Lexington business owner admits health fraud over urine samples, evading income taxes

The owner of a Lexington laboratory has admitted defrauding taxpayer-funded insurance programs and hiding his business ownership to avoid more than $3.5 million in federal income taxes.

Ronald Coburn pleaded guilty this week in federal court in Lexington to one charge of health care fraud and a charge of tax evasion, according to court records.

Coburn owned LabTox LLC, which among other services tested urine drug samples for drugs.

Coburn took part in getting payments from Medicaid and Medicare for testing samples that that were not eligible for reimbursement, according to his plea agreement.

The programs will pay for testing samples if they are medically necessary, but that does not include samples people submit under court order, for purposes such as figuring out if they are in compliance with drug court rules.

With Coburn’s knowledge and approval, Erica Baker, a LabTox employee, got the owner of another Lexington business that facilitated court-ordered drug testing to send samples to LabTox.

Coburn’s plea did not identify that business, but in a separate case, the U.S. Department of Justice identified it as another Lexington company, Blue Waters Assessment & Testing Services.

According to Coburn’s plea, Baker persuaded the owner of Blue Waters — identified in a separate case as David Waters — to send samples to LabTox for testing.

Baker falsely told Waters that the court-ordered drug tests could be billed to Medicaid and Medicare if he could get the signature of a doctor that purported to order the tests, Coburn’s plea agreement said.

Paying a doctor

Waters paid a Lexington doctor, identified only as Dr. O.J. in Coburn’s plea, $1,000 a month for the use of his signature. Dr. O.J. didn’t see the patients, didn’t choose which tests would be performed and didn’t review the results, according to the court record.

Then, either “knowing or being willfully blind” to the fact that court-ordered drug testing was not covered by Medicaid and Medicare, Coburn and Baker took part in submitting bills that resulted in more than $1.8 million in improper payments to LabTox between June 2019 and March 2021, his plea deal said.

Coburn received income of at least $1.5 million each year between 2017 and 2021, but held LabTox in someone else’s name to conceal his ownership and didn’t file federal tax returns, according to his plea agreement.

He also admitted using a LabTox credit card for a “substantial” amount of personal expenses but deducting them as company expenses.

Coburn agreed to pay restitution totaling nearly $3.6 million to the IRS to cover taxes he didn’t pay in tax years 2017 to 2021.

He also agreed to a judgment restitution of more than $1.8 million to the Kentucky Medicaid program and $18,708 to Medicare.

The health fraud charge is punishable by up to 10 years in prison. The top sentence on the tax charge would be five years.

Coburn agreed not to appeal a prison sentence unless it is longer than three years and 10 months.

Chief U.S. District Judge Danny C. Reeves scheduled Coburn to be sentenced in December.

Court records indicate Baker, who was the director of operations and compliance officer at LabTox, also plans to plead guilty. The charge in her plea is conspiracy to commit health care fraud.

‘Wastes taxpayer dollars’

Her plea agreement, filed in the court record this week, said that at Coburn’s direction, Baker solicited urine drug samples from non-medical facilities that provide substance abuse recovery.

The programs were typically faith-based or homeless shelters. Many use drug testing for purposes such as making sure participants are complying with rules to remain drug free, or as a condition of living there.

Baker got the facilities to refer urine samples to LabTox by falsely saying the cost would be covered by Medicaid and Medicare under a blanket order signed by a medical provider.

Baker “knew or deliberately” ignored that the doctors and nurse practitioners who signed the orders — who were not named in the plea document — were not treating the people in the recovery programs for substance abuse or even reviewing the results, according to her plea.

With Coburn’s agreement and approval, Baker arranged for peer counselors or directors at the recovery programs to get hired as urine collectors for LabTox, and they got paid based on the number of samples submitted.

Coburn and Baker then took part in filing claims with Medicaid and Medicare that brought improper payments totaling at least $937,594 to LabTox between January 2019 and January 2021, according to her plea.

Baker faces up to 10 years on the conspiracy charge.

LabTox agreed in November 2019 to pay the government $2.1 million over improper billing to Medicaid and Medicare between January 2014 and March 2015.

The company did not admit it did anything wrong.

In a separate case, the DOJ announced in May that Blue Waters Assessment and Testing Services and VerraLab JA LLC, a Louisville lab that did business under the name BioTap, agreed to pay the government more than $1.7 million to settle allegations they took part in improperly billing Medicaid and Medicare for urine drug tests that were not medically necessary.

The share of that payment from Blue Waters was $250,000, but that part of the settlement was under the “inability-to-pay” policy of the DOJ, the agency said.

“Submitting false claims to Medicare or Medicaid wastes taxpayer dollars and undermines the integrity of those programs,” Tamala E. Miles, special agent in charge at the Department of Health and Human Services, Office of Inspector General, said in a news release at the time.

The companies did not admit liability as part of the settlement.