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UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
GREENVILLE DIVISION
)
)
)
)
)
)
Plaintiffs,
)
)
v.
)
)
)
)
OAKTREE MEDICAL CENTRE, P.C.,
)
FIRSTCHOICE HEALTHCARE, P.C.,
)
PAIN MANAGEMENT ASSOCIATES OF
)
THE CAROLINAS, LLC, PAIN MANAGEMENT )
ASSOCIATES OF NORTH CAROLINA, P.C.,
)
LABSOURCE, LLC, PROLAB, LLC, PROCARE )
COUNSELING CENTER, LLC, and
)
DANIEL MCCOLLUM, D.C.
)
)
Defendants.
)
)
UNITED STATES OF AMERICA ex rel.
DONNA RAUCH, MURIEL CALHOUN,
BRANDY KNIGHT, KAREN MATHEWSON,
AND TRACY HAWKINS

No. 6:15-cv-01589-DCC
(Consolidated with
No. 6:17-cv-01190-DCC
No. 8:18-cv-02952-DCC)
JURY TRIAL DEMANDED

UNITED STATES’ CONSOLIDATED COMPLAINT IN INTERVENTION
By notice to the Court on March 3, 2019, the United States of America (“United States”)
intervened, in part, in the above-captioned cases. For its Complaint in Intervention, the United
States alleges as follows:
INTRODUCTION
1.

The United States brings this action against Defendants pursuant to the False

Claims Act, 31 U.S.C. §§ 3729–3733 (“FCA”), seeking treble damages and civil penalties, and
under common law and equitable theories of recovery.

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Defendant Daniel McCollum is a chiropractor who owns and operates a network

of pain management clinics, urine drug testing (“UDT”) laboratories, and other businesses
related to pain management. Defendant Oaktree Medical Centre, P.C. (“Oaktree”) employs
physicians who staff McCollum’s pain clinics and perform laboratory services. Oaktree and
other clinics owned by McCollum namely, FirstChoice Healthcare, P.C. (“FirstChoice
Healthcare”); Pain Management Associates of the Carolinas, LLC (“PMA of the Carolinas”);
and Pain Management Associates of North Carolina, P.C. (“PMA of North Carolina”) all do
business as Pain Management Associates (“PMA”). Hereinafter, these clinics will be
collectively referred to as “PMA.”
3.

As described below, McCollum designed and executed a series of elaborate and

extensive fraud schemes to maximize profits at his pain clinics and UDT laboratories at the
expense of both patients and federal health care programs. In particular, Defendants offered
improper financial incentives and illegal kickbacks to induce health care providers to incentivize
referrals of UDT (including medically unnecessary and unreasonable UDT) to McCollum’s
laboratories, to provide medically unnecessary steroid injections, and to prescribe prescriptions
for opioid drugs and lidocaine ointments that were not reasonable and necessary for the treatment
of individual patients and that lacked a legitimate medical purpose.
4.

More specifically, from at least January 1, 2011, through at least December 31,

2018 (“the relevant time period”), in violation of the FCA, Defendants submitted, caused to be
submitted, and conspired to submit and cause the submission of tens of millions of dollars in
false claims to federal health care programs, including the Medicare, Medicaid, and the
TRICARE programs by (1) entering into financial arrangements with physicians related to the
referral of, furnishing of, and submission of claims for UDT that did not satisfy the requirements

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of an exception for, and therefore violated, the physician self-referral prohibition, 42 U.S.C. §
1395nn (commonly referred to as the “Stark Law”); (2) offering and providing illegal
remuneration to health care providers to induce referrals to Defendant Labsource, LLC
(“Labsource”), in violation of the Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b; (3)
billing or causing to be billed to federal health care programs claims for UDT that were not
medically necessary and, in some instances, not performed; and (4) billing or causing to be billed
to federal health care programs claims for steroid injection procedures and prescriptions for
opioid and lidocaine medications that were not medically necessary or were without a legitimate
medical purpose.
5.

The Stark Law and the AKS arose out of concern by Congress that certain types

of financial incentives, or items of value, could improperly influence or even corrupt the medical
decision-making of physicians and other health care providers, resulting in federal funds being
diverted to pay for goods and services that are medically unnecessary, of poor quality, or even
harmful to a vulnerable patient population. As detailed below, that is precisely what has
happened here.
6.

Defendants engaged in these schemes knowing that their actions were improper.

When, for example, the Centers for Medicare and Medicaid Services (“CMS”)—the agency
within the Department of Health and Human Services (“HHS”) that administers the Medicare
Program (“Medicare”) and the Medicaid Program (“Medicaid”)—implemented a payment
suspension on Defendant Oaktree for billing medically unnecessary UDT and steroid injections,
McCollum simply transitioned his fraudulent schemes to, and pursued those schemes at, other
entities that he owned and operated, including FirstChoice Healthcare and Labsource.

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JURISDICTION AND VENUE
7.

This Court has jurisdiction over the subject matter of this action pursuant to

28 U.S.C. §§ 1331, 1345, and 1367(a).
8.

The Court may exercise personal jurisdiction over Defendants under 31 U.S.C. §

3732(a) because each Defendant resides, previously resided in, and/or transacted business in the
District of South Carolina during the relevant time period.
9.

Venue is proper in the District of South Carolina under 31 U.S.C. § 3732 and 28

U.S.C. § 1391(b), because Defendants transact or transacted business in this district, and a
substantial part of the events giving rise to this action occurred in the District of South Carolina.
PARTIES
10.

The United States brings this action on behalf of HHS, which, through CMS,

administers Medicare and Medicaid; and on behalf of the Department of Defense (“DOD”),
which, through the Defense Health Agency (“DHA”), administers the TRICARE program
(“TRICARE”).
11.

Relator Donna Rauch is a resident of South Carolina. From July 2013 to January

22, 2015, Ms. Rauch was employed as PMA’s Chief Operations Officer (“COO”) and Chief
Financial Officer.
12.

Relator Muriel Calhoun is a resident of South Carolina. From October 15, 2008,

to February 25, 2015, Ms. Calhoun was employed as a Certified Medical Assistant and an
Operations Manager for PMA.
13.

Relator Brandy Knight is a resident of South Carolina. From March 1, 2010, to

February 25, 2015, Ms. Knight was employed as a Clinic Coordinator for PMA.

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14.

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In April 2015, Relators Rauch, Calhoun and Knight filed the first of these

consolidated actions, United States ex rel. Rauch, et al. v. Oaktree Medical Centre, P.C., et al.,
No. 6:15-cv-01589-DCC (D.S.C.), alleging violations of the FCA on behalf of themselves and
the United States pursuant to the qui tam provisions of the FCA, 31 U.S.C. § 3730(b)(1).
15.

Relator Karen Mathewson, who passed away in April 2019, was a resident of

South Carolina. From May 4, 2015, to January 24, 2017, Ms. Mathewson was employed as a
Credentialing Specialist and a Clinic Coordinator for PMA. In May 2017, Ms. Mathewson filed
the second of these consolidated actions, United States ex rel. Mathewson v. Dr. Daniel A.
McCollum, et al., No. 6:17-CV-01190-DCC (D.S.C.), alleging violations of the FCA on behalf
of herself and the United States pursuant to the qui tam provisions of the FCA, 31 U.S.C. §
3730(b)(1).
16.

Relator Tracy Hawkins is a resident of South Carolina. From October 31, 2016,

to August 6, 2018, Ms. Hawkins was employed as a PMA medical assistant. On October 31,
2018, Ms. Hawkins filed the third of these consolidated actions, United States ex rel. Hawkins v.
Pain Management Associates of the Carolinas, LLC, et al., No. 8:18-cv-02952-DCC (D.S.C.),
alleging violations of the FCA on behalf of herself and the United States pursuant to the qui tam
provisions of the FCA, 31 U.S.C. § 3730(b)(1).
17.

Defendant Daniel McCollum is a chiropractor and resident of South Carolina.

During the relevant time period, or portions thereof, McCollum owned and/or operated
Defendants Oaktree; Labsource; FirstChoice Healthcare; PMA of the Carolinas; and PMA of
North Carolina. McCollum also held a 50% ownership interest in Defendant ProLab, LLC
(“ProLab”). During portions of the relevant time period, McCollum served as Chief Executive
Officer (“CEO”) of each of the aforementioned entities. Throughout his involvement with these

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entities, including times when he did not formally serve as CEO, McCollum remained active in,
and knowledgeable of, the management, operational, and sales decisions and activities of each of
these entities.
18.

Defendant Oaktree is a Professional Corporation authorized and existing under

the laws of the State of South Carolina with its principal place of business in Greenville, South
Carolina. McCollum has been the owner and sole shareholder of Oaktree throughout the
relevant time period. Oaktree consists of a group of pain management clinics located throughout
South Carolina. During the relevant time period, Oaktree employed physicians, physician
assistants, and nurse practitioners who staffed Oaktree and other PMA clinics. In or around early
2011, McCollum established an in-house UDT laboratory within Oaktree to perform UDT for
PMA’s patients. During the relevant time period, Oaktree also performed UDT for other practice
groups not affiliated with PMA. Oaktree furnished and billed UDT for Medicare, Medicaid, and
TRICARE beneficiaries, among others. Oaktree received over $22 million from Medicare, $7.1
million from South Carolina Medicaid, and $1 million from TRICARE for UDT furnished
between January 1, 2011, and December 31, 2018.
19.

Defendant PMA of the Carolinas has been operated by McCollum throughout the

relevant time period. Oaktree owns a majority share in PMA of the Carolinas. PMA of the
Carolinas is a limited liability corporation authorized and existing under the laws of the State of
South Carolina.
20.

In or around May 2013, McCollum expanded his pain management business into

North Carolina by purchasing Allayant Pain Management, P.C. from Dr. Brian M. Bothe.
McCollum began operating his newly acquired North Carolina clinics through a newly formed
professional corporation, PMA of North Carolina. Defendant PMA of North Carolina is a

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limited liability corporation authorized and existing under the laws of the State of North
Carolina. At times material to the allegations in this Complaint, Defendant PMA of North
Carolina conducted business with individuals and entities in the State of South Carolina.
21.

In or around 2013, McCollum established an independent UDT laboratory,

Labsource. Defendant Labsource is a limited liability corporation authorized and existing under
the laws of the State of South Carolina with its principal place of business in Greenville, South
Carolina. McCollum is the owner and sole shareholder of Labsource. From roughly 2013
through at least December 31, 2018, Defendant Labsource provided clinical laboratory services
for PMA clinics and other providers across the United States. Labsource received over $47
million from Medicare alone for UDT between January 1, 2013, and December 31, 2018.
22.

In or around late 2013, McCollum entered into a business relationship with

Defendant ProCare Counseling Center, LLC (“ProCare”), a substance abuse and addiction
counseling center owned, at least in part, by Myron Moorehead. ProCare ostensibly provided
substance abuse and addiction counseling services to PMA patients. Defendant ProCare is a
limited liability corporation authorized and existing under the laws of the State of Georgia. At
times material to the allegations in this Complaint, ProCare conducted business throughout the
State of South Carolina.
23.

In or around late 2013, McCollum established another UDT laboratory, ProLab.

McCollum maintained a 50% ownership interest in Defendant ProLab, and Defendant ProCare
maintained the other 50% ownership interest. Defendant ProLab is a limited liability corporation
authorized and existing under the laws of the State of South Carolina with its principal place of
business in Greenville, South Carolina. ProLab provided clinical laboratory services for ProCare

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and PMA patients, including UDT. ProLab ceased operations in or around late 2014. ProLab
received over $640,000 in reimbursements from Medicare alone for UDT services in 2014.
24.

In or around June 2014, McCollum further expanded his pain management

business by purchasing another group of pain management clinics in South Carolina, FirstChoice
Healthcare. Defendant FirstChoice Healthcare is a Professional Corporation authorized and
existing under the laws of the State of South Carolina with its principal place of business in
Florence, South Carolina.
LEGAL AND REGULATORY BACKGROUND
I.

The False Claims Act
25.

The FCA provides, in pertinent part, that any person who:
(a)(1)(A) knowingly presents, or causes to be presented, a false or
fraudulent claim for payment or approval;
(a)(1)(B) knowingly makes, uses, or causes to be made or used, a false
record or statement material to a false or fraudulent claim; [or]
(a)(1)(C) conspires to commit a violation of subparagraph (A) [or] (B) . . ..

is liable to the United States for three times the amount of damages which the Government
sustains, plus a civil penalty per violation. For violations occurring between September 28, 1999
and November 1, 2015, the civil penalty amounts range from a minimum of $5,500 to a
maximum of $11,000. See 28 C.F.R. § 85.3; 64 Fed. Reg. 47099, *47103 (1999). For violations
occurring on or after November 2, 2015, the civil penalty amounts range from a minimum of
$11,181 to a maximum of $22,363. 28 C.F.R. § 85.5.
26.

For purposes of the False Claims Act,
the terms “knowing” and “knowingly” (A) mean that a person, with respect
to information—(i) has actual knowledge of the information; (ii) acts in
deliberate ignorance of the truth or falsity of the information; or (iii) acts in

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reckless disregard of the truth or falsity of the information; and (B) require
no proof of specific intent to defraud. . . .
31 U.S.C. § 3729(b)(1).
27.

The False Claims Act defines “material” to mean “having a natural tendency to

influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C.
§ 3729(b)(4).
II.

The Medicare Program
28.

In 1965, Congress enacted Title XVIII of the Social Security Act, known as the

Medicare program, to pay for the costs of certain health care services. See 42 U.S.C. §§ 1395, et
seq. HHS is responsible for administering and supervising the Medicare program. CMS is the
HHS component of that is directly responsible for administering the Medicare program.
29.

Entitlement to Medicare is based on age, disability, or affliction with end-stage

renal disease. 42 U.S.C. §§ 426, 426-1, 426A. Individuals who are insured under Medicare are
referred to as Medicare “beneficiaries.”
30.

The Medicare program consists of four parts: A, B, C, and D. Part B covers

outpatient care, including physician services and ancillary services, such as clinical laboratory
services, furnished by physicians and other providers and suppliers. 42 U.S.C. § 1395k. Part D
provides prescription drug coverage. See 42 U.S.C. § 1395w-101, et seq.; 42 C.F.R. § 423.1, et
seq. Part D prescription drug plans are administered by private insurance companies approved
by the federal government and receive contributions from the federal treasury. 42 U.S.C. §
1395w-101, et seq.
A.

The Medicare Part B Program

31.

Medicare Part B only covers services, including diagnostic laboratory services,

that are reasonable and necessary for the diagnosis or treatment of an illness. See 42 U.S.C.
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§ 1395y(a)(1)(A) (“[N]o payment may be made under [Medicare] part A or part B . . . for any
expenses incurred for items or services . . . which . . . are not reasonable and necessary for the
diagnosis or treatment of illness or injury or to improve the functioning of a malformed body
member[.]”); 42 C.F.R. § 411.15(k)(1).
32.

The Secretary of HHS (“Secretary”) is responsible for specifying services covered

under the “reasonable and necessary” standard and has wide discretion in selecting the means for
doing so. See 42 U.S.C. § 1395ff(a). Typically, the Secretary acts through formal regulations
and subregulatory guidance.
33.

The Secretary provides guidance to eligible providers pursuant to a series of

Manuals, published by CMS, which are available to the public on the Internet. See generally,
CMS Internet-Only Manuals (IOMs), available at https://www.cms.gov/regulations-andguidance/guidance/manuals/internet-only-manuals-ioms.html (last visited May 31, 2019)
(hereinafter “CMS Manuals”).
34.

At all times relevant to this complaint, CMS contracted with private contractors,

referred to as Medicare Administrative Contractors (“MACs”), to act as agents in reviewing and
paying claims submitted by health care providers. 42 U.S.C. §§ 1395h, 1395u; 42 C.F.R.
§§ 421.3, 421.100, 421.104. MACs generally act on behalf of CMS to process and pay Part B
claims and perform administrative functions on a regional level.
35.

During the relevant time period of this Complaint, Palmetto GBA was the MAC

responsible for processing Medicare Part B claims in South Carolina and North Carolina.
36.

Medicare regulations require providers and suppliers to certify that they meet, and

will continue to meet, the requirements of the Medicare statute and regulations. 42 C.F.R.
§ 424.516(a)(1).

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To participate in the Medicare program as a new enrollee, group practices and

clinical laboratories must submit a Medicare Enrollment Application, Form CMS-855B. These
entities must also complete Form CMS-855B to change information or to reactivate, revalidate,
and/or terminate Medicare enrollment.
38.

Form CMS 855-B requires, among other things, signatories to certify:
I agree to abide by the Medicare laws, regulations and program instructions
that apply to this supplier . . . . I understand that payment of a claim by
Medicare is conditioned upon the claim and the underlying transaction
complying with such laws, regulations, and program instructions
(including, but not limited to, the Federal anti-kickback statute and the Stark
law), and on the supplier’s compliance with all applicable conditions of
participation in Medicare.
***
I will not knowingly present or cause to be presented a false or fraudulent
claim for payment by Medicare, and I will not submit claims with deliberate
ignorance or reckless disregard of their truth or falsity.

See https://www.cms.gov/Medicare/CMS-Forms/CMS-Forms/Downloads/cms855b.pdf
(last visited May 31, 2019).
39.

An authorized official must sign the “Certification Section” in Section 15 of Form

CMS-855B, which “legally and financially binds [the] supplier to all of the laws, regulations,
and program instructions of the Medicare program.” Id.
40.

The National Provider Identifier (“NPI”) is a standard and unique health identifier

for health care providers. All providers and practitioners must have an assigned NPI number
prior to enrolling in Medicare.
41.

Typically, physicians are compensated for the services they provide Medicare

patients on a fee-for-service basis as determined by Medicare’s fee schedule. 42 U.S.C. §
1395w-4. To obtain compensation, physicians must deliver a compensable service, certify that
the service was medically necessary for the health of the patient, certify that the service was
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personally furnished by the physician (or under his or her immediate supervision), and determine
the appropriate diagnosis and procedure code to describe the problem and service for billing.
42.

The Medicare statute requires that each request for payment or bill submitted for

an item or service payable under Medicare Part B include the name and NPI for the referring
physician. 42 U.S.C. § 1395l(q)(1).
43.

To obtain Medicare reimbursement for certain outpatient items or services,

providers and suppliers submit a claim form known as the CMS 1500 form (“CMS 1500”) or its
electronic equivalent, known as the 837P format. Among the information the provider or
supplier includes on a CMS 1500 or through the 837P format are certain five-digit codes,
including Current Procedural Terminology Codes (“CPT codes”) and Healthcare Common
Procedure Coding System (“HCPCS”) Level II codes, that identify the services rendered and for
which reimbursement is sought, and the NPI of the “rendering provider” and the “referring
provider or other source.”
44.

When submitting claims to Medicare, providers certify on the CMS 1500, inter

alia, that (a) the services rendered are medically indicated and necessary for the health of the
patient; (b) the information on the claim form is “true, accurate, and complete”; and (c) the
provider understands that “payment and satisfaction of this claim will be from Federal and State
funds, and that any false claims, statements, or documents, or concealment of material fact, may
be prosecuted under applicable Federal and State laws.” After a February 2012 revision to the
CMS 1500, providers further certify that their claims comply “with all applicable Medicare . . .
laws, regulations, and program instructions for payment including but not limited to the Federal
anti-kickback statute and Physician Self-Referral law (commonly known as the Stark Law).”
CMS 1500 also requires providers to acknowledge that: “Any person who knowingly files a

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statement of claim containing any misrepresentation or any false, incomplete or misleading
information may be guilty of a criminal act punishable under law and may be subject to civil
penalties.”
45.

Similarly, when enrolling to submit claims electronically, providers certify that

they will submit claims that are “accurate, complete, and truthful.”
https://www.cms.gov/Medicare/CMS-Forms/CMS-Forms/Downloads/CMS10164B.pdf (last
visited May 31, 2019).
46.

Health care providers are prohibited from knowingly presenting or causing to be

presented claims for items or services that the person knew or should have known were not
medically necessary, or knew or should have known were false or fraudulent. 42 U.S.C. §§
1320a-7a(a)(1); 1320a-7(b)(7) (permitting exclusion of providers for the foregoing violations).
47.

A provider has a duty to familiarize itself with the statutes, regulations, and

guidelines regarding coverage for the Medicare services it provides. Heckler v. Cmty. Health
Servs. of Crawford Cty., Inc., 467 U.S. 51, 64 (1984).
48.

Because it is not feasible for the Medicare program, or its contractors, to review

medical records corresponding to each of the millions of claims for payment it receives from
providers, the program relies on providers to comply with Medicare requirements and relies on
providers to submit truthful and accurate certifications and claims.
49.

Generally, once a provider submits a CMS 1500, or the electronic equivalent, to

the Medicare program, the claim is paid directly to the provider, in reliance on the foregoing
certifications, without any review of supporting documentation, including medical records.
50.

During the relevant time period, Defendants billed Medicare under Part B for

medical services including, but not limited to, clinical laboratory services and steroid injections

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furnished by physicians and other providers and suppliers, by submitting claims for
reimbursement to Palmetto GBA.
B.

The Medicare Part D Program

51.

In 2003, Congress passed the Medicare Prescription Drug, Improvement, and

Modernization Act, Pub. L. 108-173, 117 Stat. 2066, which established a voluntary prescription
drug benefit program for Medicare enrollees known as Medicare Part D. An individual is
eligible to enroll in Part D if the individual lives in the service area of the Part D plan and is
entitled to Medicare benefits under Part A or enrolled under Part B. 42 U.S.C. § 1395w101(a)(3)(A); 42 C.F.R. § 423.30(a).
52.

Unlike coverage in Medicare Part B, Part D coverage is not provided within the

traditional Medicare program. Medicare Part D is based on a private market model. Medicare
contracts with private entities known as Part D Plan “Sponsors” to administer prescription drug
plans. A Part D Plan Sponsor may be either a prescription drug plan, a Medicare Advantage
organization that offers a Medicare Advantage prescription drug plan, a Program of All-inclusive
Care for the Elderly (“PACE”) organization offering a PACE plan including qualified
prescription drug coverage, or a cost plan offering qualified prescription drug coverage. 42
C.F.R. § 423.4.
53.

Medicare beneficiaries who wish to receive Part D benefits must enroll in a Part D

Plan offered by a Part D Plan Sponsor. The Part D Sponsors are regulated and subsidized by
CMS pursuant to one-year, annually renewable contracts. Part D Sponsors, in turn, enter into
subcontracts with pharmacies or other downstream entities to provide prescription drugs to the
Medicare Part D beneficiaries enrolled in their plans.

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Generally, after a physician writes a prescription for a Medicare Part D

beneficiary, that patient can take the prescription to a pharmacy (or submit it to a mail order
specialty pharmacy) to be filled.
55.

When a pharmacy dispenses a drug to a Medicare beneficiary, it submits an

electronic claim to the beneficiary’s Part D Plan Sponsor (sometimes through a pharmacy benefit
manager (“PBM”)) and receives reimbursement from the Part D Plan Sponsor (or the PBM) for
the portion of the drug cost not paid by the Part D beneficiary.
56.

The Part D Plan Sponsor then notifies CMS that a drug has been purchased and

dispensed through a document called a Prescription Drug Event (“PDE”) record, which includes
data elements about the drug dispensed, the prescription, and the payment to the pharmacy.
57.

Each PDE that is submitted to CMS is a summary record that documents the final

adjudication of a dispensing event based upon claims received from pharmacies and serves as the
request for payment for each individual prescription submitted to Medicare under the Part D
program. The data contained in PDEs are data related to payment of claims. The Integrated
Data Repository process date is the date when the PDE is transmitted to CMS, such that CMS is
informed of the PDE by the Part D Plan Sponsor.
58.

Submitting PDE claims data to CMS, which is necessary for CMS to administer

the Part D program and make payments to Part D Plan Sponsors for qualified drug coverage, is a
material condition of payment for CMS’s provision of Medicare funds to Part D Plan Sponsors.
See 42 C.F.R. § 423.322.
59.

Throughout the year, CMS makes prospective payments to Part D Plan Sponsors

for three subsidies based on the Sponsors’ approved bids: (1) the direct subsidy designed to

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cover the Sponsor’s cost of providing the benefits; (2) the low-income cost-sharing subsidy; and
(3) the reinsurance subsidy.
60.

The direct subsidy (a monthly capitated payment) is paid to the Part D Plan

Sponsor “in the form of advance monthly payments equal to the Part D Plan’s standardized bid,
risk adjusted for health status as provided in 42 C.F.R. § 423.329(b), minus the monthly
beneficiary premium as determined in 42 C.F.R § 423.286.” 42 C.F.R. § 423.315(b). In other
words, CMS pays a monthly sum to the Part D Plan Sponsor for each Part D beneficiary enrolled
in the plan.
61.

CMS also makes payments to the Part D Plan Sponsor for premium and cost

sharing subsidies on behalf of certain subsidy-eligible individuals as provided in 42 C.F.R. §
423.780 and 42 C.F.R. § 423.782. Cost-sharing subsidies for qualifying low-income individuals
are called “Low-Income Cost Sharing Subsidies” and are documented and reconciled using PDE
data submitted to CMS.
62.

Part D sponsors who fail to submit required claims-level information contained in

the PDE to CMS risk having to return the monthly payments to CMS during reconciliation. See
42 C.F.R. §§ 423.343(b), (c)(2) and (d)(2). In addition, Part D Sponsors are responsible for
correcting submitted PDE data they determine are erroneous.
63.

After the close of the plan year, CMS is responsible for reconciling the

prospective payments to the Part D Sponsor’s actual allowable costs by relying upon data
elements submitted by Sponsors in their PDE records.
64.

In order to receive Part D funds from CMS, Part D Plan Sponsors, their

authorized agents, employees, and contractors are required to comply with all applicable federal
laws and regulations, as well as CMS instructions. By statute, all contracts between a Part D

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Plan Sponsor and HHS must include a provision whereby the Part D Plan Sponsor agrees to
comply with the applicable requirements and standards of the Part D program, as well as the
terms and conditions of payment governing the Part D program. 42 U.S.C. § 1395w-112.
Further, CMS regulations expressly require Part D Plan Sponsors to certify, in their contracts
with CMS, that they agree to comply with all federal laws and regulations designed to prevent
fraud, waste, and abuse, including the False Claims Act and AKS. See 42 C.F.R. §
423.505(h)(1).
65.

CMS regulations require that all subcontracts between Part D Plan Sponsors and

downstream entities, including pharmacies, contain language obligating the dispensing pharmacy
to comply with all applicable federal laws, regulations, and CMS instructions. 42 C.F.R. §
423.505(i)(4)(iv).
66.

Medicare Part D only pays for drugs that are used for a medically accepted

indication, which means a use that is approved under the Food, Drug, and Cosmetic Act, or a use
which is supported by one or more citations included or approved for inclusion in one of the
specified compendia. 42 U.S.C. § 1395w-102(e)(1) & (e)(4); 42 U.S.C. § 1396r-8(g)(1)(B)(i) &
(k)(6); 42 C.F.R. § 423.100.
67.

Medicare Part D only pays for drugs that are dispensed upon a valid prescription.

42 U.S.C. § 1395w-102(e); 42 C.F.R. § 423.100. A “Part D sponsor may only provide benefits
for Part D drugs that require a prescription if those drugs are dispensed upon a valid
prescription.” 42 C.F.R. § 423.104(h). A valid prescription must comply “with all applicable
State law requirements constituting a valid prescription.” 42 C.F.R. § 423.100.
68.

Moreover, prescriptions for controlled substances that are not issued for a

legitimate medical purpose, such as recreational use, are not for “medically accepted indications”

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and are therefore not covered Medicare Part D drugs. 42 USCA § 1395w-102(e)(1); 42 C.F.R. §
423.100.
69.

All prescriptions for controlled substances are required to be dated as of, and

signed on, the day when issued and to bear the full name and address of the patient; the drug
name; strength; dosage form; quantity prescribed; directions for use; and the name, address, and
registration number of the practitioner. 21 C.F.R. § 1306.05(a).
70.

Part D plans may also exclude drugs from payment if the drugs are not reasonable

and necessary for the diagnosis or treatment of illness or injury or to improve functioning of a
malformed body part. 42 U.S.C. § 1395w-102(e)(3) (incorporating by reference 42 U.S.C. §
1395y(a)).
71.

During the relevant time period, Oaktree physicians wrote prescriptions for opioid

medications and lidocaine ointment for Part D beneficiaries that were filled by pharmacies and
paid for by Medicare.
III.

South Carolina Medicaid Program
72.

The South Carolina Medicaid Program is authorized by Title XIX of the Social

Security Act. 42 U.S.C. §§ 1396 et seq. Medicaid is a joint federal-state program that provides
health care benefits, including laboratory services coverage, for certain groups including the poor
and disabled. The South Carolina Medicaid program is required to implement a “State Plan”
containing certain specified minimum criteria for coverage and payment of claims in order to
qualify for federal funds for Medicaid expenditures. 42 U.S.C. § 1396a.
73.

The federal portion of each state’s Medicaid payments, known as the Federal

Medical Assistance Percentage, is based on a state’s per capita income compared to the national

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average. 42 U.S.C. § 1396d (b). During the relevant time period, the federal portion of South
Carolina Medicaid payments ranged from 70.04% in 2011 to 71.58% in 2018:
Year
2011

Federal Medical Assistance Percentage to
South Carolina Medicaid
70.04%

2012

70.24%

2013

70.43%

2014

70.57%

2015

70.64%

2016

71.08%

2017

71.3%

2018

71.58%

See Federal Medical Assistance Percentage (FMAP) for Medicaid and Multiplier, Henry J.
Kaiser Family Foundation, https://www.kff.org/medicaid/state-indicator/federal-matching-rateand-multiplier (last visited May 31, 2019).
74.

Pursuant to 42 C.F.R. § 431.18, the South Carolina Department of Health and

Human Services (“SCDHHS”) has issued South Carolina Medicaid Provider Manuals for the
purpose of furnishing Medicaid providers with the policies and procedures needed to receive
reimbursement for covered services provided to eligible South Carolina Medicaid recipients.
Throughout the relevant time period, the South Carolina Medicaid Provider Manuals were
available for review at the State office and in each local and district office, as well as online at
www.scdhhs.gov.
75.

In order to participate in the South Carolina Medicaid program, physicians and

laboratories must certify in their state Medicaid participation and payment agreement forms that
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“all services rendered, and claims submitted shall be in compliance with all applicable federal
and state laws and regulations and in accordance with the South Carolina Plan for Medical
Assistance, bulletins, SCDHHS policies, procedures, and Medicaid Provider Manuals.”
76.

The Physicians, Laboratories, and Other Medical Professionals Provider Manual

for the South Carolina Medicaid program provides, in pertinent part:
Medicaid will pay for a service when the service is covered under the South
Carolina State Plan and is medically necessary. “Medically necessary”
means that the service (the provision of which may be limited by specific
manual provisions, bulletins, and other directives) is directed toward the
maintenance, improvement, or protection of health or toward the diagnosis
and treatment of illness or disability. A provider’s medical records or other
appropriate documentation for each beneficiary must substantiate the need
for services, must include all findings and information supporting medical
necessity and justification for services, and must detail all treatment
provided.
77.

State regulations promulgating the South Carolina Medicaid program rules, in

defining medical necessity, specify “[t]he fact that a physician prescribed a service or supply
does not deem it medically necessary.” S.C. Code Ann. Regs. § 126–425.
78.

In addition, an individual, clinic, or laboratory enrolled as a South Carolina

Medicaid provider must submit claims on a CMS 1500, which contains the certifications
specified above in Paragraph 44.
79.

Because it is not feasible for the Medicaid program, or its contractors, to review

medical records corresponding to each of the claims for payment it receives from providers, the
program relies on providers to comply with Medicaid requirements and relies on providers to
submit truthful and accurate certifications and claims.
80.

South Carolina Medicaid provides reimbursement for prescription medications.

Under South Carolina law, a prescription for a controlled substance that was not issued for a
legitimate medical purpose is not valid. S.C. Code Ann. § 44-53-360(h). Further, “[a]n order
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purporting to be a prescription issued to a drug dependent person, not in the course of generally
accepted medical treatment, but for the purpose of providing the user with controlled substances
sufficient to maintain his dependence upon the substance, or to provide him with quantities of
controlled substances in great excess of normal dosage ranges as recommended by the
manufacturer of the substance” is not a valid prescription. Id.
IV.

The TRICARE Program
81.

TRICARE is a medical benefits program established by federal law. 10 U.S.C. §§

1071-1110b. TRICARE covers eligible beneficiaries, which, inter alia, include active duty
members of the Uniformed Services and their dependents as well as retired members of the
Uniformed Services and their dependents. The federal government reimburses a portion of the
cost of health care services and prescription medications provided to TRICARE beneficiaries.
TRICARE is administered by the DHA.
82.

TRICARE covers only medically necessary inpatient and outpatient care.

TRICARE defines medically necessary care as services or supplies provided by a hospital,
physician, and/or other provider for the prevention, diagnosis, and treatment of an illness, when
those services or supplies are determined to be consistent with the condition, illness, or injury;
provided in accordance with approved and generally accepted medical or surgical practice; not
primarily for the convenience of the patient, the physician, or other providers; and not exceeding
(in duration or intensity) the level of care which is needed to provide safe, adequate, and
appropriate diagnosis and treatments. See 32 C.F.R. § 199.4(a)(1)(i) and applicable definitions at
32 C.F.R. § 199.2.
83.

TRICARE regulations also provide that TRICARE may deny payment in “abuse

situations.” 32 C.F.R. § 199.9(b). To avoid abuse situations, providers are obligated to provide

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services and supplies under TRICARE that are: “Furnished at the appropriate level and only
when and to the extent medically necessary . . .; of a quality that meets professionally recognized
standards of health care; and, supported by adequate medical documentation as may reasonably
be required under this part . . . to evidence the medical necessity and quality of services
furnished, as well as the appropriateness of the level of care.” Id.
84.

The TRICARE regulations, in turn, define “appropriate” medical care as that

which is, inter alia, “[f]urnished economically”—i.e., “in the least expensive level of care or
medical environment adequate to provide the required medical care.” 32 C.F.R. § 199.2.
85.

TRICARE requires a referral and/or prescription from the beneficiary’s physician

for laboratory tests.
86.

TRICARE also offers its beneficiaries a prescription drug benefit. TRICARE

beneficiaries may receive prescription drugs from three different sources: military treatment
facilities, the TRICARE Mail Order Pharmacy, and retail pharmacies.
87.

TRICARE will only pay “for medically necessary prescription drugs required in

the treatment of an illness or injury or in connection with maternity care. . . . However,
TRICARE benefits cannot be authorized to support or maintain an existing or potential drug
abuse situation whether or not the drugs (under other circumstances) are eligible for benefit
consideration and whether or not obtained by legal means.” 32 C.F.R. § 199.4.
88.

Some TRICARE options require participating members to pay a co-pay and/or to

meet a deductible. 32 C.F.R. § 199.4(f). A provider of services cannot, as a matter of law,
waive these co-pay or deductible requirements. 32 C.F.R. § 199.4(f)(9).

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As with Medicare, providers submit claims to TRICARE using the CMS 1500 or

an electronic equivalent. Providers therefore make the same certifications in submitting claims
to TRICARE as they do when submitting claims to Medicare.
90.

Because it is not feasible for the TRICARE program, or its contractors, to review

medical records corresponding to each of the claims for payment it receives from providers, the
program relies on providers to comply with TRICARE requirements and relies on providers to
submit truthful and accurate certifications and claims.
V.

Self-Referral and Anti-Kickback Prohibitions
A.

The Stark Law

91.

The Stark Law prohibits an entity from submitting claims to Medicare for certain

categories of “designated health services” (“DHS”), including clinical laboratory services, if
such services were referred to the entity by a physician with whom the entity had a financial
relationship that did not comply with a statutory or regulatory exception. 42 U.S.C. §
1395nn(a)(1). The Stark Law further prohibits Medicare from paying any claims that do not
comply with its terms. 42 U.S.C. § 1395nn(g)(1). The statute was designed specifically to
prevent losses that might be suffered by the Medicare program due to overutilization of DHS,
patient steering, stinting on care, and the corruption of physicians’ medical judgment by
improper financial incentives.
92.

As initially enacted in 1989, the Stark Law applied to referrals of Medicare

patients for clinical laboratory services made on or after January 1, 1992, by a physician to a
laboratory with which the physician had a financial relationship unless a statutory or regulatory
exception applied. See Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239, §
6204, 103 Stat. 2106, 2236-43. In 1993, Congress extended the Stark Law’s application to

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referrals for ten additional DHS. See Omnibus Reconciliation Act of 1993, Pub. L. No. 103-66,
§ 13562, 107 Stat. 312, 596-605; Social Security Act Amendments of 1994, Pub. L. No. 103-432,
§ 152, 108 Stat. 4398, 4436-37. In 2008, Congress added outpatient speech-language pathology
services to the list of DHS. See Medicare Improvements for Patients and Providers Act of 2008,
Pub. L. No. 110-275, § 143, 122 Stat. 2494, 2542-43.
93.

Compliance with the Stark Law is a condition of payment by the Medicare

program. Medicare may not pay for any DHS provided in violation of the Stark Law. See 42
U.S.C. §§ 1395nn(a)(1), (g)(1).
94.

The regulations implementing the Stark Law require that “[a]n entity that collects

payment for a designated health service that was performed pursuant to a prohibited referral must
refund all collected amounts on a timely basis[.]” 42 U.S.C. § 411.353(d).
95.

In pertinent part, the Stark Law provides:
(a) Prohibition of certain referrals
(1) In general
Except as provided in subsection (b), if a physician . . . has a financial
relationship with an entity specified in paragraph (2), then
(A)
the physician may not make a referral to the entity for the furnishing
of designated health services for which payment otherwise may be made
under this subchapter, and
(B)
the entity may not present or cause to be presented a claim under
this subchapter or bill to any individual, third party payor, or other entity
for designated health services furnished pursuant to a referral prohibited
under subparagraph (A).

42 U.S.C. § 1395nn(a)(1).
96.

As noted above, DHS includes clinical laboratory services. See 42 U.S.C. §

1395nn(h)(6) and 42 C.F.R. § 411.351.

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Under the Stark Law, an “entity is considered to be furnishing DHS if it . . . [i]s

the person or entity that has performed services that are billed as DHS or . . . that has presented a
claim to Medicare for the DHS, including the person or entity to which the right to payment for
the DHS has been reassigned. . . .” 42 C.F.R. § 411.351.
98.

A “financial relationship” includes a “compensation arrangement,” which means

any arrangement involving any “remuneration” paid to a referring physician “directly or
indirectly, overtly or covertly, in cash or in kind” by the entity furnishing the DHS. See 42
U.S.C. §§ 1395nn(h)(1)(A), (h)(1)(B); 42 C.F.R. § 411.351.
99.

A direct compensation arrangement exists “if remuneration passes between the

referring physician . . . and the entity furnishing DHS without any intervening persons or
entities.” 42 C.F.R. § 411.354(c)(1)(i).
100.

An indirect compensation arrangement exists if (i) there is an unbroken chain of

persons or entities that have financial relationships between the referring physician and the entity
furnishing DHS; (ii) the referring physician receives from the person or entity with whom the
physician has a direct financial relationship aggregate compensation that varies with, or
otherwise takes into account, the volume or value of the physicians’ referrals to, or other business
generated by the referring physician for, the entity furnishing the DHS; and (iii) the entity
furnishing the DHS has knowledge of the remuneration being provided to the referring
physician. See 42 C.F.R. § 411.354(c)(2).
101.

A “referral” includes any request by a physician for, or ordering of, or the

certifying or recertifying of the need for, any DHS for which Medicare payment may be made,
including a request for a consultation with another physician and any test or procedure ordered
by or to be performed by (or under the supervision of) that other physician, but does not include

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any DHS personally performed by the referring physician. 42 U.S.C. § 1395nn(h)(5); 42 C.F.R.
§ 411.351.
102.

“Other business generated” means “any other business generated by the referring

physician, including other Federal and private pay business.” 66 Fed. Reg. 856-01, 877 (January
4, 2001).
103.

Compensation is “deemed not to take into account ‘other business generated

between the parties,’ provided that the compensation is fair market value for items and services
actually provided and does not vary during the course of the compensation arrangement in any
manner that takes into account referrals or other business generated by the referring physician,
including private pay healthcare business. . . .” 42 C.F.R. § 411.354(d)(3).
104.

The Stark Law and its companion regulations set forth exceptions for certain

financial relationships that meet specific enumerated requirements. The Stark Law’s exceptions
operate as affirmative defenses to alleged violations of the statute. Once it has been shown that a
party submitting Medicare claims has a financial relationship with a referring physician, the
defendant bears the burden of demonstrating that the relationship meets all of the requirements of
an applicable statutory or regulatory exception. See, e.g., United States ex rel. Drakeford v.
Tuomey Healthcare Sys., Inc., 675 F.3d 394, 405 (4th Cir. 2012).
105.

The Stark Law and its implementing regulations contain exceptions for certain

compensation arrangements. These exceptions include, among others, exceptions for “in-office
ancillary services” (“IOAS”), “bona fide employment relationships,” “personal service
arrangements,” and “indirect compensation arrangements.”
106.

The IOAS exception allows a physician in a “group practice” (as defined at 42

C.F.R. § 411.352) to refer Medicare beneficiaries to his or her own group practice for the

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furnishing of DHS if certain requirements are satisfied regarding the location, performance, and
billing of the DHS. 42 U.S.C. §§ 1395nn(b)(2), (h)(4); 42 C.F.R. § 411.355(b).
107.

The IOAS exception does not apply to DHS furnished by a physician group that is

not a “group practice” as defined by the Stark Law. In order to qualify as a “group practice”
under the Stark Law, the physician group must, inter alia, be organized as a “single legal entity”
and no physician who is a member of the group can be compensated directly or indirectly based
on the volume or value of his or her DHS referrals, except for certain productivity bonuses and
profit shares that are not directly related to the volume or value of DHS referrals. See 42 U.S.C.
§ 1395nn(h)(4); 42 C.F.R. § 411.352(a), (g), (i).
108.

To qualify for the Stark Law’s exception for bona fide employment relationships,

a compensation arrangement must meet, inter alia, the following requirements: the amount of
remuneration under the employment (A) is consistent with the fair market value of the services,
(B) is not determined in a manner that takes into account (directly or indirectly) the volume or
value of any referrals by the referring physician, and (C) is commercially reasonable even if no
referrals were made to the employer. See 42 U.S.C. § 1395nn(e); see also 42 C.F.R. §
411.357(c).
109.

To qualify for the Stark Law’s exception for personal service arrangements, a

compensation arrangement must meet, inter alia, the following statutory requirements: the
compensation (A) is set in advance, (B) does not exceed fair market value, and (C) is not
determined in a manner that takes into account the volume or value of any referrals or other
business generated between the parties (except for compensation received pursuant to a
“physician incentive plan” as defined by the Stark Law). See 42 U.S.C. § 1395nn(e)(3)(A); see
also 42 C.F.R. § 411.357(d). A “physician incentive plan” under § 1395nn(e)(3) is narrowly

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defined and only applies to personal service arrangements that “may directly or indirectly have
the effect of reducing or limiting services provided with respect to individuals enrolled with the
entity.” 42 U.S.C. § 1395nn(e)(3)(B)(ii).
110.

To qualify for the Stark Law’s exception for indirect compensation arrangements,

the following requirements, inter alia, must be satisfied: (A) the compensation received by the
referring physician is fair market value for items and services actually provided by the physician,
(B) the physician’s compensation is not determined in any manner that takes into account the
volume or value of referrals or other business generated by the referring physician for the DHS
entity, (C) the compensation is for identifiable services, and the arrangement is commercially
reasonable even in the absence of referrals to the entity, and (D) the arrangement does not violate
the AKS. See 42 C.F.R. § 411.357(p).
111.

The Stark Law is a strict liability statute, with no scienter component. Medicare

providers who knowingly submit claims to the Medicare program in violation of the Stark Law
may be found liable for violation of the False Claims Act. See, e.g., United States ex rel.
Drakeford v. Tuomey, 792 F.3d 364 (4th Cir. 2015). A knowing violation of the Stark Law may
also subject the billing entity to exclusion from participation in federal health care programs and
civil monetary penalties. 42 U.S.C. §§ 1395nn(g)(3), 1320a-7a(a).
B.

The Anti-Kickback Statute

112.

The AKS arose out of Congressional concern that providing things of value to

those who can influence health care decisions may corrupt their professional judgment and result
in federal funds being diverted to pay for goods and services that are medically unnecessary, of
poor quality, or even harmful to patients.

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The AKS prohibits the payment of kickbacks in order to protect the integrity of

Medicare, TRICARE, and other federal health care programs, including Medicaid. See Social
Security Amendments of 1972, Pub. L. No. 92-603, § 242(b)-(c), 86 Stat. 1329, 1419-20; 42
U.S.C. § 1320a-7b; Medicare-Medicaid Antifraud and Abuse Amendments, Pub. L. No. 95-142,
91 Stat. 1175 (1977); Medicare and Medicaid Patient and Program Protection Act of 1987, Pub.
L. No. 100-93, 101 Stat 680.
114.

The AKS prohibits any person or entity from soliciting, receiving, offering, or

paying any remuneration as an inducement or reward for referring, recommending, ordering, or
arranging for the purchase of any item or service for which payment may be made in whole or in
part by a federal health care program. In pertinent part, the statute provides:
b. Illegal remunerations
(1) Whoever knowingly and willfully solicits or receives any remuneration
(including any kickback, bribe, or rebate) directly or indirectly, overtly or
covertly, in cash or in kind—
(A) in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may
be made in whole or in part under a Federal health care program, or
(B) in return for purchasing, leasing, ordering, or arranging for or
recommending purchasing, leasing, or ordering any good, facility, service,
or item for which payment may be made in whole or in part under a Federal
health care program,
shall be guilty of a felony and upon conviction thereof, shall be fined not
more than $100,000 or imprisoned for not more than ten years, or both.
(2) Whoever knowingly and willfully offers or pays any remuneration
(including any kickback, bribe, or rebate) directly or indirectly, overtly or
covertly, in cash or in kind to any person to induce such person
(A) to refer an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole
or in part under a Federal health care program, or

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(B) to purchase, lease, order or arrange for or recommend purchasing,
leasing or ordering any good, facility, service, or item for which payment
may be made in whole or in part under a Federal health care program,
shall be guilty of a felony and upon conviction thereof, shall be fined not
more than $100,000 or imprisoned for not more than ten years, or both.
42 U.S.C. § 1320a-7b(b).
115.

Subject to specified exceptions, the AKS prohibits offering or paying any

remuneration that has, as one purpose, inducement of a provider’s referrals to federal health care
programs. Claims that include items or services resulting from a violation of the AKS are false or
fraudulent under the FCA. 42 U.S.C. §1320a-7b(g); see also, e.g., United States ex rel. Lutz v.
Berkeley Heartlab, Inc., 225 F. Supp. 3d 487, 498 n.2 (D.S.C. 2016) (“[T]his Court finds that the
weight of authority supports the conclusion that the 2010 amendment adding 42 U.S.C. 1320a7b(g) was merely a clarification of the law; claims tainted by AKS violations constitute false
claims for the purposes of the FCA regardless of whether the violation occurred before or after
the 2010 amendment.”) (appeal pending post-judgment).
116.

The Office of Inspector General for the Department of Health and Human

Services (“HHS-OIG”) has published safe harbor regulations defining arrangements that are not
prohibited by the AKS because the practice would be unlikely to result in fraud or abuse. Safe
harbor protection is afforded only to those arrangements that precisely meet all of the conditions
set forth in the safe harbor and is an affirmative defense to an alleged AKS violation.
117.

There is a statutory exception and corresponding safe harbor to the AKS for

payments by an employer to its bona fide employees. 42 U.S.C. § 1320a-7b(b)(3)(B); 42 C.F.R.
§ 1001.952(i). According to the safe harbor regulation, the term “employee has the same
meaning” as the Internal Revenue Code’s definition of “employee,” found in 26 U.S.C. §
3121(d)(2). 42 C.F.R. § 1001.952(i). The Internal Revenue Code provides, in relevant part, that
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an “employee” is “any individual who, under the usual common law rules applicable in
determining the employer-employee relationship, has the status of an employee.” 26 U.S.C. §
3121(d)(2).
VI.

Urine Drug Testing Overview
A.

Regulatory Requirements for Laboratory Test Services

118.

Laboratory services must meet all applicable requirements of the Clinical

Laboratory Improvement Amendments of 1988 (“CLIA”), 42 U.S.C. § 263a, as set forth at 42
C.F.R. Part 493.
119.

“Clinical laboratory services involve the . . . examination of materials derived

from the human body for the diagnosis, prevention, or treatment of a disease or assessment of a
medical condition.” Medicare Benefit Policy Manual (“MBPM”), Pub. 100-02, Ch. 15, § 80.1,
available at http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/
bp102c15.pdf (last visited May 31, 2019).
120.

Medicare regulations make clear that (1) laboratory tests must be ordered by the

physician treating the patient for the treatment of a specific illness or injury; (2) laboratory test
orders that are not individualized to patient need (or for which the need is not documented in the
patient chart) are not covered services; and (3) claims for such laboratory services that do not
meet these requirements are ineligible for payment and must be denied. Medicare Part B pays
for covered diagnostic laboratory tests that are furnished by a laboratory. See 42 C.F.R. §
410.32.
121.

In particular, pursuant to 42 C.F.R. § 410.32(a), all diagnostic tests “must be

ordered by the physician who is treating the beneficiary, that is, the physician who furnishes a
consultation or treats a beneficiary for a specific medical problem and who uses the results in the

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management of the beneficiary’s specific medical problem. Tests not ordered by the physician
who is treating the beneficiary are not reasonable and necessary.” The MPBM’s “Requirements
for Ordering and Following Orders for Diagnostic Tests” define an “order” as “a communication
from the treating physician/practitioner requesting that a diagnostic test be performed for a
beneficiary . . . . [T]he physician must clearly document, in the medical record his or her intent
that the test be performed.” MPBM, Ch. 15, § 80.6.1.
122.

Clinical laboratory services must also be used promptly by the physician who is

treating the beneficiary as described in 42 C.F.R. § 410.32(a). See MPBM, Ch. 15, § 80.1.
123.

In order to assess whether those services are reasonable and necessary and

whether reimbursement is appropriate, Medicare requires proper and complete documentation of
the services rendered to beneficiaries. In particular, the Medicare statute provides that:
No payment shall be made to any provider of services or other person under
this part unless there has been furnished such information as may be
necessary in order to determine the amounts due such provider or other
person under this part for the period with respect to which the amounts are
being paid or for any prior period.
42 U.S.C. § 1395l(e); see also 42 U.S.C. § 1395u(c)(2)(B)(i) (“The term ‘clean claim’ means a
claim that has no defect or impropriety (including any lack of any required substantiating
documentation) . . . .”).
124.

Medicare regulations expressly state that a laboratory’s claim for a service will be

denied if there is not sufficient documentation in the patient’s medical record to establish that the
service was reasonable and necessary. 42 C.F.R. § 410.32(d)(3).
125.

Medicare regulations further empower laboratories to request documentation from

physicians regarding medical necessity:
(iii) Medical necessity. The entity submitting the claim may request
additional diagnostic and other medical information from the ordering
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physician or nonphysician practitioner to document that the services it bills
are reasonable and necessary.
42 C.F.R. § 410.32(d)(3).
126.

The South Carolina Medicaid program imposes similar requirements. As noted

above in connection with the Physicians, Laboratories, and Other Medical Professionals Provider
Manual for the South Carolina Medicaid program, services must be individualized to the medical
needs of each patient; moreover, providers must maintain appropriate documentation for each
beneficiary, substantiating the need for services, including all findings and information
supporting medical necessity, and detailing all treatment provided.
127.

In addition, for laboratory services or tests to be covered by South Carolina

Medicaid, those services must be ordered by a professional practitioner within the scope of his or
her practice with the expectation of making a reasonable medical determination. S.C. Code Ann.
Regs. § 126-311.
128.

Similarly, TRICARE only pays for laboratory tests that are “medically or

psychologically necessary” and “required in the diagnosis and treatment of illness or injury.” 32
CFR § 199.4(a)(1). TRICARE will not cover tests that are “not related to a specific illness or
injury or a definitive set of symptoms.” Id. at (g)(2).
129.

As noted above, TRICARE regulations provide that TRICARE may deny

payment in “abuse situations.” 32 CFR 199.9(b). The regulations expressly include as examples
of “abuse or possible abuse situations” the following: (i) “a battery of diagnostic tests are given
when, based on the diagnosis, fewer tests were needed,” and (ii) “[f]ailure to maintain adequate
medical or financial records.” Id.
130.

Laboratories have a “‘legal duty to ensure that [they are] not submitting false or

incorrect claims to Government . . . payors.’” United States ex rel. Groat v. Boston Heart
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Diagnostics Corp., 296 F. Supp. 3d 155, 165 (D.D.C. 2017) (quoting Publication of OIG
Compliance Program Guidance for Clinical Laboratories, 63 Fed. Reg. 45,076, 45,077 (Aug. 24,
1998)). As part of that duty, “laboratories should ensure that they do not submit claims for
medically unnecessary tests by, inter alia, communicating with physicians regarding medical
necessity, maintaining documentation of medical necessity, constructing requisition forms to
promote conscious ordering of tests by physicians, and reviewing coding.” Id. (citing 63 Fed.
Reg. at 45,079-80). Courts have held laboratories liable under the FCA where they engage in
schemes “to encourage . . . physicians to order medically unnecessary tests.” United States ex
rel. Lutz v. Lab. Corp. of Am. Holdings, No. 9:14-CV-3699-RMG, 2019 WL 236799, at *3
(D.S.C. Jan. 16, 2019) (quoting Groat, 296 F. Supp. 3d at 165).
B.

Types of Urine Drug Tests

131.

Drug testing is used to determine the presence or absence of drugs or metabolites.

Drug testing can be “qualitative” (to determine the presence or absence of a drug or metabolite)
or “quantitative” (to provide a numerical concentration of a drug or metabolite). Different
testing methodologies have different capabilities and limitations.
132.

Drug testing is performed in a number of contexts. In the clinical health care

context, drug testing can be used to monitor whether patients are taking prescribed drugs, or
taking or abusing drugs not prescribed.
133.

Urine is the most common medium used for drug testing and is the medium for

testing that has been utilized during the relevant time period by Oaktree, Labsource, and ProLab.
134.

Urine drug testing (“UDT”) is done in two stages: presumptive testing

(sometimes referred to as “screening” testing) and, when necessary, definitive testing (sometimes
referred to as “confirmatory” testing). First, the treating provider performs a presumptive test.

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The presumptive test gives a positive result when the presence of a drug or metabolite in the
urine exceeds a given concentration and a negative result when the drug or metabolite is below
this concentration.
135.

There are two primary methods of performing presumptive tests. These tests can

be performed using a point of care (“POC”) testing cup or test strips that are dipped into a urine
sample. POC testing cups and test strips are relatively inexpensive and typically feature a panel
of 11 or 12 treated strips, one for each drug or drug class being tested. When the strips are
dipped into the urine specimen, a change in color signifies the presence or absence of the specific
drug or drug class for which each strip tests. Using POC cups or strips, a provider can receive
almost immediate results for the substances tested in his or her own office. Alternatively,
presumptive tests can be performed by an immunoassay analyzer, a device found in laboratories
and in some physicians’ offices that rapidly determines the presence or absence of the tested
drugs and are generally reimbursed at higher levels than POC test cups and strips.
136.

Under CLIA, CMS oversees all laboratory testing services. UDT performed

using POC test cups and test strips is generally “CLIA-waived.” CLIA-waived tests are
categorized as simple laboratory examinations and procedures that have an insignificant risk of
an erroneous result or pose no risk of harm to the patient if the test is performed incorrectly. 43
C.F.R. § 493.15(b). To perform CLIA-waived tests, physicians need to enroll in CLIA and
obtain a waiver. 42 C.F.R. § 493.35. To operate an immunoassay analyzer, physician practices
and laboratories are generally required to obtain a CLIA certification to perform moderate or
high complexity laboratory tests. 42 C.F.R. §§ 493.20, 493.25.
137.

Presumptive tests utilizing POC test cups and strips and immunoassay analyzers

represent the standard of practice for drug testing in pain management. As detailed below, most

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patients need only limited, if any, definitive UDT performed at a laboratory based on their
presumptive test results, drug abuse history, and clinical presentation.
138.

Definitive UDT is conducted in laboratories that can perform mass spectrometry

and either gas or liquid chromatography. These testing methodologies can provide quantitative
results, identifying the concentration of a drug or metabolite in a sample. The equipment
required to perform definitive UDT is more sophisticated, and most treating providers are not
equipped to perform definitive testing themselves. Instead, treating providers typically refer
definitive drug testing to independent laboratories, such as Labsource or one of its competitors.
It usually takes a couple of days to receive results back from definitive testing.
139.

The clinical value of definitive UDT depends in part on whether the presumptive

test result is expected or unexpected, as well as the patient’s history of drug abuse, history of
medication adherence and compliance, clinical presentation, and/or medical history. For
example, if a patient is prescribed a certain drug, such as Xanax, a positive presumptive test
result for benzodiazepines (of which Xanax is one) would be expected. If the test result is
negative for benzodiazepines, however, and the patient insists that she is taking her Xanax as
prescribed, a definitive laboratory test to “confirm” this unexpected negative result may be
reasonable and necessary.
140.

Similarly, if a patient’s presumptive test yielded a positive result for a non-

prescribed or illicit drug, then definitive UDT to evaluate this unexpected positive result may,
under certain circumstances and depending on individual patient factors, be reasonable and
necessary.
141.

In some unusual circumstances, definitive UDT of an expected presumptive test

result or for a substance not available on a presumptive test may also be medically reasonable

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and necessary. For example, aberrant patient behavior, a patient’s unexpected clinical
presentation, and/or a patient’s particular history of drug abuse may justify specific definitive
UDT. The reasonableness and necessity of such tests, however, depends on the presentation and
provider assessment of each individual patient and that patient’s individual circumstances. If a
presumptive test is negative for an illicit drug or a drug not prescribed, and there is nothing in the
patient’s presentation or drug abuse history to indicate abuse of that drug, then routine definitive
UDT for that drug is not reasonable and necessary for the treatment and diagnosis of that patient,
and therefore not covered by federal health care programs, including Medicare, Medicaid, and
TRICARE.
142.

In all situations, definitive UDT should be utilized only to the limited extent it is

necessary for an individual patient, based on that individual’s presumptive test results and other
factors specific to that individual. Widespread definitive UDT should not be ordered as a matter
of course.
143.

Local Coverage Determinations (“LCDs”) are determinations issued by MACs

“respecting whether or not a particular item or service is covered” by the MAC. 42 U.S.C. §
1395ff(f)(2)(B). At various points during the relevant time period, Palmetto GBA issued LCDs
regarding UDT. These LCDs were made available to all providers within Palmetto GBA’s
jurisdiction. In general, these LCDs provided guidance regarding the appropriate indications for
and expected frequency of presumptive and definitive UDT. As part of that guidance, the LCDs
indicated that the use of routine standing orders is not reasonable and necessary.
144.

For example, on October 1, 2015, Local Coverage Determination (“LCD”)

L35724, took effect in Medicare Jurisdiction M, which includes South Carolina and North
Carolina. L35724 provided coverage guidance regarding presumptive and definitive UDT and

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required that the following elements, at a minimum, be used to determine medical necessity: (1)
the patient’s history, physical examination, and previous laboratory findings; (2) the patient’s
current treatment plan; (3) the patient’s prescribed medication(s); and (4) and the patient’s risk
assessment plan. This LCD indicated that it was not reasonable and necessary for a physician to
perform presumptive POC testing or presumptive immunoassay testing and order presumptive
immunoassay testing from a reference laboratory. This LCD also stated that definitive UDT
orders “should be individualized based on clinical history and risk assessment, and must be
documented in the medical record.” The LCD also indicated that the use of routine standing
orders for all patients in a provider’s practice is not reasonable and necessary.
145.

Defendants had knowledge of these LCDs but nevertheless continued to refer

orders for, or perform, unreasonable and unnecessary UDT that was billed to Medicare,
Medicaid, and TRICARE, as described below.
C.

Reimbursements for Laboratory Tests

146.

Different types of urine drug tests have different costs.

147.

During the relevant time period, Medicare generally reimbursed presumptive

UDT based on the methodology (analyzer versus POC test cup or strip) used by the physician
practice or the complexity of the test under CLIA. During the relevant time period, POC tests
were reimbursed by Medicare at a rate of $12-25 and high-complexity analyzer tests were
reimbursed by Medicare at a rate of $65-$100.
148.

Prior to January 1, 2016, definitive UDT was generally billed using individual

CPT codes for each and every drug or drug class tested. In response to concerns regarding the
potential for overpayment when billing for each individual drug test, CMS revised the way that it
reimbursed definitive UDT under the Medicare program, effective January 1, 2016. See

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Calendar Year (CY) 2016 Clinical Laboratory Fee Schedule (CLFS) Final Determinations,
available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/
ClinicalLabFeeSched/Downloads /Archive-Test-Codes-and-Payment-Determinations-files-.zip
(last viewed May 31, 2019). In particular, rather than continuing to permit providers to bill for
each and every individual definitive drug test, CMS created four CPT codes for definitive UDT:
G0480, G0481, G0482, and G0483. Only one of these four definitive UDT codes may be billed
per patient per day. Id. The following table defines these codes and their corresponding 2016
Medicare reimbursement amount:
Definitive UDT Code

G0480

G0481

G0482

G0483

Definition
Definitive drug testing for
1-7 drug classes, including
metabolites.
Definitive drug testing for
8-14 drug classes,
including metabolites.
Definitive drug testing for
15-21 drug classes,
including metabolites.
Definitive drug testing for
22 or more drug classes,
including metabolites.

2016 Medicare
Reimbursement
$79.94

$122.99

$166.03

$215.23

See id.; 2016 Clinical Diagnostic Laboratory Fee Schedule, available at
https://www.cms.gov/apps/ama/license.asp?file=/Medicare/Medicare-Fee-for-ServicePayment/ClinicalLabFeeSched/Downloads/16CLAB.zip (last visited May 31, 2019).
149.

In order to prevent abuse, South Carolina Medicaid issued a Medicaid Bulletin to

providers making effective on January 1, 2016, the limitation that SCDHHS will reimburse a
maximum of one presumptive test per procedure code per date of service, not to exceed 18
presumptive tests per 12-month period. See Coverage of Drug Testing Codes, Medicaid Bulletin

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16-016 (July 21, 2016). Since September 1, 2016, South Carolina Medicaid only reimburses the
G0480 code for definitive UDT at a rate of $63.95.
150.

During the relevant time period, TRICARE followed Medicare’s reimbursement

methodology for UDT.
VII.

Injection Procedures Overview
151.

The treatment and diagnosis of chronic pain may at times require interventional

procedures involving injections into muscles and tendons, or into joints such as the spine (facet
joints), knees, hips, elbows, or shoulders.
152.

A medical provider with proper training can administer these injections to

diagnose or treat pain by using an anesthetic to block nerve signals, sometimes called a nerve
block, or by decreasing inflammation through use of a steroid in the injection. Many times these
interventions involve using a combination of both approaches.
153.

Facet joints are joints in the spine that aid stability and allow the spine to bend

and twist. Facet joint injections are a type of interventional pain management technique used to
diagnose or treat axial back pain, which is a band-like pain in the back or neck. Physicians
typically perform facet joint injections using radiological guidance to ensure correct needle
placement and avoid nerve or other injury.
154.

Determining whether a patient is a candidate for an injection, and, if a candidate,

the type of injection clinically appropriate, depends on the patient’s clinical presentation after a
musculoskeletal and neurological physical examination, combined at times with a review of
diagnostic imaging such as an x-ray.
155.

The clinical presentation of a patient is key to determining the mode and method

of an interventional procedure. An abnormal diagnostic image alone is not determinative of

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necessity for interventional pain procedure. The majority of asymptomatic older adults have
degenerative changes seen in imaging of the spine. Furthermore, even in patients who have pain,
the pain may be coming from only one of numerous radiographically abnormal structures in the
spine, and it may not be a structure amenable to treatment by injection. Since these injection
procedures only serve to alleviate symptoms, they are not reasonable and necessary in patients
without symptoms or in patients with symptoms caused by an anatomic structure other than the
target of the treatment with an injection.
156.

Drugs used in facet and other joint injections may cause adverse events. For

instance, the frequent injection of steroids into a joint or muscle could lead to weakening or
necrosis of the area injected, nerve damage, or infection.
157.

Accordingly, a clinical assessment must implicate the specific facet joint whose

therapeutic target is the injection as the putative source of pain, and pre-procedural
documentation must include a complete initial evaluation including an appropriately focused
musculoskeletal and neurological physical examination.
158.

Among other requirements for Medicare payment, a patient must have a history of

at least 3 months of moderate to severe pain with functional impairment that has not been
adequately responsive to more conservative care.
DEFENDANTS’ FRAUDULENT SCHEMES
159.

As detailed below, McCollum and his businesses used a variety of schemes to

provide kickbacks and create unlawful financial incentives for providers to make referrals of
UDT to his laboratories; to routinely order excessive UDT for all patients (including Medicare,
Medicaid, and TRICARE beneficiaries), regardless of individual patient assessment or need; and

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to routinely provide medically unnecessary opioid and lidocaine prescriptions and pain injections
to patients (including Medicare, Medicaid, and TRICARE beneficiaries).
I.

Stark Law Violations
160.

As discussed above, McCollum owned and operated numerous pain management

clinics throughout the Carolinas (e.g., Oaktree, FirstChoice Healthcare, PMA of the Carolinas,
and PMA of North Carolina) that collectively did business as PMA. Even though physicians
working at the various PMA clinics had employment agreements with the specific clinic, they
were actually employed and paid by Oaktree and, hereinafter, will be referred to as “Oaktree
physicians.”
161.

In addition to providing clinical services to patients, Oaktree also performed and

billed for clinical laboratory services, such as presumptive and definitive UDT, that were ordered
and referred by Oaktree physicians working at the various PMA clinics. Patients were seen for
an office visit by an Oaktree physician at one of the PMA clinics and provided a urine sample for
testing. For at least a portion of the relevant time period, the physician performed a presumptive
POC test at the PMA clinic and ordered definitive UDT that was sent to and processed by
Oaktree. Oaktree performed a presumptive immunoassay test and definitive UDT on the urine
samples sent by the PMA clinic, and then billed the patient’s insurer for this testing.
162.

In or around mid-2013, McCollum began operating an independent clinical

laboratory, Labsource. Around this time and through December 31, 2018, PMA clinics also sent
patient urine samples to Labsource for presumptive and definitive UDT.
163.

During the relevant time period, McCollum, Oaktree, and Labsource engaged in a

scheme to compensate Oaktree physicians by directly taking into account the volume or value of
DHS referrals to and other business generated (e.g., private pay and non-Medicare referrals) by

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those physicians for Oaktree and Labsource. As discussed below, the direct and indirect
compensation arrangements with the Oaktree physicians did not satisfy the requirements of any
applicable exception to the Stark Law. Nonetheless, Oaktree and Labsource submitted claims to
Medicare for services resulting from those referrals, in violation of the Stark Law.
A.

Oaktree Paid Physicians for Referrals of DHS to Oaktree in Violation of the
Stark Law.

164.

During most of the relevant time period of this Complaint (January 1, 2011

through at least December 31, 2018), Oaktree employed physicians pursuant to written
employment agreements (“contracts”) signed by each physician and by the practice owner,
Daniel McCollum, or by Michael Brohm, who succeeded McCollum as PMA’s CEO in or
around April 2015. In exchange for the compensation set forth in each contract, each physician
agreed to render medical services for Oaktree and its affiliated PMA clinics and assigned to
Oaktree and its affiliated PMA clinics the right to bill for such services.
165.

Although each physician contract contained different payment provisions and

changed over time, they all generally provided that the physician would be paid a fixed base
salary, or a percentage of the physician’s gross collections, whichever was greater. If the
physician’s gross collections exceeded the physician’s fixed base salary, Oaktree paid the
physician the difference as a bonus.
166.

Many physician contracts defined gross collections to include “revenue from

ancillary services,” “revenue that is generated from ancillary services such as NCV/EMG, urine
drug screen, and MRI,” or “any in-house laboratory testing or diagnostic imaging for patients
under Employee’s care or referral.”

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Physicians who, at various times during the relevant time period (as specified

below), had employment agreements with compensation terms substantially similar to those
described above include, but are not limited to the following:

Richard Banks, M.D.

Approximate Dates Physician Contracts
Contained Substantially Similar
Compensation Terms During Relevant
Time Period (1/1/2011 to 12/31/2018)
1/1/2011 to 11/1/2013

Robert Blackwell, M.D.

1/1/2011 to 6/4/2013

Thomas Fox, M.D.
Dwight Jacobus, D.O.
Regina Morris-Solis, M.D.
Sybil Reddick, M.D.
David Rogers, M.D.
Lesco Rogers, M.D.
Ryan Rosen, M.D.
Daniel Sheehan, M.D
Danny Smith, M.D.
Stephanie Vanterpool, M.D.
Robert Westrol, M.D.
Brian Wiley, M.D.

1/1/2011 to 12/31/2016
1/1/2011 to 12/31/2016
5/15/2013 to 12/18/2015
1/1/2011 to 02/12/2016
1/1/2011 to 06/1/2017
10/6/2014 to 10/26/2015
7/18/2011 to 09/1/2013
12/16/2013 to 1/1/2015
1/1/2015 to 1/12/2016
7/7/2014 to 11/30/2015
1/1/2011 to 12/31/2017
11/19/2014 to 12/31/2016

Physician

168.

At various times during the relevant time period, some physicians, including but

not limited to Regina Morris-Solis, M.D., Jay Patel, M.D., and Christopher Rubel, M.D., had
employment contracts that purportedly excluded DHS collections from the physician’s bonus
computation, purportedly were based only on the physician’s personally performed services, or
otherwise purported to comply with the Stark Law. However, McCollum and Oaktree
maintained spreadsheets indicating that these physicians’ compensation was calculated in a
manner that varied with and took into account the volume or value of the physician’s DHS
referrals to or other business generated for Oaktree and Labsource.

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In or around 2017, after learning of the United States’ investigation into these

practices, Oaktree physician contracts were revised to provide that the physicians would be paid
the greater of a fixed yearly salary or compensation calculated according to a formula that
included the following amounts:
a.
Thirty-Five Percent (35.0%) of gross collections from clinical
services, plus (ii) Twenty Percent (20.0%) of gross collections from
laboratory services, plus (iii) Thirty-Percent (30.0%) of gross collections
from pharmacy services, plus (iv) Fifteen percent (15.0%) of gross
collections from NCV and EMG interpretations, the sum of which is
referred to as Qualifying Gross Collections;
b.
If Employee supervises one or more mid level providers (physician
assistant and/or advanced nurse practitioner), then Employee will be paid
Five Percent (5.0%) of each mid level’s Qualifying Gross Collections on a
quarterly basis;
...
Gross collections includes cash collections, net of refunds, less drug and
supply reimbursement received by Employer during the Employment for
professional services personally performed by Employee, excluding
collections received for “designated health services” as defined in 42 U.S.C.
1395nn and regulations promulgated thereunder.
170.

While the 2017 revisions to the physician contracts purported to change the

manner in which Oaktree compensated its employed physicians by, among other things, limiting
the compensation to “professional services personally performed by Employee” and excluding
“collections received for ‘designated health services,’” in fact, McCollum and Oaktree continued
compensating physicians by directly taking into account the volume or value of their Medicare
UDT referrals to and other business generated (e.g., private pay and other non-Medicare UDT
referrals) for Oaktree and Labsource, in violation of the Stark Law.
171.

Physicians who entered into a revised employment agreement in 2017 or 2018, as

described above, include but are not limited to:

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Approximate Relevant Dates of Revised
Compensation Term Contracts
3/28/2018 to 12/31/2018
3/31/2017 to 12/31/2018
5/20/2017 to 12/31/2018
2/6/2017 to 12/31/2018
5/8/2017 to 12/31/2018
6/1/2017 to 12/31/2018
1/15/2018 to 03/04/2018
3/13/2017 to 12/31/2018

Physician
Jeffrey Farricielli, M.D.
Gisele Girault, M.D.
Blake Leche, M.D.
Joseph O’Quinn, M.D.
Jay Patel, M.D.
David Rogers, M.D.
Christopher Rubel, M.D.
Elizabeth Snoderly, D.O.
172.

Entry Number 86

Since the physicians were employed and paid by Oaktree, they had a direct

compensation arrangement with Oaktree for purposes of the Stark Law.
173.

During the relevant time period, Oaktree paid many of its employed physicians

compensation that directly took into account the volume or value of their DHS referrals (and,
specifically their UDT referrals) to Oaktree. Because of this fact, Oaktree could not qualify as a
“group practice” under 42 C.F.R. § 411.352 and, therefore, the exception for in-office ancillary
services at 42 C.F.R. § 411.355(b) was not applicable to the physicians’ referrals for and
Oaktree’s billing of that UDT to Medicare. In addition, because of this fact, Oaktree failed to
meet the requirements of the Stark Law’s exception for bona fide employment relationships, 42
U.S.C. § 1395nn(e)(2), 42 C.F.R. § 411.357(c). Oaktree also failed to meet the Stark Law’s
exception for personal service arrangements, 42 U.S.C. § 1395nn(e)(3), 42 C.F.R. § 411.357(d),
because the compensation it paid its physicians was determined in a manner that took into
account the volume or value of their DHS referrals and other business generated (e.g., private
pay and other non-Medicare referrals) between the physician and Oaktree.
174.

Throughout the existence of these direct compensation arrangements, Oaktree’s

employed physicians made referrals of UDT to Oaktree in violation of the Stark Law, as a result

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of which Oaktree submitted thousands of claims to Medicare that were false or fraudulent
because they were ineligible for payment.
B.

Oaktree Paid Physicians for Referrals of DHS to or Other Business
Generated for Labsource in Violation of the Stark Law.

175.

From mid-2013 to at least December 31, 2018, physicians employed by Oaktree

had indirect compensation arrangements with Labsource because (i) there was an unbroken chain
of entities in financial relationships (ownership or compensation) with each other: Physician --(employment) --- Oaktree --- (ownership) --- McCollum --- (ownership) --- Labsource); (ii)
under their employment arrangements with Oaktree, as set forth in Paragraphs 164–171, the
physicians received aggregate compensation from Oaktree that varied with, or took into account,
the volume or value of DHS referrals or other business generated by the referring physician for
Labsource; and (iii) Labsource (through McCollum) had actual knowledge, or acted with
reckless disregard or deliberate ignorance of the fact, that the physicians received such
compensation. 42 C.F.R. § 411.354(c)(2).
176.

Labsource’s indirect compensation arrangements with the physicians failed to

meet the requirements of the Stark Law exception for indirect compensation arrangements, 42
C.F.R. § 411.357(p), or any other applicable statutory or regulatory Stark Law exception
because, at minimum, physicians received compensation that directly varied with and took into
account the volume and value of their Medicare UDT referrals and other business generated
(e.g., private pay and other non-Medicare UDT referrals) for Labsource.
177.

Throughout the existence of these indirect compensation arrangements, Oaktree

physicians made referrals of UDT to Labsource in violation of the Stark Law, as a result of
which Labsource submitted claims to Medicare that were false or fraudulent because they were
ineligible for payment.
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C.

Specific Examples of Oaktree Physicians’ Compensation Arrangements that
Violated the Stark Law

178.

The following Paragraphs provide examples of physicians who had a direct

compensation arrangement with Oaktree and an indirect compensation arrangement with
Labsource:
i.
179.

Dr. Daniel Sheehan

Dr. Daniel Sheehan signed a one-year employment contract with Oaktree on

December 5, 2013. The contract provided that Dr. Sheehan would
be paid a monthly salary, less appropriate tax withholdings, equal to the
greater of either (i) thirty-five percent (35%) of gross collections related to
the patients seen by Employee during that month (including revenue
generated from ancillary services), or (ii) One Thousand Dollars ($1000)
per day. . . . Employee’s entitlement to salary based on a percentage of
gross collections as described above will be calculated using monthly
billing collection reports generated on or around the last day of each month.
If 35% of Employee’s gross collections for said month are greater than the
amount that Employee has received based on days worked, then Employer
will pay Employee the difference. However, if 35% of Employee’s gross
collections for said month are less than the amount that Employee has
received based on days worked, then he will not be entitled to payment
based on 35% of his gross collections in any subsequent months until any
and all prior deficiencies are made up.
180.

Pursuant to Sheehan’s contract, in 2014, Oaktree paid Dr. Sheehan approximately

$362,007.82, which was comprised of $221,351.32 of regular pay and an aggregate bonus
amount of $140,656.52. Moreover, in 2015, Oaktree paid Dr. Sheehan an additional $129,038.30
for “unpaid commission” from 2014. Dr. Daniel Sheehan’s compensation from Oaktree was not
limited to his personally performed services or to non-DHS; rather Dr. Sheehan received a
percentage of all collections received by Oaktree and Labsource as a result of his referrals, all of
which were DHS or other business generated (e.g., private pay and other non-Medicare
referrals).

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181.

Date Filed 05/31/19

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Page 49 of 115

In 2014, Oaktree submitted at least 894 claims for UDT referred by Dr. Sheehan

to Medicare, and received payments from Medicare for those claims totaling approximately
$225,254. In the same year, Labsource submitted at least three claims for UDT referred by Dr.
Sheehan, and received payments from Medicare for those claims totaling approximately $1,082.
Each of these claims was false, and was accompanied by a false certification, because the
referrals from Dr. Sheehan and the claim submissions were prohibited under the Stark Law.
Oaktree and Labsource retained the payments they unlawfully received from Medicare for UDT
referred by Dr. Sheehan, despite these Stark Law violations.
ii.
182.

Dr. Dwight Jacobus

In June 2010, Dr. Jacobus entered into an employment contract with Oaktree

providing that Dr. Jacobus would be paid “$120,000 per year or 40% of his gross collections,
whichever is greater. Gross collections means the amount of money actually collected from any
sources as a result of Employee’s services.”
183.

Dr. Jacobus also set up a limited liability company, Medical Management &

Design Consultants, LLC (“MMDC”), that entered into a separate contract with Oaktree that
provided that MMDC would be paid “$200,000 per year or 40% of gross collections, whichever
is greater.” Again, gross collections was defined in this contract to be “the amount of money
actually collected from any source as a result of MMDC’s services.”
184.

Per the MMDC contract, MMDC was to “provide 100% of the necessary

marketing and design ads as related to pain management and orthopedic surgical services.”
However, according to Dr. Jacobus, MMDC was actually set up to compensate him for his role
as a medical director for PMA. Dr. Jacobus also stated that he “didn’t do much as a medical
director except get called a medical director.”

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185.

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Moreover, spreadsheets maintained by McCollum and other PMA management-

level employees indicate that at least a portion of Dr. Jacobus’s salary and bonus payments
derived from his clinical services, including UDT referrals, were paid to his MMDC account.
186.

In 2012, Dr. Jacobus’s compensation from Oaktree was all paid to his MMDC

account. Oaktree paid Dr. Jacobus’s MMDC a “stipend” of approximately $200,000 and a bonus
payment of $183,770. In 2013, Oaktree paid Dr. Jacobus’s MMDC a “stipend” of approximately
$200,000 and a bonus payment of approximately $216,387. In 2014, Oaktree paid Dr. Jacobus a
salary of approximately $120,000. Oaktree also paid Dr. Jacobus’s MMDC a “stipend” of
approximately $200,000 and a bonus payment of approximately $201,549. Similarly, in 2015,
Dr. Jacobus received a salary of approximately $119,250 from Oaktree. Oaktree also paid Dr.
Jacobus’s MMDC a “stipend” of approximately $200,000. Dr. Jacobus also received a bonus
payment of approximately $84,766 that was paid by Oaktree to MMDC. In 2016, Oaktree paid
Dr. Jacobus a salary of approximately $119,250 and a bonus of approximately $10,147. Dr.
Jacobus’s compensation from Oaktree was not limited to his personally performed services or to
non-DHS; rather Dr. Jacobus received a percentage of all collections received by Oaktree and
Labsource as a result of his referrals, all of which were DHS or other business generated (e.g.,
private pay and other non-Medicare referrals).
187.

Accordingly, Oaktree’s agreement with MMDC was a sham and was, in fact, a

scheme to circumvent the Stark Law’s prohibition on paying physicians amounts directly tied to
the volume or value of their DHS referrals.
188.

From 2012 through 2016, Oaktree submitted approximately 8,921 claims for UDT

that were referred by Dr. Jacobus to Medicare resulting in a payment from Medicare for those
claims of approximately $2,473,290. Labsource submitted approximately 1,763 claims for UDT

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that was referred by Dr. Jacobus, resulting in payment of Medicare for those claims of
approximately $432,079. Each of these claims was false because the referrals from Dr. Jacobus
and the claim submissions were prohibited under the Stark Law. Oaktree and Labsource retained
the payments they unlawfully received from Medicare for UDT referred by Dr. Jacobus, despite
the Stark Law violations.
iii.
189.

Other Oaktree Physicians

Since the Oaktree physician contract compensation terms required a physician’s

percent of gross collections to exceed his or her base salary, not all physicians earned a bonus.
Nevertheless, the Oaktree physicians were incentivized to order excessive UDT because their
compensation directly varied with and took into account the volume or value of their UDT
referrals (Medicare and non-Medicare) for Oaktree and Labsource. In other words, the more
UDT the physician referred to Oaktree or Labsource, the more the physician would be paid.
190.

The following table provides some additional examples of physicians who, at

various times throughout the relevant time period (as specified below), received compensation
that varied with and took into account the volume or value of their DHS referrals to, or other
business generated for, Oaktree and Labsource in violation of the Stark Law:

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Physician

Robert
Blackwell,
M.D.

Date Filed 05/31/19

Approx.
Dates
Estimated
Physician
# of
Eligible for
Medicare
Bonus
Claims
Based on
for UDT
DHS
Furnished
Referrals or
By
Other
Oaktree
Business
Generated

1/1/2011 to
6/5/2013

Entry Number 86

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Estimated
Medicare
Payments to
Oaktree for
UDT

Estimated
# of
Medicare
Claims
for UDT
Furnished
By
Labsource

Estimated
Medicare
Payments
to
Labsource
for UDT

7,616

$2,489,182.39

0

$0

Dwight
Jacobus,
D.O.

1/1/2011 to
12/31/2016

9,833

$2,662,424.03

1763

$432,079.19

Blake
Leche,
M.D.

5/20/2017 to
12/31/2018

0

$0

54

$16,862.84

Regina
MorrisSolis, M.D.

5/15/2013 to
12/31/2017

1,070

$289,905.06

1296

$350,784.26

Jay Patel,
M.D.

1/1/2011 to
12/31/2018

3,317

$885,271.87

1180

$323,126.35

Sybil
Reddick,
M.D.

1/1/2011 to
2/12/2016

7,631

$2,090,483.17

673

$196,818.79

David
Rogers,
M.D.

1/1/2011 to
12/31/2018

4,938

$1,267,639.70

2072

$562,137.91

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Lesco
Rogers,
M.D.

10/6/2014 to
12/31/2015

8

$3,247.66

640

$181,940.42

Ryan
Rosen,
M.D.

7/18/2011 to
09/01/2013

1,452

$424,155.79

0

0

Christopher
Rubel,
M.D.

3/9/2012 to
3/4/2018

11,123

$2,687,887.76

3478

$944,597.38

Daniel
Sheehan,
M.D.

12/16/2013
to 1/1/2015

894

$225,254.80

4

$1,082.48

Elizabeth
Snoderly,
D.O.

3/13/2017 to
12/31/2018

0

0

211

$61,841.54

Stephanie
Vanterpool,
M.D.

7/7/2014 to
11/30/2015

346

$101,600.81

214

$60,836.84

Robert
Westrol,
M.D.

1/1/2011 to
12/31/2017

1,680

$440,711.43

401

$94,072.57

Brian
Wiley,
M.D.

11/19/2014
to
12/31/2016

280

$88,498.03

872

$214,148.01

D.

McCollum, Oaktree, PMA, and Labsource Knowingly Submitted or Caused
the Submission of Claims to Medicare in Violation of the Stark Law

191.

At all relevant times, McCollum, Oaktree, PMA, and Labsource were aware of

the compensation terms and formulas included in the physician employment agreements, as
described in Paragraphs 164-171, above. The fact that certain agreements purported to exclude
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DHS or explicitly mentioned the Stark Law further demonstrates that McCollum, Oaktree, PMA,
and Labsource knew that the employed physicians’ compensation arrangements were required to
comply with the Stark Law and that paying the physicians amounts that were directly tied to the
volume and value of their UDT referrals was unlawful.
192.

Nevertheless, at all relevant times, with the full knowledge of McCollum,

Oaktree, PMA, and Labsource, physicians received compensation that varied with and took into
account the volume or value of their UDT referrals to Oaktree and Labsource.
193.

Indeed, McCollum, Oaktree, and Labsource tracked the UDT referrals generated

by each physician on various spreadsheets throughout the relevant time period. Some of these
spreadsheets were used by McCollum and other management-level employees to calculate the
physicians’ compensation.
194.

Moreover, in or around 2017 and through 2018, McCollum and other PMA

management-level employees met with individual Oaktree physicians to discuss their collection
amounts and to explain the new 2017 compensation/bonus structure. During these meetings,
McCollum and other PMA management-level employees told Oaktree physicians that they could
make more money if they ordered more UDT, ordered more pain injection procedures, and
prescribed more lidocaine ointment.
195.

Thus, throughout the relevant time period, Oaktree physicians understood that a

portion of their compensation was directly based on collections for their UDT referrals to
Oaktree and Labsource. As such, Oaktree physicians were financially incentivized to order more
UDT, regardless of whether those tests were medically necessary for an individual patient or not.
196.

Throughout the relevant time period, Oaktree physicians were never provided a

choice as to where to send their UDT referrals. Rather, the PMA clinics—with McCollum’s

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knowledge and at his direction—made the decision to send all of the Oaktree physicians’ UDT
referrals to Oaktree and Labsource. Indeed, by mid to late 2016, the PMA clinics, with
McCollum’s knowledge and direction, began referring most of its Medicare UDT to Labsource
after CMS placed Oaktree under a payment suspension for billing medically unnecessary UDT.
197.

Throughout the existence of these compensation arrangements, McCollum and

other PMA and Labsource management-level employees knew that physicians were making
DHS referrals to Oaktree and Labsource, for which Oaktree and Labsource submitted claims to,
and received payments from, Medicare.
198.

Despite their knowledge of these Stark Law violations, and throughout the

relevant time period, Defendants McCollum, Oaktree, and Labsource, expressly and falsely
certified compliance with the Stark Law on CMS-855B provider enrollment forms and CMS
1500 forms and their electronic equivalents.
II.

McCollum and Labsource Violated the AKS
199.

During the relevant time period, Defendants McCollum and Labsource knowingly

and willfully offered providers remuneration designed, at least in part, to induce referrals of UDT
paid for by Medicare, Medicaid, and TRICARE.
A.

Oaktree’s Compensation Arrangements with Physicians and Other
Providers Violated the AKS

200.

McCollum established and perpetuated a scheme to offer remuneration to Oaktree

providers (e.g., physicians, physician assistants, and nurse practitioners), who were not
Labsource employees, based, in part, on their referrals to Labsource.
201.

Specifically, McCollum offered and paid Oaktree physicians, physician assistants,

and nurse practitioners bonuses based, in part, on their referrals to Labsource.

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202.

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At least one purpose of these remuneration schemes was to induce referrals to

Labsource, including referrals of UDT reimbursed by federal health care programs.
203.

Paragraph 190 above provides some examples of Oaktree physicians who

received bonuses, paid directly or indirectly by Labsource, based on their UDT referrals to
Labsource in violation of the AKS. The following table provides examples of Oaktree mid-level
providers who, at various times from 2013 to December 31, 2018, received bonuses, paid
directly or indirectly by Labsource, based on their UDT referrals to Labsource in violation of the
AKS:

Provider

Approx. Dates
Provider Eligible for
Bonus Based on
UDT Referrals to
Labsource

Estimated # of
Medicare Claims for
UDT for Labsource

Estimated Medicare
Payments to
Labsource for UDT

Carol Ann Berry,
F.N.P.

1/1/2011 to
12/31/2018

1,570

$432,977

Carlee Bright, P.A.

9/15/2011 to
2/31/2017

1,239

$355,790

James Goodson, P.A.

3/20/2014 to 2/6/2016

229

$58,525

Jill Kessler, F.N.P.

1/1/2011 to
12/31/2017

964

$296,804

Derek Roper, P.A.

1/4/2013 to
12/31/2018

956

$242,095

Brant Turner, P.A.

8/30/2011 to
12/31/2018

1850

$564,219

Jessica Wright, F.N.P.

05/1/2017 to
7/17/2018

601

$177,333

204.

McCollum and Labsource acted knowingly and willfully in offering and

providing Oaktree providers with inducements to refer UDT to Labsource payable by Medicare,
Medicaid, and TRICARE.
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205.

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For example, McCollum and other PMA management-level employees repeatedly

informed Oaktree providers that if they wished to make more money, they needed to make UDT
referrals. For example, in an email to Oaktree physician assistant Carlee Bright on May 23,
2017, McCollum wrote, in pertinent part:
As we discussed in our meeting last week, one of my goals for 2017 is to
pay you more money. In order to get there, I need your help watching a few
things each day and they are:
...
UDS % - (weekly goal is 45%) - You are doing a great job. Watch for your
high risk patients that probably need to be tested monthly or bi monthly .
. . . (Emphasis added).
206.

From at least 2014 to at least December 31, 2018, Labsource routinely transferred

money to Oaktree that was used to pay Oaktree providers in exchange for their referrals.
McCollum’s scheme, through Labsource, to pay Oaktree providers—including physicians, nurse
practitioners, and physician assistants—based, in part, on their UDT referrals to Labsource
violated the AKS. The bona fide employee exception and safe harbor to the AKS, described
above, does not apply here, as the referring providers were not employees of Labsource.
207.

Throughout the existence of these unlawful remuneration schemes, Oaktree

providers referred UDT to Labsource in violation of the AKS, as a result of which Labsource
submitted thousands of claims to Medicare, Medicaid, and TRICARE that were ineligible for
payment.

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B.

Labsource’s Direct Bill Program Violated the AKS

208.

From 2014 through at least December 31, 2018, Labsource, at McCollum’s

direction, utilized kickbacks—in the form of a “direct bill” program—as a means to grow its
business.
209.

Under the direct bill program—sometimes referred to by McCollum or others as

the “client bill” program—Labsource provided referring providers with an opportunity to earn
revenue generated from their commercially-insured UDT referrals as an inducement for those
providers to refer all of their UDT, and specifically for Medicare, Medicaid and TRICARE
beneficiaries, to Labsource.
210.

Courts have repeatedly held that giving providers “the opportunity to earn more

money,” as Labsource did through its direct bill program, is a thing of value that constitutes
remuneration under the AKS. United States v. Addus HomeCare Corp., No. 13-CV-9059, 2017
WL 467673, *10 (N.D. Ill. Feb. 3, 2017); see also United States v. Bay State Ambulance and
Hosp. Rental Service, Inc., 874 F.2d 20, 29 (1st Cir. 1989) (“Giving a person an opportunity to
earn money may well be an inducement to that person to channel potential Medicare payments
towards a particular recipient.”); United States ex rel. Fry v. Health Alliance, No. 1:03–CV–
00167, 2008 WL 5282139, at *7–*8 (S.D. Ohio Dec.18, 2008).
211.

In general, the laboratory performing the UDT bills the insurer for the tests it

performs. By contrast, Labsource’s direct bill program functioned as follows:
a.
b.

c.

A participating provider—either an individual physician or a clinic—would
execute a direct bill agreement with Labsource.
The participating provider would then pay Labsource a modest negotiated fee
(typically between $200 and $250) for each commercially-insured UDT order
referred to Labsource.
Labsource, in turn, would permit the provider to stand in Labsource’s shoes and

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bill the commercial insurer for the UDT performed by Labsource, and retain as
profit the difference between the commercial insurance reimbursement and the
negotiated fee paid to Labsource.
However, Labsource would bill and retain all of the revenue generated by
Medicare, Medicaid and TRICARE referrals.

212.

In the spring of 2014, McCollum sought to grow Labsource by bringing in a new

sales force and utilizing the direct bill program as a sales tactic.
213.

In or around the spring of 2014, McCollum, through his business partner, Dean

Banks, contacted Joe Case, then the head of sales at Castle Medical, LLC, a competing UDT
laboratory, which already had its own direct bill offering.
214.

In or around June 2014, McCollum met with Case and one of his Castle Medical

sales executives, Scott Massey, in an effort to recruit them to work for Labsource. During those
early discussions, McCollum made clear his interest in growing the business at Labsource.
McCollum brought up the direct bill concept and specifically inquired about Case’s and
Massey’s familiarity with it. Case and Massey walked McCollum through the direct bill offering
and how it should work.
215.

In or around June 2014, after meeting with McCollum and other senior members

of the Labsource team, Case and Massey agreed to join Labsource. The two quickly went about
recruiting other sales representatives over to Labsource, including a number of their former
colleagues at Castle Medical.
i.

216.

Utilizing the Direct Bill Program to Induce Referrals—Including
Medicare, Medicaid, and TRICARE Referrals—to Labsource
From the very beginning, McCollum and Labsource viewed the new direct bill

program, which was modeled on Castle Medical’s direct bill offering, as a way to develop
referrals and revenue from certain federal health care programs. For example, on June 19, 2014,
Donna Rauch, then serving as Chief Operating Officer of McCollum’s PMA business, sent an
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email to McCollum, Case, Massey, and another Labsource executive, summarizing plans for the
direct bill program. Her e-mail stated, in pertinent part, “Commercial amounts will go to the
customer’s bank account. . . . The M[edi]care and M[edi]caid billed through Labsource will
come directly to Labsource.” On that same date, Massey forwarded the summary to three of the
new sales representatives, noting, in pertinent part, “Keep these details to FYI as we prepare to
roll this out but here is what the details of DB Billing option will be.” Id.
217.

Shortly thereafter, McCollum himself set about promoting Labsource’s new direct

bill program. On July 9, 2014, he wrote an e-mail to a prospective client in Irmo, South
Carolina, explaining how, under the direct bill program, the provider could earn money from
referring definitive UDT to Labsource. The e-mail stated, in pertinent part:
Paul,
Thank you for getting the statistics to me. I have asked Scott Massey,
Divisional Vice President of South Carolina, to stop by your office and
discuss our recommendations with you. . . . On the confirmation
(quantitative) side, I recommend that you consider a direct bill, aka client
bill, arrangement with us. This would allow you to capture $300-$400 per
sample on your confirmations.
218.

McCollum, Case, and Massey next turned their focus to training the newly hired

sales representatives. In or around July 2014, Joe Case, with input from McCollum and others,
put together a training agenda, which he then e-mailed to McCollum, Massey, and other
Labsource executives. The agenda succinctly described what was to be Labsource’s strategy for
selling to providers: “Get them to the $.” Indeed, in discussions related to the upcoming training,
McCollum and Case specifically discussed pitching direct bill as a business opportunity for
providers that set Labsource apart from the competition.

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Case and Massey then prepared a PowerPoint presentation for use at the sales

training. In or around July and early August 2014, McCollum, along with other senior
Labsource executives, reviewed and provided input for that presentation.
220.

The presentation, which was subsequently utilized during the sales representative

training, described different tactics sales representatives could use in order to help providers earn
more money as an inducement for doing business with Labsource. Chief among these tactics
was the new direct bill program.
221.

The presentation described the direct bill program as “a way to introduce a

substantial revenue stream into the clinic.” The presentation explained that direct bill “can in
fact land you some HUGE clinics . . . . It is recommended that you utilize this as an enticement
for doing business with us.” The presentation made clear that sales representatives should utilize
tactics like the direct bill program to “[g]et in front of the decision maker” at a provider’s office:
“Get past the gatekeeper by asking the questions that offer the clinic a cost savings or an
additional profit center.” The presentation concluded by instructing sales representatives to offer
direct bill as “as an Additional Benefit of Doing Business with Us,” but cautioned them to expect
the following questions: “Is it Legal” and “Is it Too Good to be True.”
222.

The sales representative training itself took place in Greenville, South Carolina,

on or around August 6, 2014. McCollum provided some brief remarks at the training and,
according to several attendees, remained present for all or most of the training that followed.
223.

Case delivered much of the training, along with Massey. As part of that training,

Case utilized the presentation described above. According to an audio recording of the training,
Case provided clear direction regarding how sales representatives were to pitch Labsource to
providers.

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At the beginning of the training, Case provided the following roadmap:
So what you’re going to see for the next three hours is the way I go about
the sales process—is get them to the money. Physicians are struggling
today. They are all looking for additional income streams, so you are going
to see how I go about getting them to the money. (Emphasis added).

225.

Case reiterated that theme later in the training: “Everything I do—I’m trying to

make the physician more money. You [i.e., Labsource] get money off of confirmations.”
226.

Case explained his sales approach, encouraging Labsource’s new sales

representatives to emphasize direct bill early in their sales pitches, both as a way to get the
provider’s attention and as a crucial strategy for closing sales:
[I]f I’m in front of an anesthesiologist, and he tells me, you know, “I only
got a couple minutes. I got a patient back on my fluoro.” That means he’s
going in to do an injection. That tells me I don’t have a lot of time, so what
I’m going to do, in that scenario is, I’m going to introduce who I am; I’m
going to talk about Labsource really quick and I mean really quick; and
I’m going to go right to direct bill.
Because if I can show him how to put a half million dollars in his pocket,
that table—that table is going to be sat on for quite some time while he
listens to Joe talk [. . . . ] If you’re in a doctor’s office and you can grab an
hour, that’s great. Don’t plan on getting it. Plan on about 15 minutes, if
you’re lucky. Okay. But when you can actually speak to the money, and
show them how you can bring them profit, you'll be amazed at how long
you get. Scott Massey has put me on the phone a couple times. One was a
guy in Virginia Beach, probably never gave anyone more than five or ten
minutes. He gave me an hour-and-a-half, and when I got off the phone,
the sale was made, because Millennium [i.e., a competing UDT laboratory]
didn’t have me, and I showed that guy how to put money in his pocket.
Okay. So it makes a big difference when you’re talking about the
financial side of it. This was our game-changer, and this is what helped me
grow market share like no tomorrow. (Emphasis added).
227.

According to the audio recording, Case emphasized the importance of direct bill

as a way to close sales—describing sales efforts with the direct bill program as “shooting fish in
a barrel”—but also cautioned sales representatives that they should expect “objections” from the
providers about the legality of the direct bill program:
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I’m showing [the provider] how to pull in a $700 return off doing the same
thing [the provider is] currently doing. Who [is the provider] going to go
with? It’s us. That’s been the experience of direct bill. Okay. I’m going
to go into a lot more in detail, into a spreadsheet, on that, and then you can
ask your questions and more. But basically, past your billing, direct bill—
when I get done explaining this to you, there’s going to be two objections
you’re going to receive from the office manager and the physicians. Is it
legal [and] it’s too good to be true. If you learn how to get through those
two objections, you can sell this all day long. This is shooting fish in a
barrel, and I’m not kidding you. . . . This is the gold nugget. (Emphasis
added).
228.

According to the recording, Case also emphasized the importance of lucrative

federal health care program referrals to Labsource—describing them as “bread and butter”—
given that Labsource would only earn, at most, $250 for commercially insured patients under the
direct bill program: “Last year Medicare reimbursed, roughly, at $700. They’ve reduced my
units this year. I’m probably making 550. Medicaid gets me about 325. Okay. That’s my bread
and butter, because I’m only making 250 off commercial.”
229.

Case underscored this point when explaining the benefit to Labsource of direct

bill arrangements with providers who had a payor (i.e., patient insurance) mix dominated by
federal health care programs—specifically, Medicare and Medicaid. While the provider would
not earn money from referrals to Labsource for Medicare and Medicaid patients under the direct
bill program, Labsource certainly would:
Payor mix comes into play here to. Let’s say [a provider’s] . . . payor mix
is 90 percent Medicare/Medicaid. Well, good for us. It’s great for us. What
you consider payor mix, your normal train of thought, is actually good for
me. It’s not as good for the clinic. A lot of things that I introduce, through
our sales process, is to benefit the clinician and bring them value, and
income, at the clinical level. So a bad payor mix in ours, is actually good
for Labsource, because that means he’s doing less commercial, and I’m
eating more Medicare. I can make a living off Medicare, guys.

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In the course of the training, Case indicated that McCollum would be available to

help close sales: “If you’ve got a big fish out there or you’ve got a big deal you’re working, Dr.
McCollum is usually available.”
231.

As noted above, McCollum was present for all or much of the training. At no

point during the training did he object to, question, or seek to clarify the training and instructions
provided by Case to Labsource’s sales representatives.
232.

The training made a strong impression on many of the attendees about the

importance and efficacy of direct bill as a way to induce referrals to Labsource. For example,
Brian Jaffe—who was invited by an acquaintance to attend the training even though he was not
yet a Labsource employee—testified that he was so impressed by the training and Labsource’s
direct bill program that he decided to work for the company:
So then the [direct bill] concept that they presented to me was, like, wow,
this is really—why would somebody not want to buy this? I was, like, I’m
in, I’m in.
....
Instead of the [toxicology] companies taking all the revenue, the doctors
could take a portion of the revenue. Okay. So I’m thinking why would—
if a doctor makes nothing and then all of a sudden they can make a lot of
money, . . . why would they not do that. . . . So I was, like, this is too good
to be true. . . . So I went to Phoenix, and I started working the Phoenix
market.
233.

Many Labsource sales representatives followed the direction provided at the

training and led with direct bill in their sales pitches, using the remuneration available to
providers under the direct bill program as a way to induce UDT referrals, including Medicare,
Medicaid, and TRICARE UDT referrals.

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For example, in or about late August 2014, Jaffe, who became a Labsource sales

representative after the August 2014 training, used the following language in an e-mailed sales
pitch sent to a prospective client:
What’s different about Lab[s]ource is that not only do we use state of the
art LCMS technology to help you monitor over 50 therapeutic drugs, we
enable you to capture significant additional revenues to your facility.
I know you are incredibly busy, but I would welcome the opportunity to
meet with you or a member of your team for 15 minutes to discuss how
Lab[s]ource can improve Decision Point Center’s drug monitoring
programs while significantly growing your bottom line. (Emphasis in
original)
235.

On October 7, 2014, another Labsource sales representative wrote an e-mail to a

potential client to “just touch on some of the major aspects of what Labsource can bring to your
clinic.” The e-mail proceeded to describe, inter alia, the direct bill program—referring to it as
“Client Bill.” The sales representative explained, “The average reimbursement for the total test
is between $600–700. We . . . split the revenue between Labsource and your clinic.”
236.

On November 20, 2014, another Labsource employee wrote to a prospective

client, copying one of Labsource’s divisional vice presidents of sales, and attaching documents
regarding Labsource. One attachment, under heading titled “Why Labsource?,” touted the
“revenue sharing” available to the provider under the direct bill program. The attachment
included a pro forma estimating that the provider could earn income of $125,000 per month
under the direct bill program, by referring 500 definitive tests to Labsource.
237.

Another Labsource sales representative wrote the following in an e-mailed sales

pitch to a prospective client on December 15, 2014: “We hope that you will consider us working
together in a partnership in which we can offer the following: Direct Bill . . . . If you do 500
confirmations per month, you would realize a net profit of $125,000/month.”

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Jaffe also testified as to the exchange he generally had when pitching Labsource

to prospective clients—one in which direct bill figured prominently:
So basically, what I would say is—I would say, “So, Doctor, are you
currently prescribing opiates?” And if the answer is no, that would be it.
There was no more.
And if they said yes, “Okay. Are you testing your patients, doing urine drug
screening?”
And if they say “no,” then I would talk about the importance of urine drug
screening and how, you know, there’s a greater opioid epidemic in the
country and you’re putting your patients at risk by not doing it.
If they say yes, “Who are you using?”
“I’m using Millennium.”
“Oh, great. How do you like them?”
“Oh, they’re fine.”
“Let me ask you a question, Doctor. How much money are you making on
your urine drug screening?”
“Excuse me?”
“Yes. We have a special program called direct bill, and how it works is that
instead of the lab billing the insurance company and the lab taking all the
revenue, we allow you to bill the insurance company. And so you bill them
for 3-, $400, we bill you for 180, and you make the difference. And, you
know, $100, $150 or whatever the net profit . . . you’re talking $15,000 a
month.”
“Where do I sign?”
239.

McCollum was actively involved in Labsource’s direct bill program from its

launch in 2014 throughout the relevant time period. In addition to his role in launching the
program at Labsource, he occasionally participated in sales pitches—either in person or by
telephone. Case, who overheard a few of those pitches, testified that McCollum would refer to
the direct bill program as an opportunity for the providers to make a significant income stream.
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McCollum also played an active role in managing the program and signed many of the direct bill
agreements with providers on behalf of Labsource.
240.

McCollum also played an active role in determining the fee that Labsource would

charge a given provider for commercially insured patients under the program. As noted above,
these fees typically ranged from $200 to $250. Those providers for which other laboratories
were competing often received lower fees. This, in turn, made the direct bill program even more
profitable for those providers.
241.

As noted above, federal health care program referrals were greatly valued by

Labsource. In particular, Labsource considered Medicare to be one of the most reliable and
consistent payors. In addition, Labsource could often earn far more in profits from federal health
care program reimbursement than from the modest fees Labsource negotiated with providers for
commercially insured referrals under the direct bill program. For example, according to internal
Labsource correspondence, during the summer of 2015, Labsource expected to receive
reimbursement of $340 from Medicare for a typical panel of tests—substantially more than
$200–$250 fee Labsource received for each commercially insured urine specimen referred under
the direct bill program. At about that same time, Labsource estimated that it could incur on
average close to $200 in costs in running tests on a given specimen. Labsource therefore earned
little, if any, profit on the negotiated fees for commercial referrals from direct bill clients and
earned all, or most of its profit, from those clients’ federal health care program referrals. Put
another way, the direct bill program made the most economic sense for Labsource if it resulted in
federal health care program referrals. As Case accurately noted during the August 2104 sales
training, Medicare and Medicaid were his “bread and butter.”

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Consistent with this, Labsource prioritized providers with large federally insured

patient populations. Indeed, before offering a direct bill arrangement to a prospective client,
Labsource analyzed the payor mix for that provider’s patient population to determine the
percentage of that provider’s patients who had federal health care program insurance, as opposed
to commercial insurance, workers’ compensation, or no insurance.
243.

Moreover, a number of former Labsource sales representatives and senior sales

executives testified that Labsource offered the direct bill program to providers with the specific
goal that providers would refer to Labsource all of their UDT business, specifically including
their Medicare, Medicaid, and TRICARE referrals. In seeking to obtain all of a provider’s
referrals, specifically including those “bread and butter” federal health care program referrals,
these individuals sought to maximize earnings for Labsource, maximize their own sales
commissions, and/or prevent a competing laboratory from gaining a foothold with a client.
244.

For their part, providers responded favorably to Labsource’s direct bill pitch.

According to Labsource sales representatives, many providers selected Labsource over the
competition due to the remuneration offered by the direct bill program. For example, as one
former Labsource sales representative acknowledged in an e-mail to Joe Case: “The entire reason
Rush Pain began sending samples to LabSource was to build a ‘slush’ fund to fund the initial
start up for” their own laboratory development efforts.
245.

Similarly, Jaffe testified that his sales pitch “close rate” was very high and

explained that the direct bill program played a significant role in that:
Because the drug screening business is very, very competitive. There’s
many players out there. Some much larger than Lab[s]ource. And so
doctors typically don’t like change. And so if they are satisfied with a
current provider, they’re going to let it go. So there has to be some sort of
impetus to make them change. And that [direct bill program] really drove

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the impetus. That was the driving factor was the ability to make revenue,
make money on that.
246.

During the relevant time period, according to Labsource, at least 179 providers

from around the country—including Oaktree—entered into direct bill arrangements with
Labsource. These providers referred a large number of Medicare, Medicaid, and TRICARE
UDT orders to Labsource, resulting in tens of thousands of claims submitted to those federal
health care programs—including well over $10 million of tests insured by Medicare alone—
pursuant to those direct bill arrangements.
247.

For example, Dr. Gregory Auzenne, who, according to Labsource, had a direct

bill agreement in place from approximately August 2014 through December 2015, referred a
significant number of Medicare-insured UDT orders to Labsource during that time. Medicare
paid Labsource over $860,000 for those direct bill referrals. Dr. Gregory Stynowick, who,
according to Labsource, had a direct bill agreement in place from approximately June 2014
through August 2016, referred a significant number of Medicare-insured UDT orders to
Labsource during that time. Medicare paid Labsource over $310,000 for those direct bill
referrals. Similarly, Dr. Alexander Beyzer, who, according to Labsource, had a direct bill
agreement in place from approximately June 2014 through March 2015, referred a significant
number of Medicare-insured UDT orders to Labsource during that time. Medicare paid
Labsource over $160,000 for those direct bill referrals. Notably, none of these providers had
referred any Medicare-insured orders to Labsource prior to entering into their direct bill
agreements.
248.

The bona fide employee exception and safe harbor to the AKS, described above,

does not apply here because the referring providers were not employees of Labsource.

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Labsource and McCollum acted knowingly and willfully in offering the direct bill

program as an inducement for obtaining Medicare, Medicaid, and TRICARE referrals to
Labsource.
250.

For example, as predicted during the August 2014 sale training, providers

frequently questioned the legality of Labsource’s direct bill program. Scott Massey, who went
on to serve as Labsource’s head of sales after Joe Case, testified as follows: “It was always a
legality question. Most physicians were very concerned, will this get them in trouble.”
251.

Labsource responded to those provider questions by obtaining and sharing with

prospective clients a series of attorney opinion letters. The attorney opinion letters were drafted
by Labsource’s outside counsel, Yussuf Aleem. The letters all followed the same general
format, with some modifications to reflect the laws of the state in which a given provider was
located. Each such letter purported to explain why the direct bill program complied with the
AKS, the Stark Law, and certain state laws, though as Massey noted in his testimony, “[T]he
keyword there is it’s an opinion. That was not in any way like, okay, it’s permissible now. No,
that doesn’t give you any assurance.”
252.

If anything, the attorney opinion letters put Labsource on notice that its conduct

was, indeed, illegal. In particular, the attorney opinion letters each noted that their analysis
“relie[s] solely on the facts presented to [Mr. Aleem]” by Labsource; the letters proceed to
identify the following as one such the “fact[]” relied upon by Mr. Aleem: “[Labsource] will not
provide anything of value, whether directly or indirectly, in order to induce Providers to refer
specimens from patients who are insured through Government Payors.” But as illustrated above,
contrary to the representations Labsource made to its attorney, Labsource and McCollum did
indeed offer the direct bill program as way to provide value to providers—in the form of

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commercial insurance revenue—to induce those providers to refer to Labsource all of their of
their UDT business, specifically including UDT payable by Medicare, Medicaid, and TRICARE.
III.

McCollum, PMA, Oaktree, Labsource, ProLab, and ProCare Submitted, or Caused
the Submission, of Medically Unnecessary Claims to Medicare, Medicaid, and
TRICARE
253.

The unlawful financial incentives detailed above ultimately resulted in the

submission of medically unnecessary claims to Medicare, Medicaid and TRICARE.
Specifically, McCollum, PMA, Oaktree, and Labsource submitted, or caused the submission, of
medically unnecessary UDT claims to those federal health care programs. As detailed below,
ProLab and ProCare also submitted, or caused the submission of, medically unnecessary UDT
claims to Medicare, Medicaid, and TRICARE. McCollum, Oaktree, and PMA also submitted or
caused the submission of medically unnecessary claims to those federal health care programs for
steroid injections and prescription drugs—specifically, opioids and lidocaine ointment that were
medically unnecessary and unreasonable and lacked a legitimate medical purpose. Defendants
submitted, or caused the submission of, these claims with knowledge that they were medically
unnecessary—or at least in reckless disregard of that fact.
A.

Defendants McCollum, PMA, Oaktree, Labsource, ProLab, and ProCare
Knowingly Submitted, or Caused the Submission, of Claims to Medicare,
Medicaid, and TRICARE for Medically Unnecessary UDT and/or UDT that
was not Performed
i.

254.

Medically Unnecessary UDT for PMA Patients

As described below, McCollum, PMA, Oaktree, and Labsource took proactive

steps that resulted in providers ordering medically unreasonable and unnecessary UDT across
PMA’s patient population. Moreover, in some instances, Oaktree and Labsource submitted
claims, and were paid, for UDT that was not actually performed.

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During certain office visits with providers, PMA patients were asked to provide a

urine sample for testing. For at least a portion of the relevant time period, the provider
performed a presumptive POC test at the PMA clinic and ordered definitive UDT that, at the
direction of McCollum and PMA, were sent to Oaktree or Labsource. Oaktree or Labsource
performed a presumptive immunoassay test and definitive UDT on the urine samples sent by the
PMA clinic.
256.

McCollum, PMA, and Oaktree caused providers to routinely order excessive UDT

for their patients—without an individualized assessment of which tests were actually necessary
for a given patient—by utilizing a default UDT panel established by Oaktree. Although the
components of Oaktree’s default UDT panel changed periodically between January 1, 2011, and
December 31, 2018, Oaktree providers were not given options regarding whether or not to use
the default panel or what specific tests to include in the panel. In addition, the default panel
included presumptive immunoassay testing. Moreover, the results of a patient’s presumptive test
(POC and/or immunoassay) were not used in determining whether to run definitive UDT.
Rather, Oaktree performed definitive UDT using this default panel on a routine basis, even in
situations where the presumptive tests were negative and consistent with clinical expectations.
Oaktree’s default UDT panel was often comprised of 15 or more different definitive drug tests,
including for substances that were not commonly abused by PMA’s patient population or had
low risk for abuse or diversion. These practices resulted in UDT that was medically
unreasonable and unnecessary, which Oaktree billed to Medicare, Medicaid, and TRICARE.
257.

From approximately 2011 through 2016, Oaktree received payment from

Medicare alone in excess of $586,000 for UDT involving phencyclidine (“PCP”) (CPT Code
83992). PCP is not a commonly abused drug, and PMA rarely had patients who used or tested

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positive for PCP. Dr. Bert Blackwell, PMA’s medical director, testified that he would not
choose to include PCP on a definitive UDT panel, given the option. Yet, Oaktree consistently
included PCP on its default UDT panel and billed such testing to Medicare, Medicaid, and
TRICARE.
258.

Similarly, in 2014, Oaktree’s default UDT panel included Tricyclic Anti-

Depressants (“TCAs”), despite the fact that TCAs present a low risk of abuse and diversion and
that not all PMA patients were prescribed and/or taking TCAs. In that year, Oaktree received
payment from Medicare alone in excess of $332,800 for UDT of four types of TCAs:
amitriptyline (CPT Code 80152), desipramine (CPT code 80160), doxepin (80166), and
nortriptyline (CPT Code 80182).
259.

In or around mid-2013, PMA clinics began referring UDT to McCollum’s other

laboratory, Labsource. The determination whether to send UDT to Oaktree or Labsource
depended largely on reimbursement rates by payors to each laboratory. On September 15, 2015,
Michael Brohm, PMA’s CEO at the time, e-mailed PMA and Labsource management-level
employees, including McCollum, recommending that PMA patients’ urine samples be processed
and billed by Labsource for Medicare, Medicaid, and TRICARE because Labsource was
reimbursed at a higher rate than the Oaktree. By mid to late 2016, PMA began referring most of
its Medicare UDT to Labsource after CMS placed Oaktree under a payment suspension for
billing medically unnecessary UDT.
260.

Similar to Oaktree, Labsource created a default UDT panel often comprised of

presumptive immunoassay testing and 20 more different definitive tests that was used across all
PMA patients regardless of individual patient need and billed to Medicare, Medicaid, and
TRICARE.

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Notably, the Oaktree and Labsource default UDT panels were often large enough

to result in the highest levels of reimbursement from Medicare and TRICARE, even after the
2016 changes to UDT reimbursement. See supra Paragraph 148.
262.

By including presumptive immunoassay tests and numerous definitive tests on

their default UDT panels and preventing physicians from ordering fewer than all of those tests,
McCollum, PMA, Oaktree, and Labsource knowingly submitted, or caused the submission, to
Medicare, Medicaid, and TRICARE of tens of thousands of claims for millions of dollars of
medically unreasonable and unnecessary UDT during the relevant time period.
263.

The determination as to which tests Oaktree and/or Labsource performed on a

particular patient’s urine specimen was not based on the patient’s clinical history, risk of abuse,
or individual clinical assessment, but rather driven exclusively by whatever default UDT panel
was in effect at that time.
264.

For example, PMA Patient B.P., 1 a Medicare beneficiary, was seen on February 3,

2012 by Dr. Ryan Rosen. Patient B.P. was an established PMA patient who was being treated
for neck, back, hip, and knee pain. Patient B.P. had no history of alcohol or drug abuse.
According to the medical record, Patient B.P. did not have a history of non-compliance or
aberrant behavior. On February 3, 2012, a presumptive POC test was performed for Patient B.P.
and tested positive for opiates and benzodiazepines, which was expected and consistent with
Patient B.P.’s prescribed medications. The requisition/order form indicated “Comprehensive
Drug Monitoring-Urine.” However, the ordering physician did not select or specify exactly

1

Patient identities are not provided here to protect patient privacy. Upon entry of an appropriate
protective order, the United States will provide Defendants with a list identifying the names of
the patients described in this Complaint.
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which drugs the laboratory was to perform definitive testing. Moreover, the medical necessity of
ordering such definitive testing was not clearly stated in the medical record.
265.

Oaktree performed definitive UDT on B.P.’s specimen for numerous drugs. The

patient medical record did not support the need for such extensive definitive testing and there
was no documentation in any follow-up visits of a review of the results of this definitive testing
performed by Oaktree. The results of the definitive UDT were reported as inconsistent with the
patient's prescribed medications. Specifically, the definitive UDT listed a positive result for
Tramadol which was not found listed in the medical record as one of the patient’s prescribed
medications. This unexpected positive result was not addressed by the treating physician. Nor is
there any indication in the patient file of any modification in treatment based on the results of the
definitive testing. Oaktree submitted claims to Medicare for Patient B.P’s UDT and was paid
over $840 for these tests. Oaktree also submitted a claim to Medicare for UDT of alcohol, but
there is no indication in the medical record that such testing was actually performed. Medicare
paid Oaktree an additional $14.02 for this test. Oaktree knew these claims for tests that were not
reasonable and necessary and, in some instances not performed, were false.
266.

As another example, PMA Patient K.F., a Medicare patient, was seen on June 16,

2014 by physician assistant, Brant Turner. Patient K.F. was an established PMA patient who
was being treated for knee pain. Patient K.F. had no history of alcohol or drug abuse. On June
16, 2014, presumptive POC UDT was performed for patient K.F. and tested positive for opiates,
which was expected and consistent with K.F.’s prescribed medications. PMA then sent Patient
K.F.’s urine specimen to Oaktree with a requisition/order form indicating “Pain/addiction pnl
w/scrn.” The requisition/order form did not specify which drugs should receive definitive testing.

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In accordance with the default UDT panel in effect at the time, Oaktree conducted

a presumptive immunoassay screen and definitive UDT on K.F.’s for numerous different drugs.
The results of Patient K.F.’s presumptive test were not used in determining whether to run
definitive UDT. Rather, the definitive UDT panel appeared to be routine and not based on the
results of Patient K.F.’s presumptive test or any patient specific risk assessment. Nothing in the
patient file supported the need for such extensive definitive UDT. The definitive UDT results
were appropriately positive for hydrocodone (and its metabolites) and clonazepam, which Patient
K.F. had been prescribed. However, the definitive UDT did not detect Tramadol, another one of
Patient K.F.’s prescribed medications. There was no documentation or discussion of this
inconsistency on the follow-up visit nor was there any modification of treatment based on the
results of this testing. Oaktree submitted claims to Medicare for this UDT for Patient K.F. and
was paid over $701 for these claims. Notably, over $141 of these claims were for definitive
UDT of tricyclic anti-depressants (e.g., amitriptyline, desipramine, nortriptyline, and doxepin),
nicotine, and alcohol when there was no indication in the medical record that such tests were
actually performed. Oaktree knew these claims for tests that were not reasonable and necessary
and, in some instances not performed, were false.
268.

As another example, PMA Patient S.K., a dual-eligible Medicare and Medicaid

beneficiary, was seen on August 24, 2015, by Oaktree physician Dr. Dwight Jacobus. Patient
S.K. was an established PMA patient who was being treated for chronic pain. The medical
record indicated that Patient S.K. had no history of drug or alcohol abuse and no history of noncompliance or aberrant behavior. On August 24, 2015, presumptive UDT was performed and
was positive for oxycodone and benzodiazepines, which was consistent with Patient S.K’s
prescribed medications. PMA then sent Patient S.K.’s urine specimen to Labsource with a

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requisition/order form indicating “Automated Panel.” The requisition/order form did not specify
as to which drugs the laboratory was to perform definitive testing.
269.

Labsource conducted presumptive immunoassay testing and definitive UDT for

numerous drugs on Patient S.K.’s urine specimen. The results of Patient S.K.’s presumptive test
were not used in determining whether to run definitive UDT. Rather, the definitive UDT panel
appeared to be routine and not based on the results of Patient S.K.’s presumptive test or any
patient specific risk assessment. There was no indication that the treating clinician assessed the
medical need, if any, of those tests. Labsource submitted claims to Medicare for this testing for
Patient S.K. and was paid $245. Labsource knew these claims for UDT that were not reasonable
and necessary were false.
270.

McCollum, PMA, Oaktree, and Labsource engaged in the described conduct

above despite knowing that testing should be based on individual patient need. For example, in
or around April 2014, while serving as the laboratory director of Labsource, Dr. Marion Snyder
shared with McCollum and other Oaktree providers a presentation she drafted titled “Proposed
Urine Toxicology Ordering Protocol.” In the presentation, Dr. Snyder referenced a recent draft
LCD issued by Palmetto GBA and emphasized that “confirmatory testing should ONLY be
ordered and performed on a patient/drug specific basis[.]” (Emphasis in original). She also noted
in the presentation that “routine confirmation (quantitative) of drug screens with negative results
is not covered by Medicare.”
271.

PMA also ordered UDT more frequently than was medically reasonable and

necessary. As noted above, McCollum and Oaktree kept track of how much UDT was being
ordered by Oaktree providers and set targets or goals for each provider and PMA clinic to meet.
For example, in August 2016, Tommy Jackson, the COO of PMA at the time, emailed PMA

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clinic managers, urging certain offices to increase the amount of UDT ordered: “FANTASIC job
on [UDT] to everyone! If you are below 30% please catch up with the rest of the offices. (You
know who I am talking too [sic]).” Moreover, in or around 2017, McCollum implemented a
UDT policy by which Oaktree providers were each assigned a particular month. All patients
seen by that provider during his or her assigned month were to receive a UDT regardless of
individual need.
272.

There were numerous instances during the relevant time period in which both

Oaktree and Labsource billed Medicare for UDT performed on a single PMA patient on the same
day or within a few days of one another. This testing was duplicative and medically
unreasonable and unnecessary.
273.

For example, on October 29, 2014, Oaktree billed Medicare for UDT referred by

Oaktree physician, Dr. Brian Bothe, for Patient J.K. Two days later, on October 31, 2014,
Labsource billed Medicare for the exact same urine drug tests for Patient J.K. Medicare paid
Oaktree and Labsource approximately $440 each for those tests.
274.

As another example, on February 19, 2014, Oaktree billed Medicare for UDT

referred by Oaktree physician, Dr. Dwight Jacobus, for Patient P.F. On the very same day,
Labsource billed Medicare for many of the same urine drug tests for Patient P.F. Medicare paid
Oaktree and Labsource—approximately $335 and $210, respectively—for those duplicative
tests.
ii.

275.

Medically Unnecessary UDT for PMA Patients Involving ProCare
and ProLab

In or around 2013, McCollum and PMA entered into a business relationship with

ProCare, whereby McCollum and PMA agreed to allow individuals employed by ProCare

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(“ProCare greeters”) into PMA clinics to promote ProCare’s substance abuse and addiction
counseling services.
276.

ProCare greeters provided PMA patients with ProCare “gift cards” that could be

redeemed for free counseling sessions at ProCare.
277.

The ProCare counseling sessions purportedly educated patients on the proper way

to use opioid medications prescribed by Oaktree physicians. The ProCare counseling sessions
were also purportedly used to ensure that the patients were not abusing their opioid medications
or at risk for negative drug interactions.
278.

Patients who were seen at ProCare were required to provide a urine sample that

was sent off for testing at McCollum’s and ProCare’s laboratory, ProLab.
279.

ProCare’s medical director and only employed physician was Dr. William Scott.

Pursuant to his medical director agreement with ProCare, Dr. Scott’s duties included, but were
not limited to, “signing of all charts and labs.”
280.

As noted above, pursuant to 42 C.F.R. § 410.32(a), all diagnostic tests “must be

ordered by the physician who is treating the beneficiary, that is, the physician who furnishes a
consultation or treats a beneficiary for a specific medical problem and who uses the results in the
management of the beneficiary’s specific medical problem. Tests not ordered by the physician
who is treating the beneficiary are not reasonable and necessary.”
281.

Dr. Scott was designated on ProLab’s claim forms as the ordering and referring

physician for the vast majority of patients for whom ProLab performed and billed UDT.
However, by his own admission and contrary to the requirements of 42 C.F.R. § 410.32(a), Dr.
Scott never actually saw or treated a single patient at ProCare. Accordingly, all of the UDT
referred to ProLab by Dr. Scott for ProCare patients—which resulted in thousands of claims

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submitted to Medicare, Medicaid, and TRICARE—was neither reasonable nor medically
necessary. In 2014, ProLab received over $598,000 from Medicare alone for UDT referred by
Dr. Scott.
282.

Similar to Oaktree and Labsource, ProLab utilized a default UDT panel

established by the laboratory across most, if not all, of its patients without regard to individual
need. This default UDT panel was often comprised of numerous different tests, including for
substances that were not commonly abused and/or had low risk for abuse or diversion. The
determination as to which tests ProLab performed on a particular patient’s urine specimen was
not based on the patient’s clinical history, risk of abuse, or individual clinical assessment, but
rather driven exclusively by whatever default UDT panel was in effect at that time.
283.

Moreover, ProCare’s orders for UDT were needlessly duplicative—often

occurring on the same day or within several days of the date on which an Oaktree physician also
ordered overlapping UDT for the same patient that was sent by PMA to another of McCollum’s
laboratories.
284.

For example, on April 15, 2014, Oaktree, Labsource, and ProLab each billed

Medicare for some of the same urine drug tests for Patient B.N. Although Medicare denied
Labsource’s claims, Medicare paid Oaktree and ProLab approximately $504 and $374,
respectively, for those duplicative UDT claims.
285.

By way of another example, on July 30, 2014, Oaktree and ProLab each billed

Medicare for some of the same urine drug tests for Patient K.M. Medicare paid Oaktree and
ProLab approximately $489 and $437 respectively, for those duplicative claims.
286.

As yet another example, on August 5, 2014, Labsource billed Medicare for urine

drug tests referred by Oaktree physician Dr. Rebecca Holdren for Patient M.N. Less than one

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week later, on August 11, 2014, ProLab billed Medicare for many of the same urine drug tests
for Patient M.N. supposedly ordered by Dr. William Scott of ProCare Counseling. Medicare
paid Labsource and ProLab approximately $247 and $118, respectively, for those duplicative
UDT claims.
287.

For all the aforementioned reasons, the UDT ordered by ProCare and performed

and billed by ProLab were completely devoid of medical necessity, and were merely another
scheme for McCollum and his companies to unlawfully generate revenue from UDT.
iii.
288.

Medically Unnecessary UDT for Other Patients

In addition to serving Oaktree providers, Labsource offered both immunoassay

and definitive UDT to other providers throughout the United States. As described below, during
the relevant time period, Labsource took proactive steps to encourage providers to routinely
order large quantities of medically unreasonable and unnecessary UDT across all or most of their
patients—without an individualized assessment of which tests were actually necessary for a
given patient—by utilizing standing order forms and the direct bill kickback scheme described in
Section II.B., above. This practice resulted in thousands of claims for medically unreasonable
and unnecessary UDT that was billed to Medicare, Medicaid and TRICARE.
289.

As described above, when processing specimens for Oaktree providers, Labsource

used a default UDT panel. When working with non-Oaktree providers, Labsource took a slightly
different approach—encouraging medically unreasonable and unnecessary testing through the
use of provider standing orders. Labsource obtained these standing orders through the use of its
Physician’s Preferred Order form (“PPOF”). Labsource created this form as part of its plan to
direct providers to establish protocols for UDT to be performed on all of their patients—usually
involving, at minimum, dozens of definitive tests—regardless of the patients’ individual need.

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Beginning in or around 2013, Labsource directed its sales force to obtain these

standing orders from all of its provider clients. The “New Account Form” filled out by sales
representatives for each new provider featured a reminder to “COMPLETE PHYSICIAN[’]S
STANDING ORDER FORM (*EXTREMELY IMPORTANT).” (Emphasis in original.) A
revised version of the “New Account Form,” developed in or around December 2014 and used,
with some minor modifications, throughout the relevant time period, included the same reminder
but referred to the form as “Physician[’]s Preferred Order Form,” rather than a “Standing Order
Form.”
291.

Consistent with this direction, when signing up new providers, Labsource sales

representatives encouraged each provider to fill out a PPOF. Each physician’s standing order
was then assigned a code. When the provider wished to order UDT from Labsource, the
provider could simply reference the assigned code for his or her standing order, rather than
selecting individual tests that were actually reasonable and necessary for a given patient.
292.

Through its PPOF protocol, Labsource caused providers to utilize the same

standing order of tests for all or most of their patients each and every time they requested UDT
for those patients, resulting in frequent, overbroad, and unnecessary testing.
293.

Indeed, through the use of its direct bill kickback scheme, described above,

Labsource offered referring providers a powerful financial incentive to order UDT that was not
medically necessary.
294.

For example, Patient B.W. was a patient of Dr. Arie Mantin at Clemmons Urgent

and Primary Care. Dr. Mantin had a direct bill agreement in place with Labsource. Patient B.W.
had suffered a motorcycle accident resulting in a clavicle injury, shoulder pain, and ongoing
chronic back pain. The patient was being treated with Suboxone. Every two weeks, Dr. Mantin

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performed presumptive tests on the patient. Each of these presumptive tests came back as
expected, indicating use of Suboxone, but showing no indication that the patient used any other
drugs of abuse. Consistent with these results, Dr. Mantin described the patient as compliant with
the therapy in the patient file. Despite these results, every two weeks, Labsource ran definitive
testing on Patient B.W.’s urine specimens. For example, on October 3, 2014, Dr. Mantin
referred B.W.’s urine specimen to Labsource for a broad standing order of 37 definitive tests.
Medicare paid Labsource $416.79 for this testing alone. Nothing in the patient file supports the
need for such definitive testing, and there is no documentation in any follow-up visits of a review
of this or any other definitive testing performed by Labsource. Nor is there any indication in the
patient file of any modification in treatment based on the results of this or any other definitive
testing.
295.

McCollum was involved in and aware of Labsource’s standing order

practice. For example on July 3, 2013, a Labsource employee copied McCollum on e-mail to a
provider, which stated, in pertinent part, “Attached is the standing order form and all other pdf
copies of the other essential reference service engagement materials.” Similarly, on or around
June 30, 2014, McCollum received an e-mail chain in which Corrine Fantz, a Labsource
employee, reported that she “spoke with [a provider] this morning by phone. He verbally agreed
to have his standing order revised to Screen for THC and EtG/EtS and ONLY confirm positives
for these compounds. All other requests will be confirmed by LC-MSMS [i.e., definitive
testing] regardless of screening result.” (Emphasis added). On or around July 1, 2014,
McCollum replied to the e-mail chain, stating “Excellent work Corinne!”
296.

In or around 2014, Labsource took steps to further encourage physicians to order

medically unreasonable and unnecessary UDT through their standing orders by revising the

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format of the PPOF. Rather than listing each test individually, the revised PPOF grouped
Labsource’s presumptive and definitive test offerings into “profiles.” For example, although
these profiles changed to some extent over time, at various points in time during the relevant
time period, Labsource offered a “Basic Confirmation Profile,” a panel consisting of over 40
individual tests; an “Extended Confirmation Profile,” a panel consisting of over 50 individual
tests; and an “Extended Confirmation Profile with Pyschotherapeutics,” a panel consisting of 70
or more individual tests. Notably, the Labsource-created profiles were all large enough to result
in the highest levels of reimbursement from Medicare and TRICARE, even after the 2016
changes to UDT reimbursement. See supra Paragraph 148.
297.

Labsource proceeded to encourage providers to select these large panels of

definitive tests as their standing order, for use on a routine basis—rather than simply performing
definitive testing on positive or unexpected presumptive test results or otherwise testing based on
individual patient need.
298.

For example, on December 20, 2014, a Labsource sales representative e-mailed a

provider, copying a Labsource divisional vice president of sales, and stating, in pertinent part,
Hello Diane,
Please review the New Account information for accuracy and make any
necessary corrections. All we need is the signed Physician Preferred Order
and the Direct Bill Agreement. We recommend that you mark the basic
confirmation profile under LC-MS/MS Quantitative Testing section
unless you need Extended Confirmation PO40 or PO4. . . . (Emphasis
added).
299.

That same sales representative sent an e-mail on January 12, 2015 to another

provider—once again copying a divisional vice president of sales—and directing the provider to
fill out the PPOF as follows: “Just check the basic confirmation and don’t worry about the
immunoassay section.”
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Similarly, on November 24, 2014, Scott Massey sent an e-mail to a sales

representative, copying McCollum and other Labsource executives, stating as follows:
Jeff,
This account is only setup for screens (and confirm only positives)[.] It
needs to have a confirmation choice beyond just confirming positives. If
they want an immunoassay system that they run in house and send us the
positives that’s fine but we can’t take screens only. It is a financial loser
for us. I have attached the preferred order form. Please revise it so we
can do confirms. Thanks[.] (Emphasis added).
301.

Labsource’s efforts to encourage the use of standing orders were

successful. Jenny Jones, Labsource’s former Vice President of Operations,
acknowledged that when ordering UDT from Labsource, providers almost never deviated
from their standing orders. Scott Massey similarly testified that “more often than not”
providers used as their standing orders one of the Labsource-created profiles listed in the
revised PPOF.
302.

These tactics resulted in medically unreasonable and unnecessary testing.

303.

For example, Patient B.A., a Medicare patient, who had a history of

alcohol and nicotine dependence, was admitted to Turning Point Hospital for in-patient
detox treatment. The patient self-reported no other substance use or abuse, and, around
the time of admission, a presumptive test showed no use of non-prescribed drugs or
substances of abuse. The facility provided a controlled environment for Patient B.A.—
removing from the patient any possessions considered to put the patient at risk and
providing medications in a hospital setting under the prescription and supervision of a
treating provider. Despite the presumptive tests results and the use of this controlled
environment, on August 21, 2014, the patient’s date of discharge from that program,
Labsource performed a broad profile of over 50 definitive tests, for which Medicare paid
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$566.01. Nothing in the patient’s file indicates the need for such testing, and nothing in
the patient’s file indicates that the results of such testing—which were consistent with the
medications prescribed to the patient while at Turning Point—were ever reviewed or used
in any way.
B.

McCollum, Oaktree, and PMA Caused the Submission of Claims to
Medicare, Medicaid, and TRICARE for Unnecessary Opioid Prescriptions
That Lacked a Legitimate Medical Purpose

304.

From at least January 1, 2011, through December 31, 2018, Oaktree providers,

with McCollum’s knowledge and approval, regularly wrote prescriptions for thousands of claims
for opioid medications for PMA patients that were not for a medically accepted indication and
therefore lacked a legitimate medical purpose and medical necessity.
305.

Oaktree, PMA, and McCollum knowingly caused the submission of these false

claims for opioid prescriptions for patients insured by Medicare, Medicaid, and TRICARE.
306.

In many instances, Oaktree providers issued opioid prescriptions to PMA patients

without actually seeing the patients and/or without properly assessing the patients’ need for those
drugs.
307.

PMA employees used pre-signed and forged opioid prescriptions with patients

when the patient’s provider was not present. For example, Oaktree physician Dr. Blake Leche
and physician assistant Amanda Leche provided PMA staff with pre-signed prescription forms,
enabling the staff members to simply write in the opioid drug name and dosage when Dr. Leche
was not present in the office or was otherwise unavailable to see the patient. In other instances,
PMA staff simply forged Dr. Leche’s signature on opioid prescriptions.
308.

For example, Patient G.L. obtained a prescription for Norco

(hydrocodone/acetaminophen), a Schedule II controlled substance, from Dr. Leche on April 9,

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2018, despite the fact that there was no indication that Dr. Leche was in the office, much less that
he saw the patient on that date. Medicare Part D paid approximately $15 for this forged/presigned prescription.
309.

Similarly, former Oaktree physician, Dr. Christopher Rubel, often saw well over

70—and sometimes upwards of over 90—PMA patients a day. His interactions with these
patients were often cursory in nature and frequently did not involve a substantive examination.
Dr. Rubel nevertheless proceeded to prescribe opioids for PMA patients that were medically
unnecessary and without a legitimate medical purpose.
310.

Tracy Hawkins, who was Dr. Rubel’s medical assistant from approximately

October 2016 to August 2018, was tasked with filling out prescriptions for Dr. Rubel, including
altering the dosage or type of opioid medication upon the patient’s request. Dr. Rubel would
then sign the prescriptions without adequately assessing the patient.
311.

For example, Patient O.A. stated that Dr. Rubel spent no more than five minutes

with her and never examined her. She indicated that on at least ten occasions she never saw a
provider; instead, a medical assistant would simply hand her a prescription for OxyContin. From
April 2016 to February 2018, Medicare Part D paid approximately $851 for OxyContin
prescribed by Dr. Rubel for Patient O.A.
312.

McCollum knew about the conduct described above, but nevertheless permitted

his employees to continue writing these improper opioid medication prescriptions, including
prescriptions that would be reimbursed by Medicare, Medicaid, and TRICARE. In a discussion
with Oaktree nurse practitioner Jessica Wright, McCollum referred to his PMA clinics in Easley
and Sklyn, South Carolina, as “pill mills,” a term commonly used to describe a practice that is
prescribing narcotics without a legitimate medical purpose.

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Along those lines, McCollum and other PMA management-level employees were

also specifically aware of Dr. Rubel’s opioid medication prescribing habits and the attendant
risks. Indeed, in or around December 2017, McCollum, along with PMA management-level
employees Dawn Richards, and Michael Brohm, had a meeting with Jessica Wright, an Oaktree
nurse practitioner who worked closely with Dr. Rubel. In the course of that meeting, McCollum
acknowledged Dr. Rubel’s excessive opioid prescribing habits and the recent overdose deaths of
two PMA patients.
314.

McCollum acknowledged during his conversation with Jessica Wright that he was

aware that other Oaktree physicians, such as Dr. Dwight Jacobus and Dr. Brian Wiley, also
prescribed excessive opioid medications to PMA patients.
315.

McCollum did not take appropriate or sufficient steps to curb the prescription of

medically unnecessary and illegitimate opioids at PMA. Instead, McCollum himself profited
from these prescribing practices. From roughly 2011 through roughly May 2018, First Choice
Pharmacy was located in one of PMA’s office buildings at 1005 Grove Road, Greenville, South
Carolina. During the relevant time period, a number of PMA patients seen by Oaktree providers
filled their prescriptions at that pharmacy, including prescriptions for opioid medications they
received from Oaktree providers. McCollum, in turn, received rent from the pharmacy, in the
amount of roughly 2.5% of the pharmacy’s gross sales (including sales of opioids).
C.

McCollum and PMA Pressured and Incentivized Oaktree Providers to
Perform Unnecessary Steroid Injection Procedures

316.

McCollum and PMA also encouraged Oaktree physicians to administer medically

unnecessary and unreasonable steroid injections to Medicare, Medicaid, and TRICARE patients
addicted to pain medications and/or desperate for pain relief, who were vulnerable and unlikely

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to object to the procedures, particularly when the injections were described as prerequisites for
receiving opioid prescriptions.
317.

As noted above, providers may, in certain circumstances, inject steroids into

muscles and tendons, or into joints such as the spine (facet joints), knees, hips, elbows, or
shoulders, for the purpose of decreasing inflammation in these areas. However, the frequent use
of steroid injections may cause adverse events, including the weakening or necrosis of the area
injected, nerve damage, or infection.
318.

In closed-door meetings with Oaktree providers and during practice-wide

meetings, McCollum and other PMA management-level employees communicated a practice
goal that over 30% of patients seen each week should be receiving steroid injections, without
regard to medical necessity and the risks of such procedures.
319.

To incentivize Oaktree providers to refer or perform more steroid injection

procedures, McCollum and PMA management-level employees frequently reminded physicians
that their bonus included reimbursements from these injection procedures.
320.

In or around 2017, McCollum also devised a scheme to circumvent the medical

judgment of Oaktree providers entirely by having a non-licensed PMA staff member, Greta
Meehan, call PMA patients and falsely tell them that their treating provider recommended an
injection and that they would need to receive the injection in order to continue receiving pain
medication prescriptions.
321.

For example, PMA Patient R.W. was told that if he did not agree to receive

injections, his medications would be discontinued. Moreover, PMA Patient L.N. was pressured
to submit to steroid injections and feared if she did not undergo the procedures that her pain
medication would not be refilled. Following the steroid injections, Patient L.N. experienced

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trouble controlling her diabetes—a known side effect of steroid injections. Both Patient R.W.
and Patient L.N. were insured by Medicare.
322.

Greta Meehan scheduled many PMA patients for procedures with Oaktree

physician Dr. Lisa Lichota, an interventional pain specialist, who, upon learning of the scheme,
repeatedly voiced her concern to Daniel McCollum and Dr. Bert Blackwell.
323.

In an e-mail sent to McCollum on September 5, 2017, Dr. Lichota stated, in

pertinent part:
To Dr McCollum,
Please do not have Gret[]a schedule procedures for me unless I first see the
patient. When Dr Blackwell asked if I would do procedures that a
“colleague” ordered I agreed to do so. As far as I know Gret[]a is not a
physician nor a midlevel. I am unaware if she is a medical clinician of any
sort. I am unaware what credentials she holds. I have requested her CV but
I have not received one. I believe that she is scheduling procedures based
on x‐ray reports that have not been read by a qualif ied physician. They all
seem to report the same findings. “DJD, injections may be indicated.” The
physician, [nurse practitioner], [or physician assistant] that saw the patient
hasn’t recommended the procedure that is being scheduled for me . . . .
Thus, there is no clinical correlation to the x‐ray reports. These patients
show up on my surgical schedule. They have told me that if they don’t
agree to the procedure, their medication will be stopped. They seem to
have no idea what is going on except that a woman unknown to them has
called them and told them they need to come in for an injection and that
if they do not, their medications will be stopped. (Emphasis added).
324.

Between June 1, 2017, and October 16, 2017, the period when Meehan was

actively scheduling patients for injections, Medicare paid approximately $90,482 for injections
procedures performed by Lisa Lichota. At least a portion of these were performed based on Dr.
Lichota’s understanding that a licensed provider had ordered the injections, when in reality, the
injections were scheduled by unlicensed PMA staff.
325.

For example, FirstChoice Healthcare submitted claims to Medicare for Patient

C.H. for an epidural steroid injection given on August 11, 2017. This injection was not ordered
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by a physician or mid-level provider, but instead was scheduled by Greta Meehan, who had little,
if any, medical training. Relying on the certifications supplied by FirstChoice Healthcare as part
of its claim submission, Medicare paid over $592 for Patient C.H.’s epidural steroid injection
claims. Had Medicare known that the procedure was performed without a valid order by the
treating provider, it would not have paid this claim.
326.

In or around 2017, Oaktree Physician Assistant Carlee Bright learned that several

of her patients received injections before she had the opportunity to review the patient’s
diagnostic images, determine clinical need, and/or discuss the risks and benefits associated with
the particular injection. Bright learned from several patients they were contacted by Greta
Meehan to schedule the injection procedure, and the patients were told that Bright ordered the
injection, when in fact, she did not. Meehan also informed Bright’s patients, as she did Dr.
Lichota’s patients, that they would have to receive the injection before they could receive their
pain medication prescription.
327.

Bright testified that when she voiced concern about this practice to McCollum

and/or PMA management-level employee Dawn Richards, she was simply told, “Yeah, that’s the
plan.”
328.

As a result of this scheme perpetrated by McCollum, Oaktree, and PMA hundreds

of PMA patients received medically unreasonable and unnecessary injections, many of which
were billed to and paid by Medicare, Medicaid, and TRICARE.
329.

McCollum and PMA’s pressure tactics and practice of strong arming patients to

submit to these procedures worked. In 2016, Medicare paid FirstChoice Healthcare over
$421,000 for steroid injection procedures. In 2017, the amount paid by Medicare to FirstChoice
Healthcare for steroid injection procedures increased to over $1.8 million. Further, by 2018, the

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amount paid to FirstChoice Healthcare by Medicare for steroid injection procedures increased to
$2.2 million.
D.

McCollum, Oaktree, and PMA Pressured and Incentivized Oaktree
Providers to Prescribe Unnecessary Lidocaine Ointment That Lacked A
Legitimate Medical Purpose

330.

In or around May 2014, McCollum, Oaktree, and PMA identified another

opportunity to generate substantial revenue through prescription ointments that were medical
unnecessary and lacked a legitimate medical purpose. To capitalize on this opportunity,
McCollum formed a pharmacy, Exigo Pharmaceuticals, LLC (“Exigo”), which was located
inside of one of the PMA office buildings. Exigo focused on producing ointments containing
lidocaine, a topical anesthetic.
331.

Because lidocaine ointments are, at most, only marginally useful for patients

experiencing chronic pain, McCollum devised a two-part scheme in order to generate revenue
from insurance reimbursement. First, McCollum, Oaktree, and PMA incentivized Oaktree
providers to prescribe these ointments by offering them compensation in exchange for each
prescription filled by Exigo. Second, he had Exigo automatically ship refills to patients—many
of whom never even discussed the need for use of the ointments with their providers.
332.

As noted above, on May 23, 2017, McCollum e-mailed Oaktree Physician

Assistant Carlee Bright writing, in pertinent part, “one of my goals for 2017 is to pay you more
money. In order to get there, I need your help watching a few things each day[.]” Among these
“things” he identified was a “goal” of 20 lidocaine ointment prescriptions per week. He also
instructed her to include 11 refills in each prescription.
333.

In addition, as part of a January 2017 presentation titled “Who Moved My

Cheese,” which was given to Oaktree providers, Dr. Blackwell detailed the compensation those

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providers could expect to earn by prescribing these ointments. Specifically, in a slide titled
“Provider Compensation Compound Rx’s,” he explained: “For the month of October 104 Rx’s
were written (one prescriber accounts for 38). Collected $37,750. If the provider prescribing 38
rx’s in the month of October averaged this the rest of the year, this would result in an additional
$33,100 paid to the provider.”
334.

In order to further drive the prescription of lidocaine ointment, beginning in or

around 2017, PMA employee Nicole Poston reviewed patient records for payor information to
determine which patients had insurance that would pay for the lidocaine ointment. Based on
Poston’s analysis, PMA issued daily memoranda to Oaktree providers, indicating which patients
had appointments that day and whether or not their insurance would cover the lidocaine
ointment.
335.

McCollum and other PMA management-level employees used these daily

memoranda to encourage Oaktree providers to prescribe lidocaine ointment for all patients with
qualifying insurance. For example, on January 12, 2018, McCollum e-mailed a number of
Oaktree providers, instructing them to write more lidocaine ointment prescriptions based on
Poston’s insurance analysis. He stated, in pertinent part,
I would like to ask that you please pay very close attention to the Lidocaine
sheets that you receive on a daily basis. We have contributed a tremendous
amount of time and resources to compiling this list on a daily basis and I
would like to see more compliance with the schedule. Since implementing
the process, we have seen our Lidocaine numbers increase; however, we
are still missing more than 100 prescriptions per day when compared to
what is actually eligible. I have attached this week[’]s spreadsheet of
missed prescriptions and I would ask that you and your team pay close
attention to this and help capture these lost opportunities. I will be
sending this spreadsheet out weekly and meeting with you individually to
discuss any specific concerns or feedback. (Emphasis added).

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McCollum, Oaktree, and PMA knew that these schemes would cause Oaktree

providers to write prescriptions for lidocaine ointment, including prescriptions reimbursed by
Medicare, Medicaid, and TRICARE, that were not medically necessary and were without a
legitimate medical purpose. And that is precisely what happened.
337.

PMA patients began receiving prescription lidocaine ointments in the mail,

although many of these patients never had any discussion with their medical provider about the
necessity, risks, or uses for the lidocaine ointment. Moreover, these patients were never even
given a choice of pharmacy; they simply received deliveries of the ointments from Exigo.
338.

For example, Patient L.N., who was regularly treated by Nurse Practitioner Carol

Ann Berry at PMA’s Myrtle Beach, South Carolina, clinic location, began receiving tubes of
lidocaine 5% ointment delivered to her home between May 2017 and November 2017, with a
label indicating that the product came from Exigo in Easley, South Carolina. Patient L.N. had
never discussed the need for lidocaine with her provider, was not given the opportunity to fill the
prescription at a pharmacy of her choice, had never heard of Exigo, and did not know how the
medication was to be used. Medicare Part D paid a total of $3,845 pursuant to 10 false claims
made by Exigo for Patient L.N. for lidocaine 5% ointment between May 2017 and January 2018.
339.

As another example, Oaktree, PMA, and McCollum caused numerous false

claims to South Carolina Medicaid for lidocaine 5% ointment shipped to Patient F.K. Patient
F.K. was bedridden and did not have use of his arms or his legs. Patient F.K. visited a PMA
office on no more than two occasions and was told by the provider that the provider could not
help him with his pain. Following the appointment, Patient F.K. began receiving packages from
Exigo each month containing between ten and eleven tubes of lidocaine 5% ointment. Patient
F.K. never discussed the need for lidocaine with the provider he saw, was not given the

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opportunity to fill the prescription at a pharmacy of his choice, had never heard of Exigo, and did
not know how the lidocaine was to be used. South Carolina Medicaid paid a total of $2,148.24
for Patient F.K. pursuant to nine false claims made by Exigo for lidocaine 5% ointment between
November 2017 and June 2018.
340.

This scheme proved costly for federal health care programs. Altogether,

Medicare Part D, TRICARE, and South Carolina Medicaid paid approximately $5,428,433 for
lidocaine ointment prescriptions filled by Exigo between 2014 and 2018, the vast majority of
which were medically unnecessary and not prescribed for a legitimate medical purpose:
Total Paid to
Exigo for
Lidocaine

Total Claims

Medicare
Part D

$ 3,886,746.95

8,698

TRICARE

$ 298,914.00

876

Dates
04/09/2015 to
09/19/2018
01/01/2014 to
08/08/2018

Medicaid

$ 1,242,772.00

5,213

11/25/2014 to
12/31/2018

FIRST CAUSE OF ACTION
Against McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas,
PMA of North Carolina, and Labsource:
False Claims Act: Presenting and Causing False Claims – Stark Law Violations
(31 U.S.C. § 3729(a)(1)(A))
341.

The United States re-alleges incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
342.

During the relevant time period, Defendants McCollum, Oaktree, FirstChoice

Healthcare, PMA of the Carolinas, PMA of North Carolina, and Labsource knowingly presented
and/or caused to be presented materially false and fraudulent claims for payment or approval to

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the Medicare program for UDT furnished by Oaktree and Labsource that was referred by
Oaktree physicians in violation of the Stark Law.
343.

The defendants presented or caused to be presented such claims with actual

knowledge of their falsity, or with reckless disregard or deliberate ignorance of whether or not
they were false.
344.

The United States sustained damages because of this wrongful conduct.

SECOND CAUSE OF ACTION
Against McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas,
PMA of North Carolina, and Labsource:
False Claims Act: False Statements and Records Material to False Claims – Stark Law
Violations
(31 U.S.C. § 3729(a)(1)(B))
345.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
346.

During the relevant time period, Defendants McCollum, Oaktree, FirstChoice

Healthcare, PMA of the Carolinas, PMA of North Carolina, and Labsource knowingly made,
used, and caused to be made or used false records or statements material to false or fraudulent
claims submitted to the United States, and payment of those false or fraudulent claims by the
United States was a reasonable and foreseeable consequence of the defendants’ statements and
actions.
347.

These false records and statements included false certifications on Medicare

provider enrollment forms and false and misleading representations on claim forms that claims
for UDT submitted to Medicare by Oaktree and Labsource complied with the Stark Law, when,
in fact, those claims violated the Stark Law.

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The defendants made or used, or caused to be made or used, such false records or

statements with actual knowledge of their falsity, or with reckless disregard or deliberate
ignorance of whether or not they were false.
349.

The United States sustained damages because of this wrongful conduct.

THIRD CAUSE OF ACTION
Against McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas, PMA of North
Carolina, and Labsource:
False Claims Act: Conspiracy– Stark Law Violations
(31 U.S.C. § 3729(a)(1)(C))
350.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
351.

During the relevant time period, Defendants McCollum, Oaktree, FirstChoice

Healthcare, PMA of the Carolinas, PMA of North Carolina, Labsource, and their co-conspirators
entered into one or more conspiracies to present or cause to be presented false or fraudulent
claims for payment or approval to the Medicare program—and/or made, used, and caused to be
made or used false records or statements in support of those claims—for UDT furnished by
Oaktree and Labsource that was referred by Oaktree physicians in violation of the Stark Law.
352.

The defendants and their co-conspirators performed acts in furtherance of these

conspiracies, by, among other things, compensating Oaktree physicians directly based on the
volume and value of UDT referrals and other business generated (e.g., private pay and nonMedicare UDT referrals) by those physicians for Oaktree and Labsource, and then submitting or
causing the submission to Medicare of claims for UDT resulting from those referrals, in violation
of the Stark Law.

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353.

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The defendants and their co-conspirators submitted; made or used; or caused to be

submitted, made, or used such false claims, records, and/or statements with actual knowledge of
their falsity, or with reckless disregard or deliberate ignorance of whether or not they were false.
354.

The United States sustained damages because of this wrongful conduct.

FOURTH CAUSE OF ACTION
Against McCollum and Labsource:
False Claims Act: Presenting and Causing False Claims – Remuneration to Oaktree
Providers in Violation of the AKS
(31 U.S.C. § 3729 (a)(1)(A))
355.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
356.

During the relevant time period, Defendants McCollum and Labsource knowingly

and willfully offered and paid remuneration to Oaktree providers—including physicians,
physician assistants, and nurse practitioners—to induce them to refer UDT (including UDT
payable by federal health care programs) to Labsource, in violation of the AKS.
357.

The defendants then filed or caused the filing of claims to Medicare, Medicaid,

and TRICARE for that UDT, which claims were false because they violated the AKS. 42 U.S.C.
§ 1320a-7b(g).
358.

The defendants presented or caused to be presented such claims for UDT with

actual knowledge of their falsity, or with reckless disregard or deliberate ignorance of whether or
not they were false.
359.

The United States sustained damages because of this wrongful conduct.

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FIFTH CAUSE OF ACTION
Against McCollum and Labsource:
False Claims Act: False Statements Material to False Claims – Remuneration to Oaktree
Providers in Violation of the AKS
(31 U.S.C. § 3729(a)(1)(B))
360.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
361.

During the relevant time period, Defendants McCollum and Labsource knowingly

made, used, and caused to be made or used false records or statements material to false or
fraudulent claims submitted to the United States, and payment of those false or fraudulent claims
by the United States was a reasonable and foreseeable consequence of the defendants’ statements
and actions.
362.

These false records and statements included false certifications on provider

enrollment forms and false and misleading representations on claim forms that claims for UDT
submitted by Labsource to Medicare, Medicaid, and TRICARE complied with the AKS, when,
in fact, those claims violated the AKS because McCollum and Labsource provided remuneration
to Oaktree providers to induce the providers to refer UDT to Labsource, including UDT payable
by federal health programs.
363.

The defendants made or used, or caused to be made or used, such false records or

statements with actual knowledge of their falsity, or with reckless disregard or deliberate
ignorance of whether or not they were false.
364.

The United States sustained damages because of this wrongful conduct.

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SIXTH CAUSE OF ACTION
Against McCollum and Labsource:
False Claims Act: Conspiracy – Remuneration to Oaktree Providers in Violation of the
AKS
(31 U.S.C. § 3729(a)(1)(C))
365.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
366.

During the relevant time period, Defendants McCollum, Labsource, and their co-

conspirators knowingly entered into one or more conspiracies to present or cause to be presented
false or fraudulent claims for payment or approval to federal health care programs, including
claims for reimbursement to Medicare, Medicaid, and TRICARE—and/or made, used, and
caused to be made or used false records or statements in support of those claims—for UDT
referred to Labsource by Oaktree providers in violation of the AKS.
367.

The defendants and their co-conspirators submitted; made or used; or caused to be

submitted, made, or used such false claims, records, or statements with actual knowledge of their
falsity, or with reckless disregard or deliberate ignorance of whether or not they were false.
368.

The defendants and their co-conspirators performed acts in furtherance of these

conspiracies, by, among other things, offering and paying remuneration to Oaktree providers to
induce them to refer UDT (including UDT payable by federal health programs) to Labsource,
and then submitting or causing the submission to Medicare, Medicaid, and TRICARE of claims
for UDT resulting from those referrals, in violation of the AKS.
369.

The United States sustained damages because of this wrongful conduct.

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SEVENTH CAUSE OF ACTION
Against McCollum and Labsource:
False Claims Act: Presenting and Causing False Claims - AKS Violations Involving Direct
Bill Program
(31 U.S.C. § 3729 (a)(1)(A))
370.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
371.

During the relevant time period, Defendants McCollum and Labsource knowingly

and willfully offered and provided remuneration to providers through Labsource’s “direct bill”
program by agreeing to assign to those providers the right to bill commercial insurers for UDT
performed by Labsource, and at least one purpose of this remuneration was to induce those
providers to refer UDT payable by federal health programs—including Medicare, Medicaid, and
TRICARE—to Labsource, in violation of the AKS.
372.

The defendants then submitted or caused the submission to Medicare, Medicaid,

and TRICARE of claims for payment for that UDT, which claims were false because they
violated the AKS. 42 U.S.C. § 1320a-7b(g).
373.

The defendants presented or caused to be presented such claims with actual

knowledge of their falsity, or with reckless disregard or deliberate ignorance of whether or not
they were false.
374.

The United States sustained damages because of this wrongful conduct.

EIGHTH CAUSE OF ACTION
Against McCollum and Labsource:
False Claims Act: False Statements Material to False Claims - AKS Violations Involving
Direct Bill Program
(31 U.S.C. § 3729(a)(1)(B))
375.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.

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During the relevant time period, Defendants McCollum and Labsource knowingly

made, used, and caused to be made or used false records or statements material to false or
fraudulent claims submitted to the United States, and payment of those false or fraudulent claims
by the United States was a reasonable and foreseeable consequence of the defendants’ statements
and actions.
377.

These false records and statements included false certifications on provider

enrollment forms and false and misleading representations on claim forms that claims for
payment for UDT submitted by Labsource to Medicare, Medicaid and TRICARE complied with
the AKS, when, in fact, those claims violated the AKS because McCollum and Labsource
provided remuneration to providers through the direct bill program, at least one purpose of which
was to induce the providers to refer UDT to Labsource, including UDT payable by federal health
programs.
378.

The defendants made or used, or caused to be made or used, such false records or

statements with actual knowledge of their falsity, or with reckless disregard or deliberate
ignorance of whether or not they were false.
379.

The United States sustained damages because of this wrongful conduct.

NINTH CAUSE OF ACTION
Against McCollum and Labsource:
False Claims Act: Conspiracy - AKS Violations involving Direct Bill Program
(31 U.S.C. § 3729(a)(1)(C))
380.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
381.

During the relevant time period, Defendants McCollum, Labsource, and their co-

conspirators knowingly entered into one or more conspiracies to present or cause to be presented
false or fraudulent claims for payment or approval to federal health care programs, including
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claims for reimbursement to Medicare, Medicaid, and TRICARE—and/or made, used, and
caused to be made or used false records or statements in support of those claims—for UDT
referred by providers in violation of the AKS. In particular, through the “direct bill” program,
McCollum and Labsource offered and provided remuneration to providers in the form of
assigning them the right to bill commercial insurers for UDT performed by Labsource, at least
one purpose of which was to induce them to refer UDT (including UDT payable by federal
health programs) to Labsource, in violation of the AKS.
382.

The defendants and their co-conspirators performed acts in furtherance of these

conspiracies, by, among other things, entering into “direct bill” agreements with providers and
assigning them the right to bill commercial insurers for UDT that was actually performed by
Labsource, and submitting or causing the submission to Medicare, Medicaid, and TRICARE of
claims for UDT referred to Labsource by those providers, in violation of the AKS.
383.

The defendants and their co-conspirators submitted; made or used; or caused to be

submitted, made, or used such false claims, records, or statements with actual knowledge of their
falsity, or with reckless disregard or deliberate ignorance of whether or not they were false.
384.

The United States sustained damages because of this wrongful conduct.

TENTH CAUSE OF ACTION
Against McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas, PMA of North
Carolina, and Labsource:
False Claims Act: Presenting and Causing False Claims – Medically Unnecessary and
Unreasonable UDT Furnished By Oaktree and Labsource
(31 U.S.C. § 3729 (a)(1)(A))
385.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
386.

During the relevant time period, Defendants McCollum, Oaktree, FirstChoice

Healthcare, PMA of the Carolinas, PMA of North Carolina, and Labsource knowingly presented
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and/or caused to be presented materially false and fraudulent claims for payment or approval to
the Medicare, Medicaid, and TRICARE programs for medically unnecessary and unreasonable
UDT performed by Oaktree and Labsource.
387.

The defendants presented or caused to be presented such claims with actual

knowledge of their falsity, or with reckless disregard or deliberate ignorance of whether or not
they were false.
388.

The United States sustained damages because of this wrongful conduct.

ELEVENTH CAUSE OF ACTION
Against McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas, PMA of North
Carolina, and Labsource:
False Claims Act: False Statements Material to False Claims – Medically Unnecessary and
Unreasonable UDT Furnished By Oaktree and Labsource
(31 U.S.C. § 3729(a)(1)(B))
389.

The United States incorporates by reference all Paragraphs of this complaint set

out above as if fully set forth here.
390.

During the relevant time period, Defendants McCollum, Oaktree, FirstChoice

Healthcare, PMA of the Carolinas, PMA of North Carolina, and Labsource knowingly made,
used, and caused to be made or used false records or statements material to false or fraudulent
claims submitted to the United States, and payment of those false or fraudulent claims by the
United States was a reasonable and foreseeable consequence of the defendants’ statements and
actions.
391.

These false records and statements included false certifications on provider

enrollment forms and false and misleading representations on claim forms that claims for
payment for UDT furnished by Oaktree and Labsource that were billed to Medicare, Medicaid,
and TRICARE were medically necessary and reasonable, when, in fact, that UDT was medically
unnecessary and unreasonable.
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The defendants made or used, or caused to be made or used, such false records or

statements with actual knowledge of their falsity, or with reckless disregard or deliberate
ignorance of whether or not they were false.
393.

The United States sustained damages because of this wrongful conduct.

TWELFTH CAUSE OF ACTION
Against McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas, PMA of North
Carolina, and Labsource:
False Claims Act: Conspiracy – Medically Unnecessary and Unreasonable UDT Furnished
By Oaktree and Labsource
(31 U.S.C. § 3729(a)(1)(C))
394.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
395.

During the relevant time period, Defendants McCollum, Oaktree, FirstChoice

Healthcare, PMA of the Carolinas, PMA of North Carolina, Labsource, and their co-conspirators
entered into one or more conspiracies to present or cause to be presented false or fraudulent
claims for payment or approval to the Medicare, Medicaid, and TRICARE programs—and/or
made, used, and caused to be made or used false records or statements in support of those
claims—for medically unnecessary and unreasonable UDT performed by Oaktree and
Labsource.
396.

The defendants and their co-conspirators made or caused to be made such false

claims, records, or statements with actual knowledge of their falsity, or with reckless disregard or
deliberate ignorance of whether or not they were false.
397.

The defendants and their co-conspirators performed acts in furtherance of these

conspiracies, by, among other things, ordering, performing, or causing the ordering or
performance of medically unnecessary and unreasonable UDT through the use of, inter alia,
default laboratory test panels and standing orders, and by submitting and causing the submission
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of claims to Medicare, Medicaid, and TRICARE that misrepresented the UDT as medically
necessary and reasonable.
398.

The United States sustained damages because of this wrongful conduct.

THIRTEENTH CAUSE OF ACTION
Against McCollum, ProCare, and ProLab:
False Claims Act: Presenting and Causing False Claims – Medically Unnecessary and
Unreasonable UDT Furnished by ProLab
(31 U.S.C. § 3729 (a)(1)(A))
399.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
400.

During the relevant time period, Defendants McCollum, ProCare, and ProLab

knowingly presented and/or caused to be presented materially false and fraudulent claims for
payment or approval to the Medicare, Medicaid, and TRICARE programs for medically
unnecessary and unreasonable UDT performed by ProLab.
401.

The defendants presented or caused to be presented such claims with actual

knowledge of their falsity, or with reckless disregard or deliberate ignorance of whether or not
they were false.
402.

The United States sustained damages because of this wrongful conduct.

FOURTEENTH CAUSE OF ACTION
Against McCollum, ProCare, and ProLab:
False Claims Act: False Statements Material to False Claims – Medically Unnecessary and
Unreasonable UDT Furnished by ProLab
(31 U.S.C. § 3729(a)(1)(B))
403.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
404.

During the relevant time period, Defendants McCollum, ProCare, and ProLab

knowingly made, used, and caused to be made or used false records or statements material to

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false or fraudulent claims submitted to the United States, and payment of those false or
fraudulent claims by the United States was a reasonable and foreseeable consequence of the
defendants’ statements and actions.
405.

These false records and statements included false certifications on provider

enrollment forms and false and misleading representations on claim forms that claims for
payment for UDT furnished by ProLab that were billed to Medicare, Medicaid, and TRICARE
were medically necessary and reasonable, when, in fact, that UDT was medically unnecessary
and unreasonable.
406.

The defendants made or used, or caused to be made or used, such false records or

statements with actual knowledge of their falsity, or with reckless disregard or deliberate
ignorance of whether or not they were false.
407.

The United States sustained damages because of this wrongful conduct.

FIFTEENTH CAUSE OF ACTION
Against McCollum, ProCare, and ProLab:
False Claims Act: Conspiracy– Medically Unnecessary and Unreasonable UDT Furnished
by ProLab
(31 U.S.C. § 3729(a)(1)(C))
408.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
409.

During the relevant time period, Defendants McCollum, ProCare, and ProLab,

and their co-conspirators entered into one or more conspiracies to present or cause to be
presented false or fraudulent claims for payment or approval to the Medicare, Medicaid, and
TRICARE programs—and/or made, used, and caused to be made or used false records or
statements in support of those claims—for medically unnecessary and unreasonable UDT
performed by ProLab.

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410.

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The defendants and their co-conspirators made or caused to be made such claims

and/or false records or statements with actual knowledge of their falsity, or with reckless
disregard or deliberate ignorance of whether or not they were false.
411.

In addition, the defendants and their co-conspirators performed acts in furtherance

of these conspiracies, by, among other things, ordering, performing, or causing the ordering or
performance of medically unnecessary and unreasonable UDT through the use of, inter alia,
default laboratory test panels, standing orders, and UDT orders signed by a physician who did
not actually treat any of the patients, and by submitting claims to Medicare, Medicaid, and
TRICARE that misrepresented the UDT as medically necessary and reasonable.
412.

The United States sustained damages because of this wrongful conduct.

SIXTEENTH CAUSE OF ACTION
Against McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas,
and PMA of North Carolina:
False Claims Act: Presenting and Causing False Claims – Medically Unnecessary and
Unreasonable Opioid and Lidocaine Prescriptions and Steroid Injections
(31 U.S.C. § 3729 (a)(1)(A))
413.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
414.

During the relevant time period, Defendants McCollum, Oaktree, FirstChoice

Healthcare, PMA of the Carolinas, and PMA of North Carolina knowingly presented and/or
caused to be presented materially false and fraudulent claims for payment or approval to the
Medicare, Medicaid, and TRICARE programs for opioid and lidocaine ointment prescriptions
and steroid injections that were not reasonable and necessary for the diagnosis or treatment of
individual patients and that lacked a legitimate medical purpose.

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The defendants presented or caused to be presented such claims with actual

knowledge of their falsity, or with reckless disregard or deliberate ignorance of whether or not
they were false.
416.

The United States sustained damages because of this wrongful conduct.

SEVENTEENTH CAUSE OF ACTION
Against McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas,
and PMA of North Carolina
False Claims Act: False Statements Material to False Claims – Medically Unnecessary and
Unreasonable Opioid and Lidocaine Prescriptions, and Steroid Injections
(31 U.S.C. § 3729(a)(1)(B))
417.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
418.

During the relevant time period, Defendants McCollum, Oaktree, FirstChoice

Healthcare, PMA of the Carolinas, and PMA of North Carolina knowingly made, used, and
caused to be made or used false records or statements material to false or fraudulent claims
submitted to the United States, and payment of those false or fraudulent claims by the United
States was a reasonable and foreseeable consequence of the defendants’ statements and actions.
419.

These false records and statements included false or fraudulent prescriptions, false

certifications on provider enrollment forms and false and misleading representations on claim
forms that claims for payment for opioid and lidocaine ointment prescriptions and steroid
injections were reasonable and necessary for the diagnosis or treatment of individual patients and
had a legitimate medical purpose, when, in fact, the contrary was true.
420.

The defendants made or used, or caused to be made or used, such false records or

statements with actual knowledge of their falsity, or with reckless disregard or deliberate
ignorance of whether or not they were false.
421.

The United States sustained damages because of this wrongful conduct.
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EIGHTEENTH CAUSE OF ACTION
Against McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas, PMA of North
Carolina:
False Claims Act: Conspiracy – Opioid and Lidocaine Prescriptions and Steroid Injections
(31 U.S.C. § 3729(a)(1)(C))
422.

The United States incorporates by reference all Paragraphs of this complaint set

out above as if fully set forth here.
423.

During the relevant time period, Defendants McCollum, Oaktree, FirstChoice

Healthcare, PMA of the Carolinas, PMA of North Carolina, and their co-conspirators entered into
one or more conspiracies to present or cause to be presented false or fraudulent claims for
payment or approval to the Medicare, Medicaid, and TRICARE programs—and/or made, used,
and caused to be made or used false records or statements in support of those claims—for opioid
and lidocaine ointment prescriptions and steroid injections that were not reasonable and
necessary for the diagnosis or treatment of individual patients and that lacked a legitimate
medical purpose.
424.

The defendants and their co-conspirators made or caused to be made such false

claims, records or statements with actual knowledge of their falsity, or with reckless disregard or
deliberate ignorance of whether or not they were false.
425.

The defendants and their co-conspirators performed acts in furtherance of these

conspiracies, by, among other things, providing, writing prescriptions, and/or causing providers
to provide or write prescriptions for opioid and lidocaine ointment prescriptions, and to
administer steroid injections that were not reasonable and necessary for the diagnosis or
treatment of individual patients and that lacked a legitimate medical purpose, and by submitting
and causing the submission of claims to Medicare, Medicaid and TRICARE for these
prescriptions and injections.

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426.

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The United States sustained damages because of this wrongful conduct.
NINETEENTH CAUSE OF ACTION
Against Oaktree and Labsource:
Payment by Mistake – Stark Law Violations

427.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
428.

This is a claim for the recovery of monies paid by the United States during the

relevant time period to Defendants Oaktree and Labsource as a result of mistaken understandings
of fact.
429.

The United States paid Defendants Oaktree and Labsource for UDT services that

were furnished pursuant to prohibited referrals from providers who had financial relationships
with the defendants that did not comply with the Stark Law. The United States made these
payments without knowledge of material facts and under the mistaken belief that the defendants
were entitled to receive payment for such claims when they were not. The United States’
mistaken beliefs were material to its decision to pay the defendants for such claims.
Accordingly, the defendants are liable to make restitution to the United States of the amounts of
the payments made in error to them by the United States.
TWENTIETH CAUSE OF ACTION
Against McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas, PMA of North
Carolina, Labsource, and ProLab:
Payment by Mistake – Medically Unreasonable and Unnecessary Services
430.

The United States re-alleges and incorporates by reference all Paragraphs of this

complaint set out above as if fully set forth here.
431.

This is a claim for the recovery of monies paid by the United States during the

relevant time period to Defendants McCollum, Oaktree, FirstChoice Healthcare, PMA of the

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Carolinas, PMA of North Carolina, Labsource, and ProLab as a result of mistaken
understandings of fact.
432.

The United States paid these defendants for UDT and steroid injections that were

not reasonable and necessary for the diagnosis or treatment of individual patients as required by
Medicare, Medicaid and TRICARE. The United States made these payments without knowledge
of material facts and under the mistaken belief that the defendants were entitled to receive
payment for such claims when they were not. The United States’ mistaken beliefs were material
to its decision to pay the defendants for such claims. Accordingly, the defendants are liable to
make restitution to the United States of the amounts of the payments made in error to them by
the United States.
TWENTY-FIRST CAUSE OF ACTION
Against All Defendants:
Unjust Enrichment
433.

The United States incorporates by reference all Paragraphs of this complaint set

out above as if fully set forth here.
434.

This is a claim for the recovery of monies by which Defendants McCollum,

Oaktree, FirstChoice Healthcare, PMA of the Carolinas, PMA of North Carolina, Labsource,
ProCare, and ProLab have been unjustly enriched during the relevant time period at the expense
of the United States.
435.

By directly or indirectly obtaining government funds to which they were not

entitled, the defendants each were unjustly enriched, and are liable to account for and pay as
restitution such amounts, or the proceeds therefrom, which are to be determined at trial, to the
United States.

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PRAYER FOR RELIEF
The United States demands and prays that judgment be entered in its favor against
Defendants as follows:
I.

On the First, Second, and Third Counts under the False Claims Act, against

Defendants McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas, PMA of North
Carolina, and Labsource, for the amount of the United States’ damages, trebled as required by
law, and such civil penalties as are authorized by law, together with all such further relief as may
be just and proper.
II.

On the Fourth, Fifth, and Sixth Counts under the False Claims Act, against

Defendants McCollum and Labsource, for the amount of the United States’ damages, trebled as
required by law, and such civil penalties as are authorized by law, together with all such further
relief as may be just and proper.
III.

On the Seventh, Eighth, and Ninth Counts under the False Claims Act, against

Defendants McCollum and Labsource, for the amount of the United States’ damages, trebled as
required by law, and such civil penalties as are authorized by law, together with all such further
relief as may be just and proper.
IV.

On the Tenth, Eleventh, and Twelfth Counts under the False Claims Act, against

Defendants McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas, PMA of North
Carolina, and Labsource, for the amount of the United States’ damages, trebled as required by
law, and such civil penalties as are authorized by law, together with all such further relief as may
be just and proper.
V.

On the Thirteenth, Fourteenth, and Fifteenth Counts under the False Claims Act,

against Defendants McCollum, ProCare, and ProLab, for the amount of the United States’

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damages, trebled as required by law, and such civil penalties as are authorized by law, together
with all such further relief as may be just and proper.
VI.

On the Sixteenth, Seventeenth, and Eighteenth Counts under the False Claims

Act, against Defendants McCollum, Oaktree, FirstChoice Healthcare, PMA of the Carolinas, and
PMA of North Carolina, for the amount of the United States’ damages, trebled as required by
law, and such civil penalties as are authorized by law, together with all such further relief as may
be just and proper.
VII.

On the Nineteenth Count for payment by mistake, against Defendants Oaktree and

Labsource, for the damages sustained and/or amounts by which Defendants were paid by mistake
or by which the defendants retained illegally obtained monies, plus interest, costs, and expenses,
and for all such further relief as may be just and proper.
VIII.

On the Twentieth Count for payment by mistake, against Defendants McCollum,

Oaktree, FirstChoice Healthcare, PMA of the Carolinas, PMA of North Carolina, Labsource, and
ProLab, for the damages sustained and/or amounts by which the defendants were paid by
mistake or by which the defendants retained illegally obtained monies, plus interest, costs, and
expenses, and for all such further relief as may be just and proper.
IX.

On the Twenty-First Count for unjust enrichment, against all Defendants, for the

damages sustained and/or amounts by which Defendants were unjustly enriched or by which
Defendants retained illegally obtained monies, plus interest, costs, and expenses, and for all such
further relief as may be just and proper.
X.

Pre- and post-judgment interest, costs, and such other relief as the Court may

deem appropriate.

114

 6:15-cv-01589-DCC

Date Filed 05/31/19

Entry Number 86

Page 115 of 115

DEMAND FOR JURY TRIAL
The United States demands a jury trial in this case.
Respectfully submitted,
JOSEPH H. HUNT
Assistant Attorney General
SHERRI A. LYDON
United States Attorney
District of South Carolina

By:

s/Beth C. Warren
BETH C. WARREN (#11360)
JAMES LEVENTIS (#9406)
Assistant United States Attorneys
1441 Main Street, Suite 500
Columbia, South Carolina 29201
Telephone (803) 929-3037
E-mail: beth.c.warren@usdoj.gov
MICHAEL D. GRANSTON
TRACY L. HILMER
YOLONDA CAMPBELL
MICHAEL KASS
CHRISTOPHER TERRANOVA
Attorneys, Civil Division
United States Department of Justice

115