Toxicology Lab Owner Pleads Guilty to Health Care Fraud and Tax Evasion; Lab Officer Pleads Guilty to Health Care Fraud

LEXINGTON, Ky. – The owner and CEO of a Lexington toxicology lab, Ronald Coburn, 76, pleaded guilty on Tuesday, before Chief U.S. District Judge Danny Reeves, to health care fraud and tax evasion.  The compliance officer of the same lab, Erica Baker, 31, pleaded guilty on Friday to a health care fraud conspiracy with Coburn.

According to Coburn’s plea agreement, he owned and operated LabTox, LLC, a laboratory that performed urine drug testing services and billed them to Medicare and Kentucky Medicaid.  Coburn knew that those health care programs only pay for medically necessary urine drug testing.  He also admitted knowing that urine drug testing ordered by courts for use in judicial proceedings was not medically necessary, and thus not payable by Medicare or Kentucky Medicaid.  With Coburn’s knowledge and approval, however, Baker recruited a company called Blue Waters Assessment and Testing Services to refer court-ordered urine drug testing to LabTox.  Coburn knew this was not medical testing, but caused it to be billed any way to Medicare and Kentucky Medicaid, resulting in fraudulently obtained payments to LabTox of $1,864,429 between June 2019 and March 2021.  In his plea agreement, Coburn has agreed to repay this money to Medicare and Kentucky Medicaid. 

Coburn also admitted to receiving income of more than $1.5 million per year from LabTox between 2017 and 2021, and to concealing this income and his ownership of LabTox by placing the business in the name of his partner.  Coburn created the false appearance that he did not earn income during this time period, and he did not file any tax returns in his own name.  While he caused tax returns to be filed in the name of his partner, he never paid any of the income tax he knew he owed to the Internal Revenue Service.  Coburn’s plea agreement obligates him to pay $3,566,645 to the IRS, representing income tax he owed in 2017 through 2021. 

According to Erica Baker’s plea agreement, she was LabTox’s director of operations and compliance officer, and participated in a health care fraud conspiracy with Coburn between January 2019 and January 2021.  Specifically, at Coburn’s direction, Baker solicited urine drug testing from non-medical substance abuse recovery programs, typically faith-based residential programs or homeless shelters.  Baker knew that urine drug testing for clients of these programs was not done for any medical reason, as would be required before Medicare or Kentucky Medicaid would pay for the tests.  As part of the scheme, Baker misled sober home directors, and induced the facilities to send in more tests to LabTox by putting facility staff on LabTox’s payroll and compensating them based on the number of urine drug tests sent to the lab.  Despite knowing that this testing was not for medical purposes, Baker and Coburn agreed to cause urine drug testing referred by these non-medical sober homes to be billed to Medicare and Kentucky Medicaid, resulting in fraudulent payments of at least $937,594.  

Carlton S. Shier, IV, United States Attorney for the Eastern District of Kentucky; Brian Jones, Acting Special Agent in Charge, FBI, Louisville Field Office; Tamala E. Miles, Special Agent in Charge, Department of Health and Human Services, Office of Inspector General, Atlanta Field Office; and Bryant Jackson, Special Agent in Charge, Internal Revenue Service, Criminal Investigation, Cincinnati Field Office, jointly announced the guilty pleas.

The investigation was conducted by the FBI, HHS-OIG, and IRS.  The United States was represented by Assistant U.S. Attorneys Andrea Mattingly-Williams and Paul McCaffrey.

Coburn and Baker are both scheduled to be sentenced on December 18, 2023. Both face a maximum of 10 years in prison and a fine of up to $250,000 fine.  However, any sentence will be imposed by the Court, after its consideration of the U.S. Sentencing Guidelines and the federal sentencing statutes. 

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