Lawsuits Halt Scheme to Bilk Insurance Companies for Unnecessary Testing

January 18, 2005

In April 2005, the Illinois Attorney General intervened in a private lawsuit to stop a scheme to conduct worthless and unnecessary electrodiagnostic testing while billing private insurers for more than $234 million for the services [1]. The attorney general’s complaint, filed in Cook County Circuit Court, named as defendants VeridianHealth LLC (a/k/a ZT Technical Services, Inc.), Veridian’s CEO and founder Mitchell Rubin, Veridian’s Chief Compliance Officer Lawrence Rubin, and neurologist Edward J. Herba, as well as a complex web of affiliated and related companies.

The suit was originally filed in 2004 by private attorney Tracy Netzel on behalf of a whistleblower (chiropractic neurologist Scott Schichtl) under the state’s Insurance Claims Fraud Prevention Act. Netzel’s law firm specializes in qui tam (“whistleblower”) lawsuits The qui tam mechanism allows private individuals with evidence of fraud to bring a lawsuit on behalf of the Government. The private person, who is referred to as a “relator” or “whistleblower,” is entitled to a portion up to 30% of the Government’s recovery from the lawsuit.

VeridianHealth employed mobile technicians to travel to the offices of chiropractors and other doctors to perform nerve conduction tests. Such tests, when performed by trained technicians under the supervision of qualified physicians, can be legitimately used to to detect pinched nerves, carpal tunnel syndrome and other nerve-related conditions. But according to the lawsuit:

  • VeridianHealth billed insurers for poorly performed tests that were medically unnecessary and systematically billed for tests they did not even perform. Since 2002, the largest percentage of Veridian’s billings was for a needle electromyography (“needle EMG”), which Veridian subsequently admitted it had never performed. This “phantom test” generated more revenue for defendants than the tests that actually were performed.
  • The referring physicians were not trained or qualified to administer or supervise the tests.
  • Unlicensed technicians administered an extensive predetermined battery of tests on every patient. Instead of performing an appropriately tailored sets of tests, VeridianHealth gave the referring physicians only three choices for testing, regardless of the patient’s condition and medical history: an “upper profile,” a “lower profile,” or both.
  • Each testing profile involved repeated shocks or stimulations of multiple nerves in each arm and/or leg. Because no qualified physician was present and VeridianHealth did not tailor the testing to the patient’s medical condition, the technicians routinely performed unnecessary tests. In addition, most of the tests failed to produce readable and useful results.
  • As part of the scheme, off-site neurologists on VeridianHealth’s payroll purported to read and interpret the tests. While a neurologist is required to be present to conduct a crucial portion of the test (needle electromyography), Veridian’s neurologists never saw the patients and usually spent less than five minutes reviewing the results. Yet, VeridianHealth billed insurers over $10,000 for an upper and lower profile, which was 3 to 10 times what a qualified provider, who actually meets with the patient, would normally charge for properly administered and readable tests.
  • Veridan Health neurologists’ reports were generally vague and of little use to the referring physician.
  • Mitchell Rubin and others masterminded a scheme to avoid raising “red flags” with insurance companies. VeridianHealth utilized dozens of companies to bill insurance companies and kept additional companies “in the drawer” in case insurers caught on to the scheme and stopped paying. VeridianHealth also coached its neurologists to avoid using “problematic” terms, including complaints that the tests were unreadable and recommendations for the needle EMG test that VeridianHealth did not conduct. If a neurologist persisted in using the “problematic” terms, Veridian would alter the neurologist’s findings before forwarding the findings on to the referring physicians and the insurers. Eventually, neurologists who did not “get with the program” allegedly were fired.
  • VeridianHealth marketed itself—primarily to chiropractors—by emphasizing that the doctors, instead of referring patients to neurologists and losing business, could keep the patients in-office and have Veridian do the tests done on-site. In fact, promotional literature for Veridan Health’s predecessor company ZT Technical Services included a brochure that asked, “Why is this Doctor Smiling?” The answer provided was that the doctor income could increase by $5,000 to $10,000 a month by using the VeridianHealth testing scheme.

The Attorney General’s complaint charged the defendants violating the Illinois Insurance Claims Fraud Prevention Act, the Consumer Fraud and Deceptive Business Practices Act and the Medical Practices Act. One count alleges that the defendants committed insurance fraud by submitting bills for tests that were never performed, were performed poorly, or were medically unnecessary. The count also charged the defendants with violating the Insurance Claims Fraud Prevention Act by paying kickbacks for testing referrals in the form of waived lease agreements and fee-splitting.

Another count alleges the defendants defrauded patients and physicians by falsely advertising their testing as having diagnostic value, being “hospital quality” and conducted by “board certified technicians.”

Another count alleges the defendants violated the Medical Practices Act by controlling various medical corporations that actually sent bills to the insurers. Although the medical corporations were nominally in control of neurologists, VeridianHealth, through one of its subsidiary companies, actually controlled the corporations and received all of the insurance payments.

The state seeks a court order preventing the defendants from continuing testing and continuing to dissipate the proceeds of their fraudulent scheme through alleged lavish spending. The complaint also asks the court to order monetary damages of $50,000 per violation, penalties for violations of the Insurance Claims Fraud Prevention Act, including disgorgement of the monies received, triple damages for the amounts billed, and penalties of up to $10,000 per false claim.

In May 2005, the Court entered a Temporary Restraining Order against VeridianHealth, LLC and various of its subsidiaries and affiliates enjoining them from billing and submitting claims for reimbursement to insurance companies for diagnostic testing that has no diagnostic value, lacks medical necessity, or is not conducted under the direct supervision of a physician. The TRO also restrained VeridianHealth from transferring, selling or otherwise dissipating its assets [2].

Chiropractic Practice Builder Added

In July 2005, two neurologists (Nils Anderson and Harish Thaker) and two chiropractors (Josef Verhaerdt and Mark Sanna) were added as defendants. The amended complaint charges that VeridianHealth paid kickbacks to Verhaerdt and Sanna to recruit other doctors into the referral and testing scheme. Sanna is alleged to have received nearly a half-million dollars in annual kickback payments. Anderson and Thaker, along with a handful of other off-site neurologists recruited by VeridianHealth, allegedly “read” the worthless diagnostic testing reports. VeridianHealth then billed insurance companies as much as $10,600 per case for these purported services [3]. A few days after the amended complaint was filed, Veridian announced that it was discontinuing its business operations. In August, its some of its creditors filed a bankruptcy petition.

Mark Sanna, D.C., heads Breakthrough Coaching, a company that teaches chiropractors how to build their practices. According to the lawsuit:

In or about 2003, ZT developed a relationship . . . whereby Breakthrough and Sanna would scout for chiropractors to recruit for ZT’s diagnostic testing scheme. As part of this, ZT and Sanna entered into a kickback arrangement whereby ZT began paying Sanna to refer patients to ZT for testing. ZT paid Sanna a $100 fee for each patient one of his chiropractic recruits set up for diagnostic testing with ZT. The $100 fee was paid to Sanna by ZT exclusively for the patient referral. By May of 2005, Sanna’s income from the ZT patient referrals reached $480,000 per year and was one of ZT’s largest operational expenses. The same or similar “per patient” referral fee applied to other so-called “coaches” employed by Breakthrough and generated substantial additional cash flow. ZT also paid Sanna a $50,000 per year fee for membership on the ZT “advisory board.”

Sanna, who has denied doing anything wrong, has been a member of the fraud subcommittee of the American Chiropractic Association’s Insurance and Managed Care Committee. In March 2005, the ACA’s House of Delegates passed a policy statement about multidisciplinary practices which Sanna helped to prepare. The statement included warnings against fraudulent insurance claims, unnecessary referrals and services, unsupervised testing, schemes, and kickbacks [4].

Current Status

In September, 2005, a settlement was finalized with individual defendants Fred Goldman and GTA Group, Inc. Goldman agreed to pay $205,000 to the State of Illinois in return for dismissal of all claims against him and GTA Group. Schichtl received 35% of the proceeds as well as amounts for attorneys’ fees and costs incurred in bringing the litigation [5].

The litigation continues with respect to all remaining defendants, including VeridianHealth ‘s former CEO, Mitchell Rubin.

  1. Madigan files insurance fraud suit against health care “providers”; Defendants have billed private insurers more than $234 million for worthless testing. Illinois Attorney General press release, April 26, 2005.
  2. Illinois judge enters temporary restraining order In VeridianHealth lawsuit. News release, Netzel & Associates Web site, May 13, 2005.
  3. Second amended complaint. The State of Illinois and State of California ex rel Scott Schichtl v, ZT Technical Services, Inc., et al. Circuit Court of Cook County Illinois, Case No. 03 L 008704, filed July 8, 2005.
  4. ACA Insurance and Managed Care Committee. Resolution #2: Multi-Discipline Practices (MDP), passed by ACA House of Delegates, March 2005.
  5. First settlement reached In Veridian Health lawsuit; Veridian forced into involuntary bankruptcy. Netzel & Associates Web site, September 13, 2005.

This page was posted on January 18, 2005.