In Pursuit of Liquid Gold

Posted December 27, 2017 6:07 p.m. EST

With drug abuse rising, an array of companies has found new ways to turn the problems of addicts into billable fortunes. And few are as profitable as those focused on the lowliest byproduct of any stint in rehab: urine.

Testing has long been part of recovery, a way for clinics to ensure that patients are staying clean. But starting in 2010, as opioid abuse evolved into a crisis and the Affordable Care Act offered insurance to millions more young people, the cost of urinalysis tests soared.

It was soon common for clinics and labs to charge more than $4,000 per test, and to test clients two or three times a week.

Today, many clinics have pushed into an industry once dominated by stand-alone labs, running their own testing operations and, in some cases, pocketing far more from urine testing than from other aspects of treatment. With huge profits for the taking, clinic-owned labs are multiplying — and upending the testing industry.

“In a lot of these places, the patients are basically just there to urinate, and management calls them ‘thoroughbreds,'” said Bill Griffin, a retired insurance fraud investigator in Florida. “This happens all day long, with thousands and thousands of kids. This is a billion-dollar fraud in Florida alone.”

The tests have caught the attention of the FBI and the Palm Beach County state attorney’s office, which launched a task force — called Operation Thoroughbred — to investigate clinics and sober living homes.

Insurers are also fighting back. In January, UnitedHealthcare filed a lawsuit seeking $100 million from Next Health, a network of labs, claiming that it had paid doctors bribes as well as kickbacks of 20 percent of revenue for overpriced and medically unnecessary urine and saliva samples.

Next Health countersued for unpaid claims in October and called UnitedHealthcare’s case a “shakedown.”

Some clinic-owned labs have returned fire, too, with lawsuits claiming that they are owed millions for urinalysis tests that insurers refused to cover. One clinic, A New Start in West Palm Beach, Florida, is suing UnitedHealthcare for $12 million.

One of A New Start’s clients was a 23-year-old named John Baker. A few months after he started treatment there, in early 2015, two bills arrived at his father’s home. They cataloged dozens of urinalysis tests both from the clinic and from the sober home where he lived, which ran its own urinalysis lab.

Total cost: $260,000.

“We were shocked,” said Lizz DeWolfe, Baker’s mother. “It didn’t seem possible.”

Rehab centers and labs say extensive testing is necessary because clients are getting high with rare designer drugs and exotic combinations of over-the-counter medications. Baker’s urine, for instance, was tested for amphetamines, antidepressants, antipsychotics, barbiturates, benzodiazepines (a class of sedatives), and the list goes on.

The tests, though, did not search for the one drug Baker, a weightlifter, was actually taking: steroids. When managers at his sober home found the steroids in his possession, he was evicted. Three days later, his body was discovered in the parking lot near a friend’s apartment. He had overdosed on heroin.

Thousands of small, clinic-owned labs have quietly sprouted nationwide, ramping up the competition for independent labs that once dominated the industry. The clinics that have yet to jump into the lab business are now inundated with breathless pitches from companies that specialize in helping to set up complete, ready-to-run labs for clients. “15 samples per day could yield $800,000 in profit!” read one email sent last year by Mercedes Medical, a supply company in Sarasota, Florida.

In recent months, insurers have started to ratchet down reimbursement rates for urine tests, but profit margins remain enticingly high. The windfall has roiled the rehab industry, which is in the midst of a kind of civil war.

On one side are the clinic owners who have never cashed in on urinalysis and are aghast at the cascade of money now pouring into the pockets of their competitors. They tend to be the loudest critics of those on the other side of this battle — the clinic owners who realized that their clients’ urine is a path to riches.

“Some of these places have cleared $400,000 a month in profit,” said Brian Crowley, the chief executive of Integra Enterprizes, which consults with clinics that want to open labs. “A lot of the people who start these treatment centers are reformed abusers, and it’s as though they turn from one craving to another — from drugs to money.”

Paying a Premium of 2,000 Percent

Known as J.J. to friends, Baker entered A New Start six years after he had become a heroin addict in his hometown, Forkston Township, Pennsylvania. At 6 feet 2 inches and just 140 pounds, he had been bullied in high school, according to his mother, and found community with a crowd that was into drugs.

A New Start is an outpatient program, which means that it offers therapy but not housing. So Baker lived at a nearby sober home called Seamless, with about 15 other drug users. Because Seamless had its own urine testing lab, Baker, like countless other patients, provided samples to both his sober home and his treatment facility. All of Baker’s samples were sent to the 46,000-square-foot Alexandria Innovation Center, where the labs for both A New Start and Seamless were based. Anywhere from 25 to 200 specimens a day arrived at A New Start’s lab, according to Theresa Lee, former chief scientist for the company.

“Monday is the busiest day,” she said, “because that’s when all the weekend samples arrive.”

Samples are first run through a screening analyzer, a device that can detect more than a dozen drugs, such as cocaine and marijuana. This is called a qualitative test — or more colloquially, a screen.

It is a more expensive version of the $20 test sold at drugstores, the kind prospective employees are asked to take before starting new jobs. The lab version of a screen looks for the same drugs as the one sold at CVS, but is far more sensitive, which is to say that it can detect smaller amounts of drugs.

Labs are reimbursed by the federal government for screens on Medicare patients at a maximum of about $80 per test. For each of Baker’s screens, A New Start’s lab billed $1,980. It is common for private insurers to reimburse at higher rates than public programs, and in very rare cases — for certain back surgeries, for instance — private insurers can pay twice as much as Medicare. A New Start’s lab was asking 2,375 percent the government rate.

The screen was the cheap part.

A New Start’s lab also ran Baker’s urine through a liquid chromatography-mass spectrometry device, which costs about $250,000 and looks like an immense photocopier attached to an espresso machine. It conducts quantitative tests — often called confirmations. These cover a wider range of drugs and determine how much of a particular drug is in a patient’s urine.

For Medicare patients, the government reimburses between $117 and $254 per confirmation test. For each of Baker’s, A New Start’s lab charged more than $4,000.

At the same time, the lab owned by Seamless was conducting both screen and confirmation tests on Baker’s urine, too.

Costs aside, there is the question of whether confirmation tests were even necessary in Baker’s case. All of his screens had come back negative. Typically, confirmations are conducted only if a screen comes back positive.

Nicole Sauvola, a lawyer for A New Start and its lab, said that even when screens are negative, confirmation tests are often essential. That is because confirmations detect and measure a wide variety of exotic drugs, including synthetic stimulants and muscle relaxants, as well as the commonly abused drugs found by screens.

“Physicians and psychologists who are working in this field will tell you that every one of these kids would be dead without drug testing,” she said. “Because as soon as we get a handle on one drug, the triggers lead to another. And we’ve got kids going to Walgreens and buying cough syrup and getting high, or taking Imodium and other anti-diarrhea medications and ending up in the emergency room because Imodium can give you a high like heroin.”

‘Drugs That Haven’t Been Seen in Years’ To get an independent assessment of the testing procedures used by A New Start’s lab, Sauvola recommended speaking to the American Society of Addiction Medicine, which publishes industry benchmarking guides. The group, in turn, recommended one of its former presidents, Louis Baxter.

Baxter declined to discuss the specifics of Baker’s tests. But generally speaking, “having two separate entities testing one patient, that is irregular,” Baxter said. “One source can test a patient and then share that information with the other.”

He added that he is troubled when intensive outpatient programs also own labs. Though they are not legally prohibited, “I can tell you the practice has been investigated by state licensing authorities” around the country, Baxter said.

One independent lab owner who examined Baker’s bills was struck by the number of drugs for which he had been tested. Urine tests are often tailored to the client, said David Muskat, the chief executive of Synergy Diagnostic Laboratory and a critic of overtesting.

People addicted to heroin are typically tested for opiates, marijuana and other types of downers. Testing for amphetamines and other uppers makes less sense, he said.

“These guys were testing for everything you could possibly buy at a Walgreens, everything you could possibly get from a psychiatrist and a number of drugs that haven’t been seen in years,” Muskat said of Baker’s tests. “The kid was negative for six straight months, which means they didn’t have to test so often.”

Which means, in Muskat’s opinion, the tests were about money.

Blue Cross of Northeastern Pennsylvania covered a small fraction of Baker’s $260,000 urinalysis bill, and his family declined to pay the rest. Sauvola, the attorney for A New Start, said some unpaid invoices are written off as uncollectable.

Some bills wind up in court. In the lawsuit filed by A New Start’s lab against UnitedHealthcare, the lab said the insurer had denied millions of dollars in medically necessary substance abuse treatments. In a motion to dismiss, UnitedHealthcare called the tests “unjustified” and “excessive” and said that A New Start’s lab had billed $188,305 for tests conducted on a single patient in the span of 4 1/2 months.

Following the Moneymakers

When Baker was a client, A New Start and its urinalysis lab were owned by Moshe Dunoff. He is in prison, having pleaded guilty to a 2009 scheme described by the Securities and Exchange Commission as a “'boiler room'-type offering fraud.”

The scheme, according to court documents filed by federal prosecutors, raised $1.5 million through phone calls to people who were told they were buying discounted securities from a fictitious brokerage called Gruber and Green.

Sauvola, A New Start’s lawyer, said that Dunoff was addicted to drugs at the time of the scheme and is a dramatically different person today. “He has five years of sobriety,” she said. “Like every other addict I know, he got himself into stupid situations and made bad decisions, solely because he was looking to use drugs, not because he was looking to rip anybody off.”

It is not hard to find former clients of A New Start who rave about Dunoff. “He saves peoples’ lives,” said Rich Sarafian, a former heroin user who is now a barber. “And I don’t mean three or four lives. I mean 50 or 60 lives. He’s involved. He cares about his clients, he tries to run the best possible rehab.”

Behind every urinalysis test is a doctor who must sign a requisition — essentially a note stating that a client’s urine should be tested. For some doctors, requisitions can be a lucrative side business, producing fees between $3,000 and $8,000 a month from each clinic or sober home. Some doctors work with more than one facility at a time. One of the doctors overseeing Baker’s urinalysis tests was Dr. Michael Ligotti, who was listed as the medical director for nine treatment centers as of October, according to records kept by the Florida Department of Children and Families.

Ligotti’s name has appeared often enough on insurance bills that he has attracted the notice of Southeast Florida Recovery Advocates, a group of activists trying to raise awareness about abuses in the drug treatment industry. Part of that, they say, is highlighting the role that doctors play in enriching clinics and sober homes by approving unnecessary urinalysis tests.

Late last February, the group held a protest on the sidewalk next to Ligotti’s office. One of the protesters had a placard that read “Stop Killing Our Kids.” Another read, “We demand physician ethics.”

A call to Ligotti’s office was returned by his lawyer, Benton Curtis, who said his client would not answer questions. “Dr. Ligotti has enjoyed a sterling reputation in South Florida for years as a respected doctor, family man and a civically involved member of the community,” Curtis wrote in an email.

Ligotti, in a 2013 letter to Florida’s Department of Families and Children, wrote that some treatment facilities have used his name “in an unauthorized fashion.” In that letter, however, he added that he could not identify which ones.

During Baker’s first few months at Seamless, he appeared to do well. But to a few counselors and his friends, he seemed overly focused on working out at a nearby gym. Their concern grew when Baker started taking steroids, according to several of his acquaintances including Dustin Williams, who became friends with Baker at Seamless.

The house managers at Seamless found Baker’s steroid prescription. Nearly every sober home has zero tolerance for medication that is not part of a client’s recovery. That was why, on Aug. 25, 2015, Baker was evicted.

“I was at work, and he called and said he was getting kicked out,” Williams said.

Baker also spoke to his mother, DeWolfe, a few times that day. “He was really upset,” she said. “The kid had no place to go. I texted him at 7:58 that night and got no response. He always got back to me. I knew by noon the next day that something bad had happened.”

DeWolfe and Williams started looking for Baker on Aug. 26. They called hospitals, police stations and morgues.

Creating a Monster in the ‘Wild West’

The boom in clinic-owned labs started in earnest around 2014, but it would be inaccurate to say that such labs were overbilling. There were no guidelines about how much to charge or how often to test.

“It was the Wild West,” said Crowley, the clinic consultant. “We had created a monster.”

The size of bills for urinalysis tests was determined through trial and error by the clinics, said John Lehman of the Florida Association of Recovery Residences, which has been battling substandard operators for years. Insurers were sent bills for tests and if they were paid, the cost of the test would go up when new bills were submitted.

Lehman said that early experiments with billing yielded about $4,200 per test, and each client was tested five times a week. That adds up to $21,000 in billings per week, per client. Some clinics had more than 40 clients.

It took years to realize what was happening, insurance executives said. That was mostly because urinalysis tests had never before cropped up as a billing issue, and the doctor-signed requisitions ordering the tests gave them the aura of medical authority.

But in 2015, the Justice Department announced that Millennium Health, a San Diego company that operates labs, had agreed to pay $256 million to resolve allegations that the company had overbilled Medicare and Medicaid for unnecessary urine and genetic tests. Among the findings: Seniors were routinely tested for PCP, also known as angel dust.

“I don’t care if they send it to me in a Ziploc bag,” a Millennium executive was quoted as saying, according to the government’s complaint. “I want their urine.”

A spokeswoman for Millennium said in a recent email that the company has had new owners and new leadership since 2015. Millennium, she wrote, now adheres “to the highest standards of responsible and ethical business practices.” J.J.'s Eviction and Relapse

The night he was bounced from Seamless, Baker called a friend — Sarafian, the barber who had also been a client at A New Start.

“He wanted to get high,” recalled Sarafian, who was also relapsing at the time. “So he picked me up at my apartment, I got in his car and we went together to meet somebody where he bought some heroin.”

The friends had dinner at a Miami Subs, where Baker complained that he felt he had been picked on by the house managers at Seamless. Then, they drove to Sarafian’s apartment complex. Baker stayed in the parking lot to shoot up alone in his car.

On Aug. 28, he was found by a maintenance worker, holding a bottle of water and a hypodermic needle. A medical examiner ruled his death an accidental overdose.

Two former managers at Seamless declined to discuss Baker’s departure from the premises.

Apportioning blame when an addict dies is difficult. Clinic owners who have not opened their own labs contend that the money to be made off addiction treatment has made it easy to put profits over people.

“A drug test costs more than a day of therapy, and that has a way of changing priorities,” said Andrew Burki, the chief executive of Life of Purpose Treatment, a group of clinics focused on students. “And the timing of all this could not be worse. We are in the midst of one of the worst health pandemics since the Spanish flu. More Americans will die from opiates this year than in the entire Vietnam War.”

Even with insurance companies cutting their reimbursement rates, the boom in lab construction has not abated, according to people like Andy Wright, the president of Mercedes Medical, the Sarasota-based company that sells lab equipment. He said that he sees more than a dozen new labs built each month.

George McNally, the former owner of the defunct House of Principles, a sober home in West Palm Beach, described an anecdote he heard not long ago at an Alcoholics Anonymous meeting. “A guy there, who works at a treatment center, was talking about how he had somehow messed up these five UAs,” McNally recalled, using the shorthand for urinalysis tests.

The man’s boss had berated him, McNally said: “Don’t you know — this stuff is liquid gold?”


$208,601.79: A bill sent to J.J. Baker’s family and to his insurer, covering a series of urine tests

‘Operation Thoroughbred’: The code name of a Florida investigation into urine testing practices at clinics and sober living homes

$35 billion: The estimated annual spending on addiction treatment in America