent BCBS Georgia
from identifying the scheme.
291.

As a result, when BCBS Georgia received the claims, it was unaware

of the pass-through scheme, which was not reasonably discoverable by BCBS
Georgia.
292.

As a direct and proximate result of Defendants’ material

misrepresentations and omissions, the BCBS Plans have been damaged in an
amount to be determined at trial.
COUNT VI
NEGLIGENT MISREPRESENTATION
(IN THE ALTERNATIVE TO COUNT V)
(Against All Defendants)
293.

The BCBS Plans incorporate by reference all preceding paragraphs

as if fully set forth herein and further allege as follows:
294.

The claims submitted by Defendants, or caused to be submitted by

Defendants, contained material misrepresentations, including but not limited to
those described in paragraph 278, above.
295.

These representations were either false, made without reasonable

grounds for believing them to be true, made without knowledge of their truth or
falsity, made without reasonable care, or made under circumstances in which
Defendants ought to have known their falsity.
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296.

Defendants’ misrepresentations were made to BCBS Georgia in the

course of Defendants’ business and because of a pecuniary interest.
297.

Defendants had a duty to disclose to BCBS Georgia information

material to the claims that Defendants submitted, or caused to be submitted, to
BCBS Georgia, to avoid misleading BCBS Georgia.
298.

Defendants took on this obligation every time they filed a claim, or

caused a claim to be filed, as they certified that they were not “knowingly or
recklessly disregard[ing] or mispresentin[g] or conceal[ing] material facts.”
299.

Defendants failed to exercise reasonable care when making these

representations.
300.

It was foreseeable that BCBS Georgia would rely on Defendants’

representations, given the nature of the claims payment process, and the fact that
they were submitted to BCBS Georgia by Chestatee and Medivance.
301.

BCBS Georgia reasonably relied on Defendants’ representations, and

paid the claims.
302.

If BCBS Georgia had been aware of the material misrepresentations,

BCBS Georgia would not have paid the claims.
303.

As a direct and proximate result of Defendants’ misrepresentations,

the BCBS Plans have been damaged in an amount to be determined at trial.
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COUNT VII
TORTIOUS INTERFERENCE WITH BCBS GEORGIA’S
CONTRACTS WITH CHESTATEE
(Against Medivance, Reliance Labs, Aaron Durall, Jorge Perez,
and Neisha Carter Zaffuto)
304.

BCBS Georgia incorporates by reference all preceding paragraphs as

if fully set forth herein and further alleges as follows:
305.

BCBS Georgia has three valid and enforceable contracts with

Chestatee (i.e., the PAR Contract, the HMO Contract, and the PPO Contract).
306.

Through each of these Contracts, BCBS Georgia agreed to reimburse

Chestatee only for services provided by Chestatee.
307.

Similarly, each of the Contracts prohibited their assignment to third

parties without BCBS Georgia’s prior written approval.
308.

By orchestrating and participating in the fraudulent scheme

described herein, Reliance Labs, Medivance, Aaron Durall, Jorge Perez, and
Neisha Carter Zaffuto caused Chestatee to breach its contracts with BCBS
Georgia by, among other things:
a.

Submitting claims to BCBS Georgia, or causing claims to be

submitted to BCBS Georgia, for services not performed by, or performed
under the direction and personal supervision of, Chestatee.
b.

Submitting claims to BCBS Georgia, or causing claims to be
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submitted to BCBS Georgia, that Reliance Labs, Medivance, Durall, Perez,
and Zaffuto knew were not accurate, complete, and truthful, including but
not limited to claims containing the following misrepresentations:

c.

i.

Provider name;

ii.

Provider street address;

iii.

Provider Tax ID and NPI;

iv.

Type of bill;

v.

Admission type;

vi.

Source of admission;

vii.

Patient discharge status; and

viii.

Attending physician and attending physician’s NPI.

Assigning, delegating, subcontracting, or transferring the

HMO and PAR Contracts or Chestatee’s rights and responsibilities under
the Contracts without the prior written consent of BCBS Georgia.
d.

Submitting claims to BCBS Georgia, or causing claims to be

submitted to BCBS Georgia, that Reliance Labs, Medivance, Durall, Perez,
and Zaffuto knew were not reasonable and medically necessary, as defined
by the Contract.
e.

Paying, receiving, offering an incentive, or participating in an
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incentive program or arrangement that provides another physician or
provider with a direct or indirect inducement to provide less than
medically necessary health care services, supplies, accommodations,
treatments or care to BCBS members.
309.

Each of Aaron Durall, Jorge Perez, Neisha Carter Zaffuto,

Medivance, and Reliance Labs was aware of these Contracts, including that the
Contracts covered only services provided by Chestatee and were unassignable.
310.

Upon information and belief, the reason that Aaron Durall and

Durall Capital purchased Chestatee Regional Hospital was because of the
hospital’s agreements with payors, including with BCBS Georgia.
311.

Similarly, the reason that Aaron Durall, Jorge Perez, Neisha Carter

Zaffuto, Medivance, and Reliance Labs agreed to this fraudulent scheme was
because they knew that Chestatee’s contracts with BCBS Georgia could be used
to extract substantial reimbursement from BCBS Georgia, in exchange for which
each of the Defendants would receive a portion of the reimbursement paid by
BCBS Georgia.
312.

In other words, Defendants agreed to participate in a fraudulent

scheme that would cause Chestatee to repeatedly breach each of its three
contracts with BCBS Georgia.
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313.

Defendants’ collective efforts to disrupt BCBS Georgia’s

investigation of this fraudulent scheme provide further evidence of Defendants’
knowledge that their conduct was in violation of Chestatee’s contracts with BCBS
Georgia.
314.

Reliance Labs, Medivance, Aaron Durall, Jorge Perez, and Neisha

Carter Zaffuto improperly, wrongfully, willfully, and intentionally engaged in
the fraudulent scheme described herein, thereby interfering with the HMO, PAR,
and PPO Contracts, and causing Chestatee to materially breach each of those
Contracts.
315.

Reliance Labs, Medivance, Aaron Durall, Jorge Perez, and Neisha

Carter Zaffuto’s interference with BCBS Georgia’s HMO, PAR, and PPO
Contracts with Chestatee was not justified or privileged.
316.

Reliance Labs, Medivance, Aaron Durall, Jorge Perez, and Neisha

Carter Zaffuto’s tortious interference with the HMO, PAR, and PPO Contracts
caused BCBS Georgia to pay for claims that were not payable by BCBS Georgia,
were fraudulent, were in breach of the Contracts, and were otherwise unlawful.
317.

But for these Defendants’ tortious interference with the PAR, HMO,

and PPO Contracts, BCBS Georgia would not have paid these claims.
318.

The BCBS Plans are entitled to an award of compensatory damages,
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including consequential damages, together with interest and costs, and an
injunction prohibiting Chestatee from continuing to engage in the tortious
conduct described above.
COUNT IX
RESTITUTION UNDER ERISA § 502(a)(3)
(Against all Defendants)
319.

The BCBS Plans incorporate by reference all preceding paragraphs

as if fully set forth herein and further allege as follows:
320.

Many of the impacted group health plans are employer-sponsored

group health plans covered by ERISA (the “ERISA Plans”).
321.

The BCBS Plans have been delegated by the plan administrator of

each of the ERISA Plans the discretionary authority to review and decide on
claims for benefits under the ERISA Plans.
322.

The ERISA Plans also delegated to the BCBS Plans the authority to

recover overpayments made by the BCBS Plans on the ERISA Plans’ behalf.
323.

Because of the fraudulent scheme identified herein, the BCBS Plans

have paid millions of dollars in benefits to Chestatee, and through Chestatee, to
Reliance Labs, Medivance, Aaron Durall, Jorge Perez, and Neisha Carter Zaffuto.
324.

The BCBS Plans have standing to sue under ERISA § 502(a)(3) to

obtain appropriate equitable relief to redress violations of the ERISA Plans and to
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enforce the terms of the ERISA Plans.
325.

As alleged herein, Defendants have submitted, or caused to be

submitted, misleading and fraudulent claims to BCBS Georgia for payment of
benefits for charges related to laboratory services that Defendants represented, or
caused to be represented, were performed by Chestatee.
326.

BCBS Georgia relied on the claim information supplied by

Defendants, or that Defendants caused to be supplied, in determining whether to
pay the claims.
327.

Had BCBS Georgia been aware that the claims misrepresented the

services in order to make them appear payable, when in fact they were not, it
would not have made those payments.
328.

Based upon the fraudulent claims Defendants submitted, or caused

to be submitted, to BCBS Georgia, Defendants received payments in excess of the
amounts that they were actually entitled to receive for those services.
329.

Further, even if Defendants did not knowingly and intentionally

submit misleading and fraudulent claims to BCBS Georgia, the BCBS Plans are
entitled to equitable relief to enforce the terms of the ERISA Plans, and recover
overpayments made to Defendants.
330.

This is particularly true where Defendants submitted claims, or
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caused claims to be submitted, for members of ERISA Plans pursuant to valid
contractual assignments (or authorized representation agreements) received
from ERISA Plan members. In these instances, Defendants accepted the terms of
the ERISA Plans and submitted claims, or caused claims to be submitted, that
were subject to those terms.
331.

Further, by knowingly accepting payments from the ERISA Plans,

Defendants became bound by the ERISA Plans’ terms and conditions, including
conditions related to overpayments.
332.

The ERISA Plans, by their terms, require the return of overpayments

and amounts that were erroneously paid.
333.

Thus, even to the extent that Defendants did not intentionally

overcharge BCBS Georgia, the BCBS Plans are entitled to equitable relief to
enforce the terms of the ERISA Plans and recover these overpayments.
334.

Because of Defendants’ wrongful behavior, BCBS Georgia has paid

millions of dollars in benefits to Chestatee, and, through Chestatee, to the other
Defendants, which were not owed under the terms of the ERISA Plans.
335.

The BCBS Plans seek equitable restitution to cover the assets that

Defendants unlawfully obtained because of the conduct described herein.
336.

Specifically, the BCBS Plans seek an Order imposing a constructive
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trust on the assets that Defendants received in the form of overpayments, as well
as on any profits or income made by Defendants on those amounts.
337.

The BCBS Plans also seek an Order restoring to the BCBS Plans—

individually and on behalf of the ERISA Plans—the sums held in constructive
trust by Defendants.
COUNT X
DECLARATORY AND INJUNCTIVE RELIEF
UNDER ERISA § 502(a)(3) AND 28 U.S.C. §§ 2201 AND 2202
(Against all Defendants)
338.

The BCBS Plans incorporate by reference all preceding paragraphs

as if fully set forth herein and further allege as follows:
339.

The BCBS Plans act as a claims fiduciary for the ERISA Plans.

340.

Therefore, the BCBS Plans have standing to sue under ERISA

§ 502(a)(3) to enjoin any acts or practices that violate any provisions of the ERISA
Plans, and to obtain other appropriate relief to redress such violations or enforce
plan provisions.
341.

Defendants have engaged in a scheme to defraud BCBS Georgia into

paying amounts to Defendants in excess of amounts owed under the relevant
ERISA Plans, and for services that are not covered under the relevant ERISA
Plans’ terms, as described herein.

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342.

There is an actual case and controversy between the BCBS Plans and

Defendants as to the claims Defendants submitted, and continue to submit, to
BCBS Georgia, all of which arise from the fraudulent scheme described herein.
343.

Defendants’ fraudulent scheme is deceptive, unfair, and unlawful.

344.

No payment is due to Defendants on any claims that are pending, or

may be submitted in the future, where such claims arise from Defendants’
fraudulent scheme.
345.

Defendants appear to disagree, and continue to submit fraudulent

claims to BCBS Georgia.
346.

There is a bona fide, present, and practical need for a declaration as to

the lawfulness of Defendants’ actions, including whether BCBS Georgia has the
right to deny the claims implicated by Defendants’ actions and scheme.
347.

The BCBS Plans are entitled to a judgment declaring that

Defendants’ actions and business practices are unlawful, and that any claims for
payment of benefits submitted by Defendants to BCBS Georgia because of this
scheme are non-payable and void.
348.

The BCBS Plans also seek recovery of their reasonable and necessary

attorney’s fees and costs, pursuant to ERISA § 502(g)(1).

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349.

Under the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, the

BCBS Plans are entitled to a judgment declaring that Defendants’ actions and
business practices are unlawful, even as to the non-ERISA plans impacted by this
fraudulent scheme, and that any claims for payment of benefits submitted by
Defendants as a result of their fraudulent scheme are non-payable and void.
COUNT XI
UNJUST ENRICHMENT
(Against Medivance, Reliance Labs, Aaron Durall, Jorge Perez, and
Neisha Carter Zaffuto)
350.

The BCBS Plans incorporate by reference all preceding paragraphs

as if fully set forth herein and further allege as follows:
351.

Defendants fraudulently used the names and billing information of

Chestatee to submit, or cause the submission of, claims to BCBS Georgia for
services that were not performed at or by Chestatee, or on behalf of Chestatee
patients.
352.

BCBS Georgia, relying on Defendants’ representations that the

services billed for using Chestatee’s name and billing information were
performed at and by Chestatee on behalf of Chestatee patients, issued
reimbursements to Chestatee, which were shared with the other Defendants.
353.

Each Defendant, therefore, received a benefit from the BCBS Plans in

the form of a share of reimbursements for services that should not have been
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reimbursed.
354.

Each Defendant has unjustly retained those benefits.

355.

Each Defendant should be required to make restitution for the

benefits they received, retained, and appropriated because justice and equity
require such restitution.
356.

Restitution is required by public policy to promote the stability of

insurance markets and to avoid the continuing unjust enrichment of
unscrupulous providers at the expense of insurance companies and patients.
357.

The BCBS Plans are entitled to restitution in an amount to be

determined at trial, including but not limited to all amounts Defendants received
from BCBS Georgia because of Defendants’ scheme.

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RELIEF REQUESTED
WHEREFORE, the BCBS Plans respectfully request an award in their favor
and granting the following relief:
a)

Actual and consequential damages in an amount to be determined at
trial, plus interest;

b)

An order obligating Defendants to disgorge all revenues and profits
derived from their scheme;

c)

An award of reasonable attorney’s fees, in accordance with the
relevant contracts;

d)

Punitive damages;

e)

Equitable relief, as described herein;

f)

An injunction prohibiting Defendants from continuing the scheme;
and

g)

Any other relief that the Court deems just, proper, and/or equitable.

88

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Dated: May 14, 2018

By:

T. Joshua Archer

BALCH & BINGHAM LLP
T. Joshua R. Archer (Georgia #021208)
30 Ivan Allen, Jr. Blvd. N.W., Suite 700
Atlanta, GA 30308
T: (404) 962-3556
F: (404) 261-3656
jarcher@balch.com
- and ROBINS KAPLAN LLP
Jeffrey S. Gleason (admitted pro hac
vice)
Randall Tietjen (admitted pro hac vice)
Jamie R. Kurtz (admitted pro hac vice)
Nathaniel J. Moore (admitted pro hac
vice)
Amira A. ElShareif (admitted pro hac
vice)
800 LaSalle Avenue
Minneapolis, MN 55402-2015
T: (612) 349-8500
F: (612) 339-4181
jgleason@robinskaplan.com
rtietjen@robinskaplan.com
jkurtz@robinskaplan.com
nmoore@robinskaplan.com
aelshareif@robinskaplan.com
Attorneys for Plaintiffs

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CERTIFICATE OF SERVICE
I hereby certify that I caused the foregoing to be electronically filed with
the Clerk of Court using the CM/ECF system, which will automatically send
notification to all counsel of record.
Frank Smith
FMS Lawyer PL
9900 Stirling Road, #226
Cooper City, Florida 33024
Benjamin E. Fox
Edward Bryan Krugman
Michael Rosen Baumrind
Homer Lamar Mixson
Bondurant Mixson & Elmore, LLP
1201 West Peachtree Street, N.W.
3900 One Atlantic Center
Atlanta, Georgia 30309-3417

This 14th day of May, 2018.

/s/ T. Joshua R. Archer
T. Joshua R. Archer
Georgia Bar No. 021208

90