CEO SUMMARY: In September, Aetna filed a lawsuit in Pennsylvania accusing 14 defendants—including a hospital, a hospital management company, eight lab companies or lab management companies, two physicians, and two individuals—of defrauding Aetna, its client employers, and its members. The lawsuit is an example of a lab test arrangement in which independent lab companies and organizers use a hospital as an in-network provider to bill for clinical laboratory tests not performed by the hospital, the lawsuit alleged.
COMMERCIAL HEALTH INSURERS are taking legal action to stop a source of fraud that could be spreading to many areas nationwide. In the latest action, health insurer Aetna alleged in a lawsuit that a hospital in Oklahoma was used as an in-network provider to fraudulently bill for lab tests done off-site for patients who were not part of Aetna’s network in Oklahoma but were from all over the country.
The lawsuit Aetna filed in U.S. District Court for the Eastern District of Pennsylvania on Sept. 29 alleged that the hospital and 13 other defendants defrauded Aetna, its members, and client employers of $21 million by submitting claims for clinical laboratory testing. The defendants include a hospital in Shattuck, Okla.; a hospital management company; eight clinical laboratories or lab management companies; two physicians, and two individuals.
The lawsuit describes a billing strategy that is similar to what is called a hospital outpatient department or diagnostics (HOPD) arrangement. In such arrangements, organizers persuade hospital administrators to allow the hospital to bill health insurers as an in-network provider for lab tests when the tests are not done in the hospital lab. Rather, the tests are done by other labs. In this case, the lab defendants did the testing and used the Oklahoma hospital lab to send fraudulent bills to Aetna, the lawsuit alleged.
Variants Of An HOPD
In some versions of the HOPD arrangement, a hospital will accession all specimens and refer them to the participating lab companies. In other versions, the labs accession the specimens and do the testing themselves, and the hospital lab submits claims for the tests that other labs perform. THE DARK REPORT described these practices in its Oct. 30 issue.
The use of this HOPD lab billing arrangement is an important story for pathologists and lab administrators serving hospitals and health system labs because hospital CEOs—particularly those in cash-strapped community and rural hospitals—may ask lab managers about these billing practices if approached with proposals to establish such arrangements.
To be clear, in its lawsuit, Aetna did not use the term “hospital outpatient department or diagnostics” or use the expression “HOPD arrangement.” But what Aetna described is a variation on the pass-through billing strategy that participants use to submit claims for clinical services that often are billed at inflated prices.
One element of HOPD and other pass-through billing arrangements is that office-based physicians have a significant role in referring specimens to lab management companies. In such arrangements, physicians allegedly get illegal inducements or kickbacks from the defendant lab companies and may order substantial numbers of medically-unnecessary lab tests.
The Aetna lawsuit does not say that physicians ordered medically unnecessary tests. Of physicians, the lawsuit said, “Specifically, the lab defendants entered into arrangements with physicians (some of whom have contracts with Aetna) whereby the physicians were induced to refer Aetna members’ specimens to the lab defendants.”
Suit Named 14 Defendants
In court papers, Aetna named the 14 defendants as:
• People’s Choice Hospital, LLC;
• PCH Management Newman, LLC; • PCH Lab Services, LLC;
• PCH Labs, Inc.;
• Mission Toxicology, LLC;
• Mission Toxicology II, LLC;
• Mission Toxicology Management Co., LLC;
• Sun Clinical Laboratory, LLC;
• Sun Ancillary Management, LLC; • IntegrityAncillaryManagement, LLC;
• Seth Guterman, MD;
• David Wanger;
• Michael L. Murphy, MD; and,
• Jesse Saucedo, Jr.
The hospital at the center of this arrangement is Newman Memorial Hospital, a 25-bed critical access hospital in Shattuck, a town of 1,336 residents. Court documents showed that last year, the defendants gained control of Newman, an in-network provider for Aetna, and changed its name to People’s Choice Hospital.
Newman Also Has Lawsuit
Aetna’s lawsuit explained that Newman Hospital has filed suit against many of the defendants. It seeks to terminate the relationship and recover damages including the money these defendants funneled through Newman. “As Newman explained in its pleading, the PCH defendants acquired ‘nearly unfettered management and administrative control’ over Newman…” the lawsuit said. After gaining control, the defendants caused Newman to violate its contracts with commercial insurers, purchased laboratory equipment, and hired a few employees for a ‘lab’ at Newman that was not actually used, the lawsuit alleged.
According to the lawsuit, Newman Hospital was struggling financially and the defendants gained control of the facility by promising to revamp the hospital and by convincing hospital administrators to sign a management agreement with People’s Choice Hospital and PCH Management. After the arrangement took effect, the hospital submitted more than 10,000 lab test claims to Aetna over 16 months, the lawsuit said.
“Upon gaining control of Newman, People’s Choice and PCH Management caused Newman to enter into agreements with the lab defendants, PCH Lab #1 and PCH Lab #2, who conspired with People’s Choice, PCH Management, and the individual defendants to defraud Aetna and employers and employees whose health plans Aetna administers,” the lawsuit said.
Doing so opened the door for lab test referrals from office-based physicians to flow into this HOPD arrangement. “The lab defendants paid and induced physicians all over the country to send urine and blood specimens to the lab defendants,” court papers showed. “Defendants had these physicians inform the patients that their specimens would be sent to, tested, and processed by the lab defendants.”
Lawsuit Explains Alleged Lab-Test Scheme That Used Hospital to Defraud Health Insurer
IN COURT DOCUMENTS, ATTORNEYS for health insurer Aetna described the defendants’ alleged fraudulent billing scheme involving a rural hospital and multiple lab companies.
“A physician informed Aetna Member No. 1 that the urine sample the physician collected from Aetna Member No. 1 in Jacksonville, Fla., would be sent to San Antonio, Texas, for testing and processing by Sun Clinical Laboratory, LLC,” the lawsuit explained. “While Aetna Member No. 1’s sample was sent to and tested by Sun Clinical Laboratory, LLC, defendants submitted a claim form to Aetna for Aetna Member No. 1 misrepresenting that Aetna Member No. 1’s specimen was tested by and at Newman [Hospital in Oklahoma].”
In the court documents, Aetna included an image of a bill—commonly known as a “UB-04” claim form—that defendants submitted to Aetna for lab testing done for Aetna Member No. 1. The bill identifies Newman Hospital as the provider of lab services when in fact, those services were provided by Sun Clinical Laboratory, LLC, the lawsuit said.
“As a result of defendants’ fraudulent claim, Aetna paid Newman $2,250, which was split up and distributed among various defendants. By comparison, if a large legitimate lab company with a national presence submitted a claim to Aetna for the same services defendants billed Aetna for Aetna Member No. 1, the legitimate lab company would have received and accepted approximately $120,” the lawsuit said.
In the lawsuit, Aetna described the passthrough elements of the HOPD lab billing scheme. “Nevertheless, after the specimens were sent to and tested by the lab defendants, defendants misrepresented to Aetna that the specimens were tested by and at Newman [Hospital], thus causing Aetna, and employers whose health plans Aetna administers, to pay millions of dollars to Newman, which PCH controlled,” the lawsuit showed.
“Defendants billed the laboratory claims as if they were completed at Newman because Newman has a contract with Aetna that contains high reimbursement rates for lab services performed by and at Newman,” said the lawsuit.
In one characteristic of the HOPD lab scheme, hospitals generally are in-network providers for health insurance plans and typically have higher reimbursement rates than those of independent lab companies. Thus, if the lab companies can have the participating hospital send their lab test claims along with the in-network hospital’s lab test claims, their lab test claims can get higher in-network payment rates.
“In this way, the defendants used the Newman Hospital to disguise allegedly fraudulent healthcare claim forms, which misrepresented that laboratory testing services were performed at Newman Hospital, when in truth, the testing was not done there,” court documents showed. “Indeed, defendants completed, or caused to be completed, the laboratory tests at issue for patients from around the country, including here in Pennsylvania, who had no contact at all with Newman or its physicians. Then, defendants fraudulently submitted claim forms to Aetna misrepresenting that the tests had been performed at Newman, by Newman, and for Newman patients.”
In the Newman Hospital case, Aetna’s lawsuit charged that defendants exploited the fact that Aetna had an in-network contract with the hospital requiring Aetna to pay the hospital significantly more for lab services provided at the hospital than Aetna would pay for out-of-network claims. The defendants disguised the out-of-network labs as Newman Hospital claims, the lawsuit explained. “Defendants thereby submitted or caused the submission of more than 10,000 false claim forms, which induced Aetna to pay millions of dollars at the Newman network contract rate,” the court documents showed.
$21M Billed Over 16 months
Over 16 months, the defendants generated more than $21 million in payments from Aetna, the lawsuit alleged. “Defendants funneled these monies through Newman and diverted the funds to themselves, leaving Newman teetering on the brink of insolvency,” court documents showed.
To show the extent of the alleged fraudulent activity, court documents explained that in the year before the fraud was committed, each month, Aetna paid Newman Hospital an average total of about $1,300 for 72 lab claims. But after the defendants took control of Newman Hospital’s billing, Aetna paid Newman approximately $1.35 million per month for more than 10,000 lab claims over 16 months, the lawsuit charged. Of that $1.35 million, the defendants took all or most of it, the lawsuit added.
In its lawsuit, Aetna said this conduct constituted fraud, based on the misrepresentations that the lab services were performed and processed by and at Newman Hospital, when they were not. “Pursuant to contracts that certain defendants caused Newman to enter with other defendants operating the labs, those labs received at least 60% to 70% of the money that Aetna paid Newman as a result of the fraudulent claims, while the large part of the remainder was divvied up among the other defendants,” the lawsuit explained.
In an effort to get comments from the defendants, THE DARK REPORT contacted the attorneys listed in court filings. There was no response by press time.
Same Lab Defendants Named In Different Payer Lawsuits
IN THE AETNA LAWSUIT, THE DESCRIPTION of the alleged HOPD lab test fraud scheme is similar to that of an earlier lawsuit that a health insurer in Mississippi filed, and several of the same lab companies are named as defendants in both lawsuits.
On May 4, 2017, Blue Cross & Blue Shield of Mississippi filed a lawsuit in the U.S. District Court for the Southern District of Mississippi against a small community hospital and several lab companies. Named as defendants were:
• Sharkey-IssaquenaCommunity Hospital
• Sun Clinical Laboratory, LLC;
• Mission Toxicology ManagementCompany, LLC;
The 29-bed hospital is located in Rolling Fork, Miss., with a population of 2,500. The other defendants are based in Texas. (See TDR, June 5, 2017.)
In court documents, BCBS charged the hospital and the lab companies with breach of contract, fraud, civil conspiracy, negligent misrepresentation, and unjust enrichment. The lawsuit said that, “between February and May 2017, the [25-bed rural] hospital submitted to the insurer claims totaling in excess of $33.8 million.”
The lawsuit alleged that, “since February 2017, claims were submitted to Blue Cross for payment for laboratory services that: 1) purported to have been performed at and by the hospital; 2) were not ordered by a licensed health professional with appropriate staff privileges at the hospital; and, 3) were not performed at the hospital in Rolling Fork.”
Three of these defendant lab companies—Sun Clinical Lab, Mission Toxicology, and Mission Toxicology Management—are also named as defendants in the Aetna lawsuit filed in Pennsylvania on Sept. 29.