One of the nation’s biggest insurers, UnitedHealthcare, has sued a Dallas-based laboratory network, alleging the owners paid millions in bribes and kickbacks to doctors and other providers between 2011 and 2016 for overpriced and unnecessary drug and genetic tests.
Next Health‘s sales consultants gave people $50 gift cards to urinate in cups at Whataburger bathrooms, the lawsuit says. The specimens were sent to the labs for a battery of unnecessary and expensive tests under the guise of a “wellness study,” the lawsuit alleges.
UnitedHealthcare says it got stuck with the $100 million tab because of Next Health’s fraudulent activities.
Next Health targeted self-funded insurance plans offered by the Texas Employee Retirement System and other governmental entities in Texas, according to United. Victims include charities, retirees and taxpayers, the health insurer said.
“Unfortunately, hard-working Texans bore the brunt of Next Health’s illegal business model,” the lawsuit says.
Next Health said Tuesday in a prepared statement that the company is disappointed that United chose to sue, “as we have been negotiating with them to develop a new working agreement covering a number of operational and financial issues.”
“In our view, this is a matter for continued negotiation and not litigation, especially as the lawsuit misrepresents our actions, responsibilities and compliance standards. We remain confident that, acting in good faith, we can resolve this dispute quickly,” Next Health said. “If necessary, Next Health will be fully prepared to defend our company and our practices in court.”
The 81-page lawsuit was filed Friday in federal court in Dallas.
United said that Next Health is controlled by Semyon Narosov and Andrew Hillman, who have been indicted in federal court in Dallas on charges that they were paid bribes and kickbacks for referring patients to Forest Park Medical Center. The two are not named as defendants in the lawsuit.
Their attorneys could not be reached for comment.
It’s the fourth time in the past year that a Dallas health care provider has faced allegations that it paid millions in kickbacks to physicians and others for patient referrals. The owners of Trilogy Pharmacy were indicted in federal court a year ago along with 10 others, and the owners of Forest Park Medical Center were among 21 people indicted in November, also in federal court.
In October, Dallas-based hospital chain Tenet Healthcare agreed to pay the government more than $513 million to settle allegations that it paid kickbacks for patient referrals.
The number of federal health care kickback cases is spreading nationwide. The Justice Department has targeted labs, pharmacies, physicians, chiropractors and hospitals in recent years.
The U.S. attorney’s office in Dallas declined to comment on the Next Health lawsuit.
Forest Park similarities
Next Health LLC was registered in Texas in 2014 and owns and operates several subsidiaries, including Medicus Laboratories and US Toxicology, which also were listed as defendants in the lawsuit.
Also named as defendants were Austin residents Erik Bugen, 41, a former Next Health marketing representative, and his friend Kirk Zajac, 25.
They could not be reached for comment.
Bugen has a criminal record that includes convictions for fraud and forgery. His LinkedIn page says his life’s purpose is to help people recover from addiction. It also says he owns a wellness and recovery clinic.
Zajac’s LinkedIn page says he is chief operating officer of Austin Wellness & Recovery.
CBS News interviewed Zajac as part of a June piece on questionable tactics used in the genetic testing industry.
Bugen connected Next Health to a group of 1,500 doctors who requested testing from Next Health in exchange for 20 percent of the lab’s revenues, the lawsuit said. He collected 1 percent as his fee for setting it up, the suit said. Bugen admitted to United that Next Health’s business model depended on kickbacks, the lawsuit said.
Next Health billed for unnecessary tests and tests not ordered by doctors, the suit said. The labs also billed for tests done on urine and saliva that they didn’t perform, United claims.
And they illegally waived patient co-payments to try to keep the scheme hidden, the lawsuit said. Next Health told patients they would never owe anything for testing services, the suit said. The company did this because it was worried that patients “would protest or complain to their insurer or medical provider about Next Health’s unnecessary testing services.”
“If Next Health’s scheme sounds familiar, it is because the Department of Justice recently indicted several executives, surgeons, physicians and others in connection with a similar illegal kickback conspiracy at Forest Park Medical Center,” the lawsuit said.
In that case, health care workers including surgeons and health executives took part in a kickback scheme to bring patients and surgeries to the now-bankrupt Forest Park Medical Center that netted $200 million.
Forest Park Medical Center was a chain of five high-end, doctor-owned hospitals in North Texas that ran into major financial troubles and allegations of corruption. The company went bankrupt and its facilities were sold off last year.
“Through those ownership and management positions, Narosov and Hillman made sure that Next Health and its subsidiaries employed an illegal scheme that was similar to the one in place at Forest Park,” the lawsuit said.
Like the Forest Park case, the Next Health defendants billed for higher, out-of-network rates, the lawsuit said. But patients allegedly didn’t have to pay their share of the bill.
Such co-payments serve as an “important check” on fraud, waste and abuse, United said, by sensitizing patients to unnecessary or overpriced services.
Gift cards for urine
Next Health, based in an office building on LBJ Freeway, is a “rebrand” of U.S. Health Group, which ran many of the same subsidiaries, according to United. The company was sued for health care fraud in federal court in 2013, the lawsuit said.
Medicus, one of its companies, settled that suit with the government for $5 million in 2014 and signed a corporate integrity agreement with the office of inspector general for the U.S. Department of Health and Human Services.
A few months later, Next Health was formed, according to United.
In one case, it charged $6,456 for a drug test that costs an average of $3,796 for an out-of-network provider and $801 for a network provider, according to the lawsuit.
The company paid sales brokers to find medical providers willing to engage in the illegal kickback scheme, the lawsuit said. The kickbacks were disguised as payment for administrative, marketing or consulting services, according to the suit.
The ADAR Group, which was formed by Bugen and Zajac, advertised a deal to give $50 gift cards to patients with private insurance who provided urine or saliva as part of a “wellness study,” the lawsuit said.
Patients could also earn a $25 gift card for each friend or co-worker they referred to Bugen and Zajac, according to the lawsuit.
The pair collected the specimens at locations in Austin, Killeen and San Antonio. One of them, in Austin, did not have a restroom, so patients were told to use one at a nearby Whataburger, according to United.
Another Next Health entity that formed to collect urine and saliva offered medical providers $100 for each specimen sent to Next Health for testing under a “sham medical study,” the lawsuit said.
The entity, International Medical Research, offered providers an “extremely lucrative, new revenue stream for your doctor’s office!”
By sending 10 specimens a day, providers could earn an extra $20,000 per month and $240,000 per year, the lawsuit said.
Doctor billing numbers used
Bugen hired an Austin-based physician as The ADAR Group’s medical director, the lawsuit said, but his duties were nonexistent. He signed no test forms and saw no patients, yet his name was associated with millions of dollars worth of testing bills, according to United.
Two other Austin-based doctors were paid for the same reason. All three were listed as providers but never saw patients at The ADAR Group’s clinics, according to the lawsuit.
One of them resigned after a few months, saying he was denied access to patient information and that The ADAR Group was billing insurance companies under his provider number without his consent, the lawsuit said.
Bugen used Next Health money to pay the three doctors “for the use of their medical billing credentials,” the lawsuit said. He also filled out requisition forms with false information, United says.
Next Health, through a subsidiary, also submitted about $1 million in claims to United for drug testing requested by a chiropractor who cannot legally prescribe medication, the lawsuit said. The chiropractor was not named in the suit.
The Denton-based chiropractor was the leading referral source for the subsidiary, American Laboratories Group, according to the suit.
One patient provided 10 to 14 urine specimens and received a $50 gift card each time. United said it got the bill — for more than $217,000.
Bugen bragged that he earned $100,000 per month for his work with Next Health and its subsidiaries, the lawsuit said.