Corporate Counsel Daily, Government’s claims against COVID testers will proceed, (Mar 25, 2026)

By Sherri M. Schroeder, J.D.

Although the testing labs argued that the government’s claims against them failed to plead fraud with particularity and failed to state a claim for relief, the court disagreed.

A New York federal district court has allowed the U.S. government’s claims against LabQ Clinical Diagnostics, LLC, Dart Medical Laboratory, Inc., Community Mobile Testing, Inc., and their CEO to proceed. The interrelated New York companies are testing facilities or laboratories that performed COVID-19 services for uninsured persons during the pandemic. The government alleged that the companies knowingly presented false or fraudulent claims for payment to the government’s Uninsured Program for COVID-19 testing in violation of the False Claims Act (FCA), 31 U.S.C. § 3729(a)(1)(A), among other things. The companies moved to dismiss these allegations for failure to plead with particularity and failure to state a claim for relief. The court, however, denied the motions. The court found the government’s allegations sufficient to plead that the companies’ alleged false statements with particularity, the companies’ alleged false claims and statements were material to the government’s decision to pay, and the companies knew its claims and statements were false and understood at the time the claims were submitted that its double-billing was impermissible. As to the government’s reverse FCA claim, the court found that it was not duplicative of the government’s direct FCA claim and also allowed that claim to proceed (U.S. v. LabQ Clinical Diagnostics, LLC, Nos. 22-cv-10313 (LJL) and 22-cv-00751 (LJL) (S.D.N.Y. Mar. 20, 2026)).

Allegations. The government alleged that the companies relied on the government’s Uninsured Program as a default payor and submitted claims for individuals that it knew did not qualify for the program at the time of testing and where, prior to the submission of the patient’s name on a patient roster, it did not confirm health care eligibility. The allegations included double-billing, failing to confirm insurance status, billing the Uninsured Program despite knowing the patient had health insurance, submitting the claims to the Uninsured Program if private insurers refused to pay, and knowingly concealing and evading the obligation to reimburse the program for double payments.

Direct FCA claims. The court found that the government’s amended complaint (AC) sufficiently pleaded the alleged false claims. The court noted that for its claims, the government identified the false statements, who made them, the exact dates the false statements were made, and why the attestation was false. Therefore, the allegations were sufficient to plead false statements with particularity.

The court also found the AC satisfied all three relevant factors in evaluating materiality as laid out in the Supreme Court’s decision in Universal Health Servs. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (U.S. 2016), in that (1) the government expressly designated compliance with the terms and conditions of the Uninsured Program as a condition of payment; (2) the government outlined the many steps it took to determine whether a person qualified as an “Uninsured Individual” before committing to payment, with the fact that a patient had insurance alone being dispositive in whether the government would deny the claim for reimbursement; and (3) the companies’ alleged noncompliance was not minor or insubstantial. In the court’s eye, the fact that the government conducted eligibility checks and offset the claims it detected were improper did not establish that the companies’ attestations and certifications could not actually impact the government’s payment determination.

Furthermore, the court found that the government had adequately alleged knowledge. The government alleged the companies had within their possession information that there existed another payor to whom it could submit claims and be paid, including allegations of specific instances. The companies claimed they were simply engaging in the commonplace, legitimate practice of coordinating benefits, but the court found this argument misstated the manner in which the Uninsured Program functioned, as only claims that were not covered by another payor could be submitted. The court also noted, “The scienter that is required for a violation of the FCA is that the claims and statements submitted to the Government are false. It is not that the defendants intended to defraud the Government.”

Reverse FCA claim. The government also alleged the companies violated the FCA’s “reverse claim” provision, 31 U.S.C. § 3729(a)(1)(G), which imposes liability for failing to pay the government money owed, rather than from fraudulently obtaining money from the government. Although the companies argued that this claim should be dismissed as duplicative of the government’s direct FCA claim, the court disagreed. Per the court, the direct and reverse FCA claims at issue were not based on overlapping conduct. The direct claims were based on the companies’ false attestations at the time they submitted claims—a violation that would be complete even without reimbursement from another source. However, the reverse claim was based on conduct occurring after the submission of claims, namely the receipt of payment from another payor following submission of the claim to the government and the failure to fulfill the obligation to return the payment to the government.

Additionally, the terms and conditions requiring repayment of any claims paid under the Uninsured Program for which the provider was reimbursed by another company—which the companies agreed to and attested their compliance with—constituted a contractual relationship, according to the court. The fact that there existed a mechanism by which the government could recoup overpayment from future claims did not diminish the obligation of the companies to return an identified overpayment. According to the court, the AC alleged the companies both knew they had received overpayments and knew of their obligation to repay such overpayments. The court also specifically noted that the AC alleged specific obligations the companies avoided. Therefore, the government’s AC had alleged the heightened scienter necessary to sustain a reverse false claim case under the FCA.

Conclusion. Therefore, the court denied the companies’ motions to dismiss.

The case is Nos. 22-cv-10313 (LJL) and 22-cv-00751 (LJL).

Judge: Liman, L.

Attorneys: Charles Salim Jacob, U.S. Attorney's Office, for U.S. Andrew J. Levander (Dechert, LLP) for LabQ Clinical Diagnostics, LLC.

Companies: LabQ Clinical Diagnostics, LLC

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