‘Pull Through’ Is Key Issue in Lab Whistleblower Suit

Question is whether low test prices to payers are a violation of federal anti-kickback statutes

CEO SUMMARY: Now comes a whistleblower lawsuit in federal court with the claim that, in the 2007 contract between UnitedHealth Group and Laboratory Corporation of America, LabCorp’s discounted lab test prices were a kickback that violated Medicare law. LabCorp has denied the allegations and says it complies with all laws. Legal experts wonder if the Department of Justice will decide to join the case. Billions of dollars are at stake. In 10 years, LabCorp alone has billed Medicare for $5.4 billion.

IF THERE IS ANY SINGLE TOPIC that is guaranteed to raise the dander of many clinical lab industry executives, it is the “pull through” sales tactic used most aggressively by national lab companies when contracting with health insurers.

Now comes a federal whistleblower lawsuit that asserts such business practices violate federal laws governing the Medicare program. Unsealed in September, 2011, in New York’s Southern District Court, this qui tam action claims that Laboratory Corporation of America violated the federal False Claims Act when it provided kickbacks to UnitedHealth Group, Inc., in the form of deeply-discounted prices for laboratory tests. LabCorp denied the allegations in the case and stated that it complied with all laws.

The plaintiff is NPT Associates and includes a former public laboratory company CEO. Andrew Baker served as Chairman and CEO of Unilab Corporation in Tarzana, California, from 1992 through 1997. Quest Diagnostics Incorporated acquired Unilab in 2003.

The Department of Justice (DOJ) has yet to join this qui tam action—but Baker and his colleagues seem to have caught the attention of two influential senators. Just a month after Baker’s whistleblower lawsuit was filed, on November 9, 2011, Senator Max Baucus (D-Montana) and Senator Chuck Grassley (R-Iowa) issued a press release from their offices revealing that they had sent letters to the two biggest public laboratory companies and three big health insurers.

Baucus and Grassley stated that they were requesting “information about a practice where insurers receive discounted pricing from labs in exchange for referrals, including testing for Medicare beneficiaries.” In these letters, the Senators described this pricing practice as “pull-through.” The letters were sent to: Quest Diagnostics Incorporated, LabCorp, UnitedHealth, Aetna, Inc., and Cigna Corporation.

“Pull Through” Scheme

Across the nation, lab administrators and pathologists took notice of these events. Many in the lab testing industry believe that use of the “pull through” scheme is a violation of federal law. In fact, most hospital and health system attorneys interpret federal law to prohibit their laboratory outreach programs from offering deeply- discounted prices for lab testing—prices that are significantly below the Medicare Part B lab test fee schedule—to referring physicians. Further, it is common for these hospital attorneys to prohibit their lab outreach programs from offering any lab test price to a client that is less than the Medicare Part B fee schedule.

Given these facts, it is no understatement to say that there is a major schism in the lab testing industry on this marketplace practice. National lab companies, with ample money to hire top-flight lawyers, assert that the discounted prices they extend to health insurers are in full compliance with all federal and state laws.

Federal Guidance

For their part, federal healthcare regulators in the Medicare program, the Office of the Inspector General, and the DOJ have not issued objective and detailed guidance on these points. Nor have they taken enforcement action that provides useful guidance to pathologists and laboratory managers.

What may be significant is that Baker’s qui tam case opens the door to increased federal scrutiny of discounted lab test pricing practices in much the same way that the whistleblower case filed in California by Hunter Laboratories and Chris Reidel caused the state Attorney General to assess whether similar discounted lab test pricing activities violated California Medi-Cal statutes.

California collected more than $300 million in settlements from defendant lab companies in that case. But the stakes for the Medicare program are much higher because the largest laboratory companies that offer discounted lab test prices bill the Medicare program for more than $1 billion each year.

Lawsuit Alleges Inducement In Managed Care Contract

IT WAS LAST SEPTEMBER when plaintiff NPT Associates’ whistleblower lawsuit against defendant Laboratory Corporation of America was unsealed in the Southern District Court of New York. The following paragraph is how the defendants described the way the “pull through” scheme was used to allegedly induce business.

  1. The Defendants violated the Anti- Kickback Law through their operation of an ongoing “pull-through” scheme wherein Defendants paid remuneration to UnitedHealthcare, an operator of managed care plans nationwide, in the form of prices for laboratory tests that were so low as not to be commercially reasonable, in order to induce UnitedHealthcare to arrange for or recommend that their in-network physicians send their Medicare-reimbursable tests to the Defendants. In order to insure that this remuneration would not be diminished by other costs that UnitedHealthcare might incur by making these arrangements or recommendations, the Defendants agreed to reimburse UnitedHealthcare up to $200 million for any such additional costs.

Laboratory Corporation of America denied that it had violated the law.


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