More Trouble for Embattled Virginia Laboratory

Cigna Corp. is suing Health Diagnostic Laboratory Inc. (HDL) of Richmond, Va., for $84 million, alleging that the laboratory operated a scheme to circumvent safeguards against unreasonable and excessive charges by forgiving copays, coinsurance, and deductibles. In a lawsuit filed on Oct. 15, Connecticut General Life Insurance Co. and Cigna Health and Life Insurance Co. say HDL unlawfully obtained at least $84 million under the scheme. HDL is currently under investigation by the federal government for allegedly paying kickbacks to physicians in the form of specimen collection payments to garner referrals, among other issues. HDL’s CEO, Tonya Mallory has resigned, reportedly to help her brother open a new business. Both the Wall Street Journal and Forbes have published stories alleging other misconduct by the lab. Forgiving Patient Responsibility Charges Cigna is a managed care company and one of its responsibilities is to control health care costs. It accomplishes this by making the members of its plans responsible for paying part of the cost of their health care though copays and coinsurance. It also provides incentives to its members if they use in-network providers by charging lower copays than they would allow for an out-of-network provider. These in-network providers generally charge Cigna a lower rate. In its lawsuit, Cigna alleges that HDL, an out-of-network provider, undermines these penalties and incentives by promising Cigna members that they will not be charged any out-of-pocket costs. The lawsuit cites several court cases and a government fraud alert intended to demonstrate that the HDL fee-forgiving business model is illegal and runs contrary to the whole notion of managed care. The lawsuit also alleges other unlawful conduct:

• HDL encourages health care providers to order unnecessary tests through the use of large panels of tests regardless of whether all of the tests are necessary and then explains that patients will not complain because HDL will never bill them for the patient responsibility;
• HDL has paid providers in exchange for referrals; and
• By paying fees to providers, HDL has caused them to violate their agreements with Cigna which require them to refer to in-network providers only.

In addition to the $84 million, Cigna also is seeking:

• A declaration that the products and services provided by HDL under its fee-forgiving program do not constitute covered services;
• Return of all monies paid to HDL by Cigna;
• Monetary damages;
• Exemplary and punitive damages;
• Pre- and post-judgment interest; and
• Reasonable and necessary attorneys’ fees and court costs.

What Does This Mean for Other Labs For years there has been a debate concerning the legality of out-of-network labs providing services as if they were in-network providers and not charging copays and coinsurance to patients. These arguments generally concern how this practice may be viewed from the Medicare perspective of anti-kickback laws. This case sheds a whole new light on that business model. If a laboratory is operating such a program, it should thoroughly review this case to determine if its practices violate state-based insurance fraud and business fraud laws and regulations. Takeaway: This case may be the first of many civil cases by private insurance companies involving laboratories that operate fee-forgiveness programs or inducements to patients.