U.S. Attorney Announces $2.5 Million False Claims Act Settlement With Diagnostic Testing Facility For Paying Kickbacks To Physicians For Patient Referrals

Damian Williams, the United States Attorney for the Southern District of New York, and Naomi Gruchacz, the Special Agent in Charge of the New York Regional Office of the U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), announced today that the U.S. has settled a civil fraud lawsuit against Balance Diagnostics USA, LLC (“BALANCE”), a diagnostic testing facility based in Cedarhurst, New York, for paying kickbacks to physicians and their medical practices in the form of sham “rent payments” to secure patient referrals in violation of the federal Anti-Kickback Statute (the “AKS”).  Specifically, the settlement resolves claims that from January 2009 through December 2019, BALANCE paid hundreds of thousands of dollars to over 100 physicians and their practices in the New York City area (the “Providers”) to induce them to refer patients for diagnostic testing services performed by BALANCE staff at the Providers’ offices.  The U.S. alleges that the so-called rent payments were based entirely upon the number of patient referrals and, in many instances, were well above the fair market rental value of the leased office space. 

Under the settlement approved yesterday by U.S. District Judge Vernon S. Broderick, BALANCE will pay the U.S. $1,725,850 and has admitted and accepted responsibility for conduct alleged in the U.S. Complaint, including that BALANCE determined the amount of rent to be paid pursuant to the subleases by taking into account the anticipated volume or value of the patients referred.  BALANCE has also agreed to pay the State of New York $774,150 to resolve state law claims, for a total combined recovery of $2.5 million.  BALANCE has executed judgments in favor of the U.S. for $4,280,108, and in favor of the State of New York for $1,919,892, for a total combined amount of $6.2 million, which may be enforced if BALANCE fails to make the payments required under the settlements. 

U.S. Attorney Damian Williams said: “The Anti-Kickback Statute is meant to ensure that medical decision-making is driven by what is best for the patient, and never by what is most profitable.  Balance entered into sham office rental arrangements with scores of doctors in the New York City area, paying them to refer patients to Balance for diagnostic tests, pressuring them to meet referral expectations, and terminating the arrangements when referral rates were lower than expected.  These are precisely the kind of business arrangements that the statute was enacted to prevent.  This Office will continue to scrutinize such arrangements and hold accountable those providers whose dealings violate the law.”

HHS-OIG Special Agent in Charge Naomi Gruchacz said: “Violations of the Anti-Kickback Statute, as demonstrated by this lawsuit and settlement, can induce diagnostic testing referrals that are compromised by profit-making considerations.  Individuals and entities that participate in the federal health care system are required to obey the laws meant to preserve the integrity of program funds and the provision of appropriate, quality services to patients.”

As alleged in the U.S. Complaint:

BALANCE is a diagnostic testing facility based in Cedarhurst, New York, which provides on-site mobile diagnostic testing services, such as video steganography (used to diagnose balance disorders) and ultrasound procedures.  During the period from 2009 through 2019, BALANCE orchestrated a kickback scheme designed to direct patients to BALANCE for diagnostic testing services.  BALANCE entered into sham office rental arrangements with over 100 Providers, who referred thousands of patients to BALANCE for diagnostic testing services that were reimbursed by Medicare and Medicaid.

BALANCE routinely sent employees to visit physicians and medical practices to persuade them to enter these kickback arrangements.  BALANCE representatives inquired about the volume of patients the Providers anticipated referring for diagnostic testing services each month.  BALANCE and the Providers then used these anticipated referral rates to negotiate the amount BALANCE would pay in rent to the Providers each month.  BALANCE characterized the payments to the Providers as rent payments because it knew that it was illegal to make payments in exchange for referrals and wanted to conceal the true purpose of the payments.

BALANCE’s agreements with the Providers typically provided for the use of an exam room by BALANCE personnel, as well as for the use of basic equipment (e.g., a telephone, fax machine, a computer) and administrative staff to assist with patient flow and recordkeeping.  In exchange, BALANCE agreed to pay monthly rent, which ranged from one to several thousand dollars per month.  In many cases, the monthly payments exceeded the fair market value for BALANCE’s limited use of the rented space, equipment, and services.  The sole factor BALANCE took into account when setting the monthly rent was the expected value of the patient referrals the Provider would generate. 

Many of the agreements misrepresented key terms, such as the square footage of the rented space and the number of days per month BALANCE would use the space.  In some instances, BALANCE did not even enter into written lease agreement with the Providers.

As part of the settlement, BALANCE admitted, acknowledged, and accepted responsibility for the following conduct:

• In a number of instances, BALANCE and the Providers determined the amount of rent to be paid pursuant to the sublease by taking into account the anticipated volume or value of the patients referred to BALANCE.  Frequently, BALNCE representatives reached out to the Providers about leasing office space from them, and if the Providers were interested, the BALANCE representatives inquired about the volume of patient referrals for diagnostic testing services that BALANCE could expect to receive in a given month.  The BALANCE representatives and the Providers then negotiated the monthly rent amount by taking into account the anticipated volume and/or value of such referrals.  The greater the number of patients the Providers indicated they could refer to BALANCE for diagnostic testing service each month, the greater the monthly amount BALANCE agreed to pay the Providers.

• BALANCE typically performed no meaningful analysis to determine the fair market value of the subleased premises or to verify that the agreed-upon monthly rent payments were consistent with fair market value.  In a number of instances, the payments made to the Providers substantially exceeded the fair market value of the rented space.

• BALANCE representatives monitored the number of patient referrals received each month from the Provider.  BALANCE took a number of steps to address situations where the volume of patient referrals was meaningfully less than that which BALANCE had anticipated when setting the monthly rent amount. For example, BALANCE representatives routinely reached out to Providers to press them to achieve the expected patient referral rates.  Sometimes, BALANCE representatives secured commitments from Providers to increase the number of patients they would refer for diagnostic testing services each month.  In other instances, when there were fewer referrals or BALANCE did not use the space because of low patient referrals, BALANCE paid the Providers less than the amount specified in the sublease and/or varied its payment (between the amount specified in the sublease and a lesser amount) based on the actual patient referral volume.  In other instances, BALANCE representatives renegotiated the rent amount downward or terminated the sublease arrangement entirely.

In connection with the filing of the lawsuit and the settlement, the U.S. Government joined a private whistleblower lawsuit that had been filed under seal pursuant to the False Claims Act. 

*                *                *

Mr. Williams thanked HHS-OIG and the New York Medicaid Fraud Control Unit for their assistance with the case. 

This case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorney Pierre G. Armand is in charge of the case.