South Carolina False Claims Act Case Reaches Settlement

In a significant healthcare fraud settlement, a clinical laboratory in Anderson, South Carolina, along with its founder and CEO, have agreed to pay at least $6.8 million to resolve federal allegations of illegal kickback schemes designed to generate laboratory test referrals. The settlement could potentially increase to approximately $10.1 million if certain financial conditions are met.

Federal investigators uncovered evidence that between March 2018 and November 2021, the laboratory and its chief executive orchestrated a sophisticated system of inducements aimed specifically at steering healthcare providers toward ordering tests from their facility.

The Department of Justice identified five distinct kickback mechanisms employed by the laboratory. According to prosecutors, the company created fraudulent contracts that disguised payments as legitimate business expenses for office rental and medical services. Documentation associated with these arrangements allegedly contained falsified information regarding payment amounts, square footage, and service hours on certification forms.

In a particularly brazen approach, investigators found that the CEO personally delivered money orders to physicians who referred patients to the laboratory, apparently attempting to conceal the connection between payments and test referrals.

The investigation also uncovered an earlier scheme from late 2016, where the laboratory allegedly paid an inflated price for used laboratory equipment from a physician practice. Prosecutors contend this transaction served primarily to generate lucrative referral relationships rather than reflect the equipment’s actual market value.

Additionally, the laboratory provided a pain management practice with free drug-screening services and supplies, which the government claims was done specifically to secure a consistent stream of test referrals from that provider.

“These types of arrangements fundamentally corrupt medical decision-making,” said a federal prosecutor familiar with the case who requested anonymity due to not being authorized to speak publicly about the settlement. “When physicians order tests based on financial incentives rather than medical necessity, it not only violates federal law but potentially compromises patient care.”

The case was brought under the False Claims Act, a powerful federal statute that allows whistleblowers, known as “relators” in legal terminology, to file lawsuits on the government’s behalf against entities defrauding federal programs. These qui tam lawsuits can result in substantial recoveries for both the government and the whistleblowers who bring the allegations forward.

Healthcare fraud experts note that this case reflects the ongoing focus by the Justice Department on clinical laboratories, which have been frequent targets of federal enforcement actions in recent years. The laboratory testing sector remains particularly vulnerable to kickback arrangements due to the high-volume, recurring nature of test referrals and the potential for significant Medicare and Medicaid billings.

“The structure of the laboratory business creates strong financial incentives for improper arrangements,” explained Rebecca Sutton, a healthcare compliance attorney not involved in this case. “A single physician relationship can generate hundreds of thousands in annual revenue for a laboratory, which sometimes leads to aggressive—and illegal—arrangements to secure those referrals.”

This settlement particularly emphasizes the risks associated with common arrangements like office space rental and phlebotomist placement agreements, which federal investigators scrutinize closely for evidence that they serve as disguised kickbacks.

Industry compliance experts point out that the mere existence of documentation certifying an arrangement’s legitimacy is insufficient protection if the underlying economics don’t reflect fair market value or if generating referrals was even one purpose of the arrangement.

This case serves as a powerful reminder to healthcare organizations about the importance of thorough compliance programs. Laboratories and other healthcare providers should ensure all financial relationships with potential referral sources undergo rigorous legal review, with careful documentation of fair market value analysis and legitimate business justification unrelated to referral volume.

As federal healthcare fraud enforcement continues its aggressive stance in 2026, providers across the healthcare spectrum are advised to review existing arrangements with heightened scrutiny to avoid similar penalties.