SETTLEMENT: Newly-Listed Progenity Inc. Admits to Fraudulently Using Wrong Billing Code

Posted on 07/25/2020

San Diego-based Progenity Inc., a listed company, whose major shareholder according to ownership records is Athyrium Capital Management LP (23,303,346 shares or 51.6% ownership), agreed to settle. Progenity is a biotechnology company that provides molecular and diagnostic tests. Kickbacks and fraudulent billing schemes undermine healthcare systems, often passing the costs onto others. Engaged in illegal kickback schemes, Progenity improperly used CPT code 88271, which applies to fluorescence in situ hybridization (“FISH”) procedures, knowing that its genetic tests were cell-free DNA sequencing-based NIPTs that are not FISH procedures and that CPT code 88271 did not accurately represent the tests performed. The settlement with the DOJ was US$ 49 million.

The case is being handled by the Office’s Civil Frauds Unit of the U.S. Department of Justice. The lawsuit filed by the DOJ alleges that Progenity over billed Medicaid and the U.S. Veteran’s Administration by fraudulently using a billing code that misrepresented the tests provided.

According to the press release, “When submitting claims for payment, healthcare providers use Current Procedural Terminology (“CPT”) codes to identify the nature of the medical procedure or services rendered. Government healthcare payors rely on the CPT code to determine whether the procedure or service is covered, as well as the level of reimbursement. From March 2014 through April 2016, PROGENITY fraudulently used CPT code 88271 to seek reimbursement for noninvasive prenatal tests (“NIPTs”) that screen for genetic disorders and abnormalities when this code misrepresented the services PROGENITY actually provided. As a result, PROGENITY received payments for non-reimbursable tests, or received substantially higher payments than it was entitled to receive. PROGENITY knew that many patients did not meet the medical necessity criteria for NIPTs, and that it could circumvent those requirements by billing under the incorrect billing code.”

The press release adds, “PROGENITY induced physicians to order PROGENITY tests by engaging in three kickback schemes. First, from January 2012 through March 2016, PROGENITY paid “draw fees” to physicians or physician offices for blood specimens collected for PROGENITY tests. These fees exceeded the fair market value of the services performed. The total draw fees paid to physicians depended on the volume of blood specimens collected, so physicians would receive more money if they ordered more PROGENITY tests.

Second, from 2012 through 2018, PROGENITY sales representatives provided food and alcohol to physicians and their staff at gatherings, including happy hours and birthday or holiday parties, that often involved little or no educational content. For the vast majority of the relevant period, PROGENITY did not limit or even monitor the total amount its sales representatives spent on a physician. One former sales representative spent $65,658 on meals and alcohol for physicians during a single year.

Third, from January 2012 through April 2018, to market its expensive tests, PROGENITY routinely reduced or waived coinsurance and deductible payments without making the required individualized determination of financial need or reasonable collection efforts. Sales representatives informed physicians and their staff, as well as patients, that PROGENITY would waive coinsurance and deductibles, or limit the patient’s payment to a certain maximum out-of-pocket amount. And PROGENITY had agreements with several physicians that it would not collect any payments from their patients.”

In November 2017, Athyrium Capital Management led a Series B financing round of US$ 125 million in Progenity. In June 2020, Progenity went public in its initial public offering for US$ 100 million.

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