Reimbursement: ABN’s Failure to Include List Prices for Denied Lab Tests Is Not Consumer Fraud

Had it gone the other way, a recent federal court case might have led to significant liability implications, not only for the nation’s second largest independent lab company but for the industry in general. At issue was how state consumer fraud laws apply to the Advance Beneficiary Notice of Noncoverage (ABN) that labs rely on to bill individuals for tests that their insurance doesn’t cover. Despite the enormous ramifications, the case has largely flown under the radar, so here’s a quick look at the ruling and its practical significance.

The ABN Billing Conundrum

The ABN is a crucial billing document that just about every lab in the country uses. Its purpose is to notify individuals undergoing testing that their insurance is unlikely to provide coverage for a test or group of tests, and to get the individual to accept responsibility for paying for the test in the event of a denial. Individuals must receive, read, and sign the ABN before they receive the service. Then, should the need arise following proper insurance billing procedures, the lab can bill the individual for the denied tests.

While legal, billing individuals for denied tests can be an ordeal. Nobody likes getting hit with a medical bill, especially when they expect their health insurance to pay for their lab tests. The experience is especially unpleasant when the costs of the billed tests run into hundreds of dollars. Even though they signed the ABN, individuals might feel like they’re getting ripped off and seek legal action.

The Labcorp Case

This is essentially what happened in the recent federal case. It began when someone receiving testing from Labcorp in Nevada felt “shocked” to receive a $292 bill for a vitamin D test listed on the ABN as costing $18.93. As the ABN explained, $18.93 was the “Health Plan Allowed Rate” charged only if insurance covers the test. The problem is that the individual’s insurer, Highmark Blue Shield, didn’t cover the test. As a result, the $18.93 rate didn’t apply and Labcorp billed the individual at the $292 list price it charges for vitamin D tests.

Meanwhile, on the other side of the country, in a Labcorp patient service centre in Florida, another individual was undergoing a similar experience. She signed an ABN before receiving two different sets of tests. Later, her insurer denied coverage because Labcorp was an out-of-network provider so Labcorp sent her a bill for the tests at the list price rather than the Health Plan Allowed Rate. The discrepancy was significant—a total of $335 and $650 for tests listed on the ABN as costing an estimated $44.60 and $65.57, respectively.

Both individuals thus got together to file a class action lawsuit against Labcorp for allegedly violating Nevada and Florida state consumer fraud laws. Labcorp argued that it didn’t do anything misleading, false, deceptive, or unfair. The company argued that the ABN expressly states that the listed prices are estimates “assuming that all services will be covered by the [individual’s] health plan.” The individuals contested this claim on the basis that Labcorp knew that if insurance coverage was denied, their customers would end up owing significantly higher list prices for these tests, yet Labcorp made “a conscious effort not to disclose them.”

The Court’s Ruling

The North Carolina federal district court ruled that the individuals didn’t have a valid claim against Labcorp under either state law, and dismissed the complaint without a trial. It’s true that the ABN doesn’t disclose the list prices individuals might have to pay if their insurance doesn’t cover the tests, the court acknowledged. But that isn’t its purpose. The point of the ABN is to disclose to individuals what they’ll have to pay out of pocket if the test is covered by insurance. And that’s exactly what the Labcorp ABN did, the court reasoned [Nolan v. Lab’y Corp. of Am. Holdings, 1:21cv979 (M.D.N.C. Feb. 13, 2023)].¹

Takeaway

Consumer fraud laws essentially ban companies from making “false or misleading” statements that they know customers will rely on to their detriment. The takeaway from the Nolan case is that a well drafted ABN that makes individuals aware of their responsibility to pay for denied tests at higher prices isn’t false and misleading even if it doesn’t disclose the discrepancy between the listed health insurance price and the list price the lab charges for the test when it’s not covered by insurance. The key thing to note is what the ABN in the Nolan case did state, namely the following:

• The listed prices are estimates based on the assumption that “those services are covered by [the individual’s] health insurance plan”
• The estimates reflect “health plan information provided at the time of service”
• The amount the individual may have to pay may be different from the estimated amount
• The individual is “fully responsible” for paying any such differential amounts

According to the court’s explanation, “[A] consumer cannot decline to read clear and easily understandable terms that are provided on the same [page] in close proximity to the location where the consumer indicates his agreement to those terms and then claim that the [document], which the consumer has failed to read, is deceptive.”

References:

1. https://casetext.com/case/nolan-v-lab-corp-of-am-holdings