Kan-Di-Ki, LLC, doing business as Diagnostic Laboratories and Radiology has agreed to pay $17.5 million to resolve allegations that it submitted false claims to Medicare and Medi-Cal that were tainted by a kickback scheme.

Diagnostic Labs, which is headquartered in Burbank, provides lab and x-ray services to patients at skilled nursing facilities (SNFs) in Southern California. SNFs, commonly known as nursing homes, are a healthcare option for senior citizens who are in need of constant medical attention.

Diagnostic Labs allegedly charged SNFs below cost rates for Medicare Part A business, in exchange for the facilities’ provision of Medicare Part B and Medi-Cal business back to Diagnostic Labs;This scheme is alleged to have violated the federal Anti-Kickback Act (42 U.S.C. § 1320a-7b(b)(2)(A)) and the federal and state False Claims Acts.

“When medical facility owners illegally offer discounts to customers to generate business, it results in inflated claims to government health care programs and increases costs for all taxpayers,” said Glenn R. Ferry, Special Agent in Charge for the Los Angeles Region of the Department of Health and Human Services’ Office of Inspector General; “This $17.5 million settlement demonstrates OIG’s ongoing commitment to safeguarding federal health care programs and taxpayer dollars against all types of fraudulent activities.”

The United States will receive $12.95 million of the settlement amount, and California will receive $4.55 million.

This settlement resolves a lawsuit filed under the qui tam, or “whistleblower,” provisions of the federal and state False Claims Acts, which allow private citizens with knowledge of fraud to bring civil actions on behalf of the federal and state governments and share in any recovery;The case was filed in 2010 in federal court in Los Angeles by two former Diagnostic Labs employees, and is titled United States and State of California ex rel. Pasqua et al. v. Kan-Di-Ki, LLC, Civil Action No. CV10-0965 JST (RZx) (C.D. Cal.); The two men who filed the lawsuit, Jon Pasqua and Jeff Hauser, will collectively receive $3,755,500 as their share of the federal recovery.  Their share of the state recovery has not yet been determined.

The United States Attorney’s Office for the Central District of California, the Justice Department’s Civil Division, and the California Attorney General’s Office handled the civil settlement.  This matter was investigated by the U.S. Department of Health and Human Services, Office of Inspector General.