Arkansas pathology lab pays $30M to settle kickback, unnecessary testing claims

An Arkansas anatomic pathology laboratory and its owners have agreed to pay $30 million to the United States to resolve allegations of unlawful kickbacks and medically unnecessary testing, the Justice Department announced.

Advanced Pathology Solutions PLLC, headquartered in North Little Rock, along with its management services organization APS MSO LLC and current and former owners Kevin Hannah, Donell Burkett and Daniel Hunter Pledger, reached the settlement to resolve allegations they violated the False Claims Act, according to the DOJ.

The government alleged that from 2015 through July 2022, APS and its owners provided unlawful kickbacks to gastroenterology practices nationwide to induce the referral of pathology testing to APS. Central to the alleged scheme was a business model in which APS set up and managed limited-purpose laboratories — known as “lean labs” — inside gastroenterology practices, enabling those practices to bill for preparing and staining biopsy specimen slides. In exchange for benefits furnished by APS, the practices agreed to exclusively refer their patients’ slides to APS’s North Little Rock lab for pathologist interpretation, prosecutors alleged.

The government further alleged that APS directed lean lab personnel to automatically order certain special stains before a pathologist reviewed routine test results to determine whether additional testing was even necessary. By following that protocol, APS and the lean labs ordered tests that were not medically reasonable or necessary and were therefore ineligible for Medicare coverage, according to the complaint. APS also allegedly ordered additional “confirmatory” immunohistochemical testing that likewise was not medically necessary.

The settlement also resolves separate allegations that from Nov. 1, 2018, to Nov. 30, 2020, APS and CEO Kevin Hannah paid volume-based commissions to an individual named Richard Sorgnard to induce referrals for epidermal nerve fiber density testing. APS allegedly paid Sorgnard 4% of all payments it collected for that testing. Sorgnard previously entered into a separate settlement with the government over related claims.

In connection with the settlement, APS entered into a five-year Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General, requiring implementation of a compliance program, new training requirements and a review of physician referral relationships.

The settlement follows a $4.75 million agreement reached earlier this year with Atlanta Gastroenterology Associates, a former APS client.

The claims resolved by the settlement are allegations only, and there has been no determination of liability.

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