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Diagnostic Laboratories and Radiology Settles False Claims Act Whistleblower Case for $17.5 Million

California-based Kan-Di-Ki, LLC doing business as Diagnostic Laboratories and Radiology (“Diagnostic”) has agreed to pay $17.5 million to settle allegations that it submitted false claims to Medicare and Medi-Cal, the California Medicaid program.

A whistle blower lawsuit was brought in 2010 under the qui tam provisions of the federal and California False Claims Acts by two former Diagnostic employees, Jon Pasqua and Jeff Hauser. The whistleblowers claimed that Diagnostic charged skilled nursing facilities in California discounted rates for inpatient laboratory and radiology services paid by Medicare and Medicaid. The complaint further alleged that, in return, the facilities referred their outpatient business to Diagnostic.

Medicare pays a fixed rate to the facilities based on an inpatient’s diagnosis, rather than on the actual services provided, while outpatient services are paid based on services provided. According to the government, by paying a discounted price for inpatient services provided by Diagnostic, the facilities were able to maximize their Medicare profits. In addition, the government asserted that the scheme allowed Diagnostic to obtain a steady stream of lucrative outpatient referrals which were billed to, and paid by, Medicare and Medi-Cal.

The whistleblowers will share in $3,755,500 of the settlement proceeds as their reward under the qui tam provisions of the False Claims Act.