Quest Diagnostics and Laboratory Corporation of America (LabCorp) find themselves once again targets of a recently unsealed whistleblower lawsuit filed by Chris Riedel, former CEO of Hunter Laboratories. The lawsuit, filed in 2007 but only recently unsealed, alleges that Quest and LabCorp violated the Virginia Fraud Against Taxpayers Act when it billed the state Medicaid program more than it should have under Virginia regulations that require labs to provide their services to Medicaid patients at the same rate billed to others. This is not the first suit filed by Riedel against these two laboratories, the two largest laboratory companies in the United States. In 2005, Hunter and Riedel filed a similar suit under a California False Claims Act law alleging the labs violated the California law when it charged the Medi-Cal program more than it charged other purchasers of comparable services. In 2011, Quest settled for $241 million and LabCorp settled for $49.5 million. The lawsuits allege violations of the anti-kickback statute because the labs offered deeply discounted pricing on private business in order to gain or “pull through” the referrals of Medicaid patients with higher reimbursements. This “swapping” of referrals for the benefit of both parties (i.e., Quest and […]
Quest Diagnostics and Laboratory Corporation of America (LabCorp) find themselves once again targets of a recently unsealed whistleblower lawsuit filed by Chris Riedel, former CEO of Hunter Laboratories. The lawsuit, filed in 2007 but only recently unsealed, alleges that Quest and LabCorp violated the Virginia Fraud Against Taxpayers Act when it billed the state Medicaid program more than it should have under Virginia regulations that require labs to provide their services to Medicaid patients at the same rate billed to others.
This is not the first suit filed by Riedel against these two laboratories, the two largest laboratory companies in the United States. In 2005, Hunter and Riedel filed a similar suit under a California False Claims Act law alleging the labs violated the California law when it charged the Medi-Cal program more than it charged other purchasers of comparable services. In 2011, Quest settled for $241 million and LabCorp settled for $49.5 million.
The lawsuits allege violations of the anti-kickback statute because the labs offered deeply discounted pricing on private business in order to gain or “pull through” the referrals of Medicaid patients with higher reimbursements. This “swapping” of referrals for the benefit of both parties (i.e., Quest and LabCorp get the higher reimbursing pull-through referrals while the referring party gets deeply discounted private business that it can bill at a mark-up and make substantial profits) is often cited by the Health and Human Services Office of Inspector General as indicative that kickbacks are occurring. This arrangement puts competitors at a distinct disadvantage and forces them to either meet the discounted rates offered by Quest and LabCorp or lose referrals to the bigger labs.
The lawsuit also alleges the use of false records or statements to obtain the Medicaid payments when Quest and LabCorp knowingly billed Virginia Medicaid in excess of their lowest charge to others for the same services. The suit includes explicit descriptions of the alleged scheme and provides tables that purportedly portray defendant’s lowest fees compared to Virginia Medicaid fees.
Hero or Villain
In these lawsuits filed in 2007 by Hunter and Riedel, descriptions of what most knowledgeable lab insiders consider normal practice for the laboratory industry are laid out in explicit detail. Riedel may have chosen the Medicaid programs, specifically those in states where there is some kind of best price regulation, because he has a good chance to win the suits or gain settlements without going to court. In addition, the lawsuits draw attention to a practice the government and Medicare program have known about for decades but have yet to address. In any case, when the public reads news articles about these alleged fraud schemes, the end result is a negative portrayal of all labs.
One potential solution is a direct-bill law for all laboratory services requiring that only the lab that performed the test can bill for it for any payer, private or government. Such a bill would have the effect of leveling the playing field for all labs and lower the risk of these kinds of alleged schemes.
Takeaway: Labs must pay attention to the outcomes of lawsuits alleging illegal discounting and any government pronouncements resulting from them and should be prepared to adjust business models, especially if operating in a state with best price regulations.
