Lab Provider to Pay $18 Million for Skilled Nursing-Related Fraud

A California-based laboratory and radiology company will pay $17.5 million for falsely billing Medicare and Medi-Cal, the state’s Medicaid program, by charging skilled nursing facilities discounted rates for inpatient services in exchange for outpatient referrals. 

The payment will settle allegations that Kan-Di-Ki LLC, dba Diagnostic Laboratories and Radiology, violated federal and state False Claims Acts by paying kickbacks for referral of mobile lab and radiology services for which it sought federal and state reimbursement, says the Department of Justice. 

“This settlement demonstrates the Department of Justice’s continuing efforts to protect public funds,” said Stuart F. Delery, Assistant Attorney General for the Civil Division.  “We will continue to work with our state partners to recover misspent monies from companies that abuse government health care programs.”


Medicare reimburses inpatient and outpatient services differently, and Diagnostic Labs allegedly charged skilled nursing facilities in California discounted rates for inpatient services in exchange for those facilities to refer outpatient business to the lab and radiology company. 

Outpatient services are reimbursed on a per-episode basis by Medicare, while the federal program pays for inpatient services on a fixed rate based on the patient’s diagnosis, regardless of what services have been provided.

Diagnostic Labs’ scheme helped participating skilled nursing facilities to maximize the profit earned for providing inpatient services as they were being charged less for lab and radiology services. Then, Diagnostic Labs was able to access a “steady stream lucrative outpatient referrals,” says the Justice Department, that could be directly billed to Medicare and Medi-Cal. 


The nearly $18 million settlement resolves a lawsuit filed by former Diagnostic Lab employees, Jon Pasqua and Jeff Hauser, under the whistleblower provisions of the federal and state False Claims Acts. The two former employees will receive nearly $3.8 million as their share of the federal government’s recovery. 

Written by Alyssa Gerace

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