Labcorp to pay $2.1 million to settle DOJ lawsuit for allegedly overbilling Defense Department

Laboratory Corporation of America will pay the U.S. $2.1 million to settle allegations that it overbilled the Department of Defense for genetic tests that involved children and fetuses, the Justice Department announced Monday.

A former LabCorp employee turned whistleblower, Donna Hecker-Gross, sued the diagnostic testing company in 2018 on behalf of the federal government under the False Claims Act. The civil lawsuit was filed in the U.S. District Court for the District of Maryland.

Hecker-Gross will receive $357,000 as part of the settlement, according to the Justice Department.

Hecker-Gross' allegations surrounded genetic tests performed under a contract LabCorp entered with the Defense Department in 2012. Under the contract, LabCorp provided laboratory testing to DOD military treatment facilities around the world, including tests it paid genetic testing company GeneDx to perform. 

Hecker-Gross alleged that LabCorp overcharged and double or triple-billed DOD for genetic tests performed by GeneDx. There were $210,959 in overcharges on 38 tests, including $113,525.50 for 21 tests billed between March 2016 and January 2017 alone, the lawsuit alleged. 

The lawsuit alleged that staff at Walter Reed National Military Medical Center in 2017 first questioned LabCorp about charges for a certain test that screens for genetic abnormalities in children and fetuses. The test costs between $5,000 and $10,000, the lawsuit alleged.

The test typically runs two or three analyses on DNA samples from a child or a fetus and one or both biological parents. Under the contract, LabCorp only pays GeneDx for one test and should only charge the DOD for a single test and a small fixed fee.

But staff at Walter Reed noticed that LabCorp was charging the military facility for analyses on parental DNA samples in addition to analyses on child or fetus samples, the lawsuit alleged. LabCorp insisted the company had appropriately billed for the tests until Hecker-Gross requested confirmation about GeneDx's billing practices, according to the lawsuit.

LabCorp then discovered that it had been charging the DOD "two or three times what it paid for the test, pocketing the difference in violation of its contract," the lawsuit alleged.

Even after that discovery, LabCorp only conducted a limited investigation that "failed to uncover the size and scope of the problem," the lawsuit alleged. The company only reviewed billing records for tests performed at Walter Reed between March 2016 and July 2017 even though it had performed tests at military treatment facilities worldwide for years, according to the lawsuit.

LabCorp also failed to repay the department for the overbillings it uncovered, the lawsuit alleged. It only offered Walter Reed a credit for double or triple-billed tests dating back to January 2017, with a promise to correct the issue going forward. 

Hecker-Gross repeatedly complained about LabCorp's inappropriate billing to her immediate supervisors until the company fired her on Aug. 8, 2017, the lawsuit said. 

"She believed LabCorp was responsible for repaying all the overcharges, not just the short period of time that they offered to do," Peter Chatfield, the attorney representing Hecker-Gross, told CNBC. "She pressed them to pay for all of it and she got fired for that. That's what made her come forward as a whistleblower."

Chatfield noted that Hecker-Gross is "pleased" with the settlement. 

Scott Moreland, special agent in charge over the Army Criminal Investigation Division Major Procurement Fraud Field Office, said in the Justice Department press release that he was "very pleased" with the settlement announcement.

"This is a true testament to our continued commitment to work closely and seamlessly with our outstanding fellow law enforcement agencies to protect the financial interests of the United States Army and the United States Government as a whole," he said.

LabCorp also didn't immediately respond to a request for comment. The Burlington, North Carolina-based company's shares were relatively flat following the Justice Department's announcement.

LabCorp is one of the nation's largest providers for clinical laboratory services and became most known during the pandemic for manufacturing and distributing Covid testing kits. 

The has faced a string of lawsuits relating to its billing practices for more than two decades. Just last month, the company agreed to pay $19 million to resolve allegations that it violated the False Claims Act by submitting false claims to Medicare. In 1996, LabCorp agreed to pay $187 million for fraudulently billing the government for unnecessary tests on elderly patients.