Will Medi-Cal Price Case Bring More Enforcement?

Certainly California is poised to pursue labs for discounted pricing that it says violates 51501(a)

CEO SUMMARY: It was on May 19 that the California Attorney General and Quest Diagnostics Incorporated signed an agreement to settle allegations that Quest Diagnostics overcharged Medi-Cal, the state’s Medicaid program. It is expected that the California Attorney General will now move to resolve the whistleblower case against the remaining lab company defendants. Meanwhile, similar whistleblower suits are ongoing in at least six other states across the nation.

FOR BETTER OR FOR WORSE, the long-running whistleblower lawsuit in California has produced a settlement agreement between the California attorney general and the nation’s largest laboratory testing company.

On May 19, national news outlets were quick to report that Quest Diagnostics Incorporated agreed to sign an agreement and pay $241 million to settle the case—even as Quest defiantly declared that it still denies all the allegations in the complaint.

By any measure, this settlement is a major milestone in the flow of events that was unleashed back in 2005. That’s when Hunter Laboratories, LLC, and Chris Riedel filed, under seal, a qui tam lawsuit in a California court.

This original whistleblower lawsuit named seven laboratory companies as defendants. The plaintiffs claimed that, going back as far as 1995, these lab firms had violated several state and federal laws by giving favored clients a discounted price for a laboratory test that was less than the price they charged Medi-Cal, the state’s Medicaid program, for that same test.

Now there is a settlement of these claims by one defendant. It involves payment of almost one-quarter billion dollars. On the surface, that may indicate there was substance to the allegations made by the plaintiffs in the whistle-blower lawsuit.

On the other hand, the settlement payment represents only a portion of the maximum exposure Quest faced if it lost at trial. In the sixth version of the qui tam lawsuit that named Quest Diagnostics as a defendant, plaintiffs alleged that Quest Diagnostics had, for a 15-year period beginning in 1995, billed for, and was paid, more than $726 million by the Medi-Cal program. Plaintiffs asserted that this was a 90% overcharge to Medi-Cal, due to alleged violations of various state and federal laws. Plaintiffs sought to have the overcharges of $509 million returned to the State of California. With respect to certain claims, plaintiffs also sought treble damages and attorneys’ fees. and, of course, Quest had to foot the bill for its own attorneys’ fees regardless of the outcome.

As will be noted in the following pages, Quest Diagnostics emphatically denied all of the allegations asserted against it. Ultimately, Quest agreed to settle and pay $241 million—an amount that is only 47.3% of the full $509 million of alleged over-charges identified in the qui tam lawsuit.

With a potential exposure of one-half billion dollars, at a minimum, and a settlement that requires a payment of one-quarter billion dollars, it should be obvious to all pathologists and lab administrators that this story has important dimensions that need to be fully understood. This is particularly true for clinical laboratory executives who operate in California.

Moreover, there is evidence in the public record that similar whistleblower actions are taking place in as many as six other states, including the populous state of Florida. These whistleblower lawsuits are believed to center upon the common practice of offering discounted laboratory test prices to some providers while billing that state’s Medicare program at a higher price for the same tests, allegedly in violation of relevant state statutes.

Monitoring the Outcome

For this reason, laboratory administrators and pathologists across the nation will want to monitor how authorities in California resolve the qui tam court case with the remaining defendants. as well, California’s Department of Health Care Services (DHCS) will likely base its enforcement policies on the legal precedents that result from the collective body of settlement agreements that result from negotiations between the California attorney general and the seven or more defendant laboratory companies.

Because this is a major lab industry story for California—and because this case has the potential to trigger similar enforcement actions in other states across the nation, this entire issue of THE DARK REPORT provides detailed information about different aspects of this situation.

Proper Compliance

For clinical laboratory executives who want to act in ways to keep their laboratories in proper compliance with state and federal laws, this issue of THE DARK REPORT presents information and analysis on several important aspects of this unfolding story. Our coverage is organized as follows:

Pages 5-7: basic facts about the settlement agreement announced by the California attorney general and Quest Diagnostics on May 19, 2011.

Pages 8-11: the legal claims and positions of each party are identified, using information from the press releases and the “Settlement agreement and Release.” among the legal issues in dispute, the California Code of Regulations, title 22, Section 51501(a) is most prominent.

Pages 12-13: a description of the steps that Quest Diagnostics has agreed to take, as described in the “Settlement agreement and Release,” including its reporting requirements to DHCS through November 1, 2013.

Pages 14-15: analysis of how the California AG and the remaining defendant labs in this qui tam lawsuit may resolve their individual cases, given the terms negotiated by Quest Diagnostics in the “Settlement agreement and Release.”

Pages 16-18: an overview of the potential for other state and federal qui tam lawsuits to alter legal interpretations of when the use of discounted lab test prices violates existing state and federal laws involving Medicaid and Medicare claims.



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