WASHINGTON (Reuters) – Medical diagnostic firm PerkinElmer Inc (PKI.N) faces a federal investigation into its role in an alleged Medicare fraud involving tens of thousands of unnecessary genetic cancer tests, according to three sources with knowledge of the probe and documents reviewed by Reuters.
The firm conducted the tests now under scrutiny over 18 months, earning millions of dollars, according to one of those sources and three others familiar with the company’s lab operations.
Investigators are probing whether Massachusetts-based PerkinElmer enabled a scheme by some its laboratory clients, two of which the government previously has charged in connection with alleged Medicare fraud, said the three sources with knowledge of the probe.
PerkinElmer ran high volumes of tests for those clients. Investigators are focused on whether the firm knew – or should have known – that the tests were not medically necessary and that its clients were billing them to the government program for the elderly and disabled, those three sources said.
Such tests determine if patients are at risk of developing hereditary diseases, such as breast or colorectal cancer. Medicare covers the screenings if a patient’s physician deems them necessary, often because of a personal or family history of hereditary cancers.
The tests sent to PerkinElmer raised red flags among some company employees because the patients often didn’t fit the typical profile for testing and few results showed a cancer risk, according to the three sources familiar with the company’s operations.
A spokeswoman for PerkinElmer, Fara Goldberg, did not answer detailed questions from Reuters but said in a statement that the company was not aware of any fraud or abusive practice by PerkinElmer or any employee, and that it had “not been notified of any actual or alleged wrongdoing by any government authority.”
The company said it supports government efforts to identify and prevent abuse in genetic testing, and that it would cooperate with such efforts “as appropriate.”
Madhuri Hegde, a chief scientist for the company’s genetic testing unit, is also under investigation because of her role in establishing business relationships with the lab clients charged in the Medicare fraud schemes, according to two people familiar with the probe and records of the investigation reviewed by Reuters.
Hegde, in an email to Reuters, she said denies “any wrongdoing whatsoever.”
PerkinElmer is a leading medical diagnostic company that sells laboratory equipment and performs testing in such areas as food, the environment and neonatal genetics. Genetic testing represents only a fraction of the company’s diagnostic sales, which it reported as $1.14 billion for 2019. It is currently competing with other diagnostic firms to develop and sell new tests to detect the new coronavirus amid the pandemic. It received emergency authorization in March from the Food and Drug Administration to start selling its test for COVID-19, the disease caused by the virus.
The PerkinElmer inquiry is part of a broader Medicare fraud investigation unveiled by the Justice Department in September, saying it had charged 35 people accused of bilking Medicare out of about $2.1 billion. The probe was featured in a Reuters special report last fall, which explored how senior citizens were duped into providing cheek swabs to companies that billed Medicare for useless genetic tests.
The probe is being conducted jointly by the Federal Bureau of Investigation and the Health and Human Services Office of the inspector General, and the three sources familiar with the investigation said it includes PerkinElmer.
Justice Department criminal division spokesman Peter Carr declined to comment on whether PerkinElmer is under investigation. Katherine Harris, a spokeswoman for the Health and Human Services Office of the Inspector General, also declined to comment.
Two businessmen – each of whom founded two labs that later outsourced genetic cancer tests to PerkinElmer – were criminally charged last fall in connection with the alleged genetic testing fraud.
One of the companies, Atlanta-based LabSolutions LLC, started doing business with PerkinElmer in late 2017, according to the three people familiar with the companies’ dealings.
LabSolutions purchased equipment and servicing agreements and outsourced its genetic cancer testing to PerkinElmer until it could set up its own labs, according to one of the sources familiar with the probe and the documents reviewed by Reuters.
LabSolutions owner Minal Patel was indicted in September on charges of healthcare fraud and paying and receiving kickbacks to and from marketers who collected cheek swabs from patients for genetic testing.
Patel, who has pleaded not guilty, did not reply to a message seeking comment. His lawyer, Steven Sadow declined to comment except to say he would “aggressively” defend his client.
LabSolutions has ceased business operations. Don Samuel – a lawyer the company retained to handle government asset seizures related to the criminal case – declined to comment.
In January 2018, Hegde became a LabSolutions Scientific Advisory Board consultant for a $5,000 monthly retainer plus $500 per hour to help set up LabSolutions operations, according to documents reviewed by Reuters. She remained on PerkinElmer’s payroll at the same time. Reuters could not determine whether PerkinElmer was aware of Hegde’s consulting for LabSolutions or whether the government is investigating the arrangement.
PerkinElmer and Hegde did not comment on the consulting work.
In November 2019, another PerkinElmer client – Personalized Genomics’ operator Ravitej Reddy – was charged by the Justice Department for allegedly conspiring to pay and receive kickbacks to and from business consultants, a telemedicine company and marketers who provided the cheek swabs for genetic testing as part of a Medicare fraud scheme.
Reddy pleaded guilty in January and is due to be sentenced in September. Mark Rush, who represents Reddy and both labs, said Reddy accepts full responsibility for his actions in the scheme.
The Justice Department said in November that Personalized Genomics and a second lab Reddy operated in Monroeville, Pennsylvania – Med Health Services Management, LP – did not have “properly validated equipment” and were forced to send samples for genetic tests to another laboratory. That lab was PerkinElmer, according to the sources familiar with company operations.
‘BAGS AND BAGS’ OF SAMPLES
PerkinElmer performed about 1,500 genetic cancers tests per week at times in 2018 and 2019, said the three people familiar with the lab’s operations.
PerkinElmer charged its lab clients as much as $450-$550 per test during the 18-month period that is now under federal scrutiny, according to company pricing data obtained in the government’s investigation and reviewed by Reuters. Although the company’s genetic testing unit is relatively small, its revenue growth quadrupled to $20 million between 2017 and 2019, company executives said in earnings calls.
The three sources familiar with PerkinElmer’s testing operations said that the company’s Connecticut lab, which ran all of the genetic tests, was inundated with what one source called “bags and bags” of samples, forcing staff to work overtime.
The bulk deliveries raised concerns among some employees that some clients seemed to be in business solely to collect samples from patients and bill the government for tests performed by PerkinElmer, according to one source familiar with the PerkinElmer’s testing operations.
Most of the cheek swabs sent for testing came from senior citizens, even though some of the leading inherited cancers are more common in younger adults. And one of the sources familiar with PerkinElmer’s testing said “almost all” of the results showed patients were not at risk of developing these cancers.
Reporting by Sarah N. Lynch; Editing by Chris Sanders and Brian Thevenot