State Fraud Investigators Not Handsomely Rewarded by the Budget

Among the rake offs used to help restore the cash-starved general fund for the fiscal year that began July 1 is $20 million from the Department of Justice that is part of a recent $241 million settlement with Quest Diagnostics involving overcharges to Medi-Cal, the state’s health care program for the poor.

The settlement, the largest recovery under California’s False Claims Act, stems from a 2005 lawsuit brought by a whistleblower alleging Quest systematically overcharged Medi-Cal for more than 15 years, giving discounted or free testing to clinics, hospitals and doctors who referred Medi-Cal patients and other business to their labs.

Quest, the state’s largest provider of medical lab testing, denies any wrongdoing and the settlement agreement specifies it is not an admission of liability on Quest’s part.

There are cases against four other lab testing firms still pending.

In its lawsuit, the state says Quest charged Medi-Cal up to six times what it charged some other customers for the same test. While some customers were charged $1.43 for a blood count test, Medi-Cal was charged $8.59.

Quest also offered Medi-Cal providers, like doctors and hospitals, lower prices for lab tests, making up the difference by charging Medi-Cal more, the lawsuit alleges.

The whistleblower in the case was Chris Riedel and his company, Hunter Laboratories which couldn’t compete with Quest’s discounted test prices.

Under the state’s False Claims Act, persons who learn about fraud, overcharges or other false claims can file a sealed lawsuit on behalf of California to recover the losses. The whistleblower then becomes one of the plaintiffs.

Of the $241 million settlement, Riedel, Hunter Laboratories and his lawyers – Cotchett, Pitre & McCarthy – share $70 million.

The federal government receives $96.4 million to repay its share of inflated Medi-Cal costs. The state part of Medi-Cal gets a $50 million reimbursement.

That leaves a little over $24.6 million to reimburse the Department of Justice for its prosecution costs and pay for further fraud investigations.

At least that’s what the department received until Gov. Jerry Brown, the former  Attorney General, took $20 million and deposited it in the general fund.

For a three year investigation that uncovered widespread Medi-Cal abuse by testing labs that led to Medi-Cal saving hundreds of millions in future costs, the department nets $4.6 million.

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