One pathology lab’s referral scheme has now cost two parties a combined $34.75 million in 2026, and the pattern suggests more could follow.
The scheme: Advanced Pathology Solutions, a Little Rock, Ark.-based lab, allegedly set up “lean labs” inside gastroenterology practices nationwide, offering benefits to those practices in exchange for exclusive referrals. The Justice Department alleges APS personnel automatically ordered special “reflex” stain tests before any pathologist review, turning routine biopsies into billable add-ons regardless of medical necessity. The conduct covered 2015 through July 2022.
Why leaders need to know: This is the embedded-lab model, meaning a pathology or diagnostics company places staff and equipment directly inside a referring practice, and it shows up well beyond gastroenterology, in dermatology, urology and orthopedics. Any system or practice with a similar in-office lab, “lean lab” or reference-lab arrangement should have compliance review the referral and compensation terms now, since the fact pattern DOJ used here (automatic test ordering ahead of physician review) is a template it can reuse against other specialties.
Settlement 1 — the lab itself: APS and its owners agreed to pay $30 million, announced June 17, resolving False Claims Act allegations with the Justice Department and HHS-OIG. APS also entered a five-year Corporate Integrity Agreement with HHS-OIG. A five-year CIA means five years of federally monitored compliance reporting, claims reviews and executive certifications — a material, ongoing cost of doing business, not a one-time check.
Settlement 2 — a client practice: Atlanta Gastroenterology Associates agreed to pay $4.75 million, announced Feb. 27, over its lab-services agreement with APS, which ran from May 2017 to May 2020. The Justice Department alleged the arrangement required exclusive referrals and involved the same blanket-ordered special stains. The referring practice paid too, even though it wasn’t the one running the lab, and its agreement had already ended nearly six years before the settlement. Liability follows the contract, not the current business relationship, so practices should audit lapsed or terminated lab-services, MSO and equipment agreements, not just active ones, for exclusivity or referral-volume language. Whistleblower firm Constantine Cannon, in a client alert on the settlement, noted the DOJ’s emphasis on stains being ordered automatically “without a pathologist first reviewing an initial stain” to assess necessity.
Running total: $34.75 million. Both cases explicitly note the allegations were resolved without a determination of liability. Given APS’ stated nationwide footprint of in-office labs, other GI practices that contracted with the lab could see similar DOJ actions. Whistleblower Partners has written up both settlements together as a single kickback-and-unnecessary-testing scheme rather than two unrelated cases, reinforcing the read that more practices could follow.
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