Failure to Give Documents to Hospital Auditor Costs Lab Its Right to Be Paid for Test

What Happened: Blue Cross Blue Shield (BCBS) initiated a billing audit of an Alabama hospital after noticing its average urine drug tests had spiked from 30 to 1,100 per month. The hospital asked its lab provider to furnish the physician orders and other records BCBS auditors needed to verify the tests were medically necessary but the lab didn’t provide them. As a result, BCBS denied the hospital’s claims. In turn, the hospital withheld the $245,000 it still owed the lab under the lab services contract. The lab sued the hospital for breach of contract. Ruling: The Alabama federal court ruled in the hospital’s favor. When one side violates a contract, the other can recover as long as it can show was in “substantial compliance” with the agreement. The hospital’s failure to pay was a clear contract violation; the problem was that the lab also violated the contract by not providing the records the hospital needed to give the auditors. The court ruled that this was a “material breach” justifying the hospital’s refusal to meet its own contractual obligation to pay [Riverboat Grp., LLC v. Ivy Creek of Tallapoosa, LLC, 2020 U.S. Dist. LEXIS 27947].