Feds say lab used urine tests to bilk millions from taxpayers. Owners agree to pay $7M

Michael Gordon
·2 min read

Talk about flushing away money.

The owners of a former Charlotte drug-testing lab have agreed to pay more than $7 million to the federal government to settle claims that they bilked taxpayers with fraudulent medical claims involving urine tests.

Federal prosecutors also accused the principals of the defunct Physicians Choice Laboratory Services of offering kickbacks to physicians in exchange for their referral of patient urine samples for drug testing. In return, the lab billed Medicare, the federal insurance program for seniors, for millions of dollars in false claims.

On Tuesday, former lab owner Douglas Smith agreed in federal court in Charlotte to settle the claims against him for $4.5 million. Prosecutor say that in 2012-14, Smith paid kickbacks to a medical practice in Knoxville, Tenn., in exchange for drug-testing referrals.

Last week, Smith’s former business partner, Philip McHugh of Charlotte, agreed to pay $2 million for a rash of similar charges.

In December 2019, defendant Manoj Kumar, a former sales representative and lab manager for Physicians Choice, was assessed almost $650,000.

Acting U.S. Attorney Bill Stetzer of Charlotte said the defendants damaged the credibility of what is normally an important diagnostic procedure, particularly with drug abuse.

“Offering financial incentives to medical providers in exchange for performing these tests not only violates the law, it undercuts the significant efforts that the medical and law enforcement communities have made to combat the opioid crisis in America,” Stetzer said in a statement after McHugh’s settlement was announced.

Physicians Choice opened in Charlotte in 2009 before eventually moving, with great fanfare, to Rock Hill four years later. By 2017, its building was empty.

According to court filings, McHugh’s use of illegal inducements led to fraudulent Medicare claims between 2013 and 2015.

He offered equipment to two physicians, and later paid commissions and an eventual salary to Kumar in return for his influencing two medical practices to refer urine tests through the Charlotte lab. In another case, McHugh paid loans to two other physicians to generate more drug-testing referrals.

As part of the settlement, McHugh did not admit liability.

Prosecutors with the U.S. Attorney’s Office in Charlotte filed the complaint against Physicians Choice after the company had been named in separate 2014 whistleblower lawsuits in both Tennessee and Florida.

The cases were consolidated and transferred to the Western District of North Carolina in 2017.

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