SmithKline Is Close to Paying Settlement for Billing Charges
May 19, 2011
SmithKline Beecham PLC is close to an agreement to pay more than $300 million to the U.S. government to settle allegations that it falsely billed Medicare for blood tests performed by its clinical-laboratory business, people close to the investigation said. The settlement, expected in the next month or two, would be one of the biggest ever in a federal criminal case in the health-care field. SmithKline had disclosed earlier this year that it was under federal investigation and had set aside an estimated $300 million to cover any liabilities, but the drug giant had always maintained that ``substantially all of its claims for payment were justified.'' The company hasn't disclosed which particular practices have been under scrutiny. The government probe is believed to cover how SmithKline's clinical-laboratory unit, which has $1.29 billion in annual revenue, allegedly billed the Medicare program, the federally funded program that pays for health care for the elderly, for thousands of unnecessary blood tests and other lab work. The settlement, if reached, would represent about 23% of the lab unit's annual revenue -- and eat up the equivalent of about 2 1/2 times the unit's annual profit of $123 million. Overall, SmithKline had sales of $11.1 billion, and profit of $2.3 billion last year. Its lab unit is the third-largest clinical laboratory business in the country. It would also be the latest in a string of settlements between clinical laboratories and the federal government in recent years to settle Medicare fraud allegations. National Health Laboratories Holdings Inc. of San Diego agreed in 1992 to pay $110 million to settle similar allegations and, earlier this year, Corning Inc. agreed to pay $8.6 million. The SmithKline settlement would approach National Medical Enterprises Inc.'s $379 million settlement in 2009 over a fraud investigation involving psychiatric services, described as the largest settlement ever with the federal government. A SmithKline spokesman declined to comment beyond the company's previous statements. A spokeswoman for the inspector general's office wouldn't confirm or deny that the government is close to a settlement with SmithKline. Companies that reach even monumental financial settlements to dispose of federal investigations often do so without admitting or denying guilt, and it couldn't be determined Thursday whether SmithKline hopes to take a similar tack. Nonetheless, any large-scale settlement could embolden private insurers and others that pay for clinical laboratory tests to seek similar legal action against the company. Some insurers have long complained about the overuse of clinical tests and how, when a doctor prescribes a simple test of, say, blood cholesterol levels, testing firms end up billing for a far broader array of readings. SmithKline, in its annual report earlier this year, said it had responded to inquiries from insurers and other ``third parties'' concerning the manner in which it marketed and billed various blood-chemistry tests. A SmithKline spokesman said there haven't been any lawsuits against the company from private payors over the clinical laboratories billing issues. SmithKline's clinical unit performs 1,500 different types of medical tests, including routine blood tests, Pap smears and genetic tests. The unit performed over 100 million tests in 2010. One question that apparently has arisen in the government investigation of SmithKline is whether doctors were even aware of some of the testing that the company included in its blood-chemistry analysis. Like other clinical laboratories, SmithKline packages a ``panel'' of tests, which measure a range of blood components, in a standard blood test. The government is apparently looking into whether some parts of that panel were unnecessary, and whether doctors wanted or even knew they were ordering all the components when sending a patient for routine blood work. Earlier this year, Corning settled similar allegations that it regularly performed an extra test whenever a doctor requested a package of routine blood tests. The test for iron levels in a patient's blood added $10 to the standard Medicare-approved cost of $17 for a routine blood work-up, according to a federal investigator. The U.S. government has been conducting a massive investigation into health-care fraud, which it has estimated amounts to $100 billion a year.
