BRLI-Horizon BCBS Lawsuit Is Window to Payer Actions

Lab company says it is owed $20 million because health insurer violated its agreement

CEO SUMMARY: Do “actions speak louder than words?” In New Jersey, one lab company sued a major health insurer for “breach of contract and fraud.” Court documents include claims describing how one health insurer became ever more sophisticated in how it played one public lab company against another in order to drive down its lab testing costs. This court case may be representative of how other payers have adopted aggressive policies designed to reduce what they pay for lab tests.

ACTIONS FROM HEALTH INSURERS often give the impression that they are willing to “wage war against clinical labs” in some form or fashion. A court case in New Jersey provides support for this opinion.

The case is BioReference Laboratories, Inc. v. Horizon Healthcare Services, Inc. d/b/a Horizon Blue Cross Blue Shield of New Jersey. It was filed on December 18, 2013, in the Superior Court of New Jersey.

Seldom do pathologists and lab administrators see the details of the contracts negotiated between the nation’s largest lab companies and major health insurers. Thus, this case represents a window into this world.

Moreover, the charges described by BioReference Laboratories, Inc. (BRLI) in its suit against Horizon Healthcare Services, Inc., offer useful insights into how some payers are becoming more assertive at denying claims—even those submitted by a contracted network laboratory provider—using methods that some attorneys might argue border on questionable business behavior.

In other words, lab leaders who take the time to read BRLI’s complaint will gain a better understanding about the tactics of obfuscation and non-cooperation that they may be encountering with some payers in their own regions.

Why BRLI Sued this Payer

In its legal filing, BRLI describes its claims against Horizon:

This action for breach of contract and fraud arises from Horizon’s refusal to pay BioReference for laboratory testing that BioReference performed for thousands of Horizon’s members. Although Horizon is required to pay BioReference for these tests pursuant to a provider agreement between the parties, Horizon has evaded its payment obligations by fraudulently misrepresenting to BioReference that a substantial number of its members were excluded from the contract. As a result of Horizon’s willful misconduct, BioReference has suffered damages well in excess of $20 million.

The court papers show that this payer gained substantial price discounts on lab tests from BioReference Laboratories. The lawsuit states that:

BioReference has been performing laboratory testing for Horizon’s members for more than twenty years pursuant to a series of written provider agreements. In the most recent version of the agree- ment—a 2007 amendment to the parties’ 2003 provider agreement (the “2007 Amendment”)—the parties negotiated a limited carve-out of Horizon’s payment obligations for a particular class of Horizon members subscribing to certain enumerated “Managed Care” products offered by Horizon.

Specifically, the parties agreed that services rendered by BioReference to “Managed Care members (including HMO, POS, Direct Access, NJ Plus, and Medicare Advantage products)” would not be reimbursed by Horizon, and that BioReference would not bill Horizon’s members for such services, “provided that, Horizon provides [BioReference] a means for identification of the Managed Care members and works with [BioReference] on the administration of this provision.”

THE DARK REPORT interprets this statement, in the context of the full lawsuit, as a market response to events that occurred in 2007 involving major health insurers and the national lab companies. In that year, Laboratory Corporation of America landed a sole-source, 10-year national contract with UnitedHealthcare. As part of that decision, UnitedHealth excluded Quest Diagnostics Incorporated as a national network provider.

‘Tit For Tat’ by Lab Firms

In response to this development, Quest Diagnostics won an exclusive national contract with Aetna, Inc., by March 1, 2007, that excluded LabCorp. In the same month, LabCorp beat out Quest to win the Horizon contract in New Jersey.

Given these events, it is clear why BioReference would agree, in the 2007 (non-exclusive) contract amendment, to provide “free lab tests” to Horizon’s managed care patients. Essentially, the free testing for this segment of Horizon’s business represented the ultimate deep discount so that Horizon would choose to continue to allow BRLI to serve patients in Horizon’s other health insurance products. BioReference’s lawsuit described what happened next:

…in the period immediately following the adoption of the 2007 Amendment, Horizon began fraudulently to miscategorize a substantial and growing number of its members as “Managed Care” members. Under the 2007 Amendment carve-out, Horizon’s miscategorizations had the direct result of denying payment to BioReference for hundreds of thousands of lab tests that BioReference performed.

Payment to BRLI Stops

This action by Horizon resulted in non- payment for BRLI’s claims, described in the lawsuit as follows:

Horizon improperly denominated at least two of its largest new PPO products as Managed Care products in order to circumvent its payment obligations to BioReference under the Amended Contract. By so doing, Horizon was able to sweep a substantial percentage of BioReference’s laboratory testing for Horizon members into the Managed Care Exclusion, and thereby obtain the tests for nothing.

The suit describes these products as PPO and HMO services provided to the New Jersey State Health Benefits Program, (NJSHB) by Horizon under the name “NJ Direct.” In the request for proposal, NJSHB defined the PPO insurance plan as follows, quoted from the BRLI suit:

With respect to the request for a PPO plan proposal, the NJ RFP stated: “The Plan must have the normal components of a PPO; namely in-network discounted providers and an out-of-network indemnity approach where services from any provider are reimbursed according to a reasonable and customary approach.”

From 2008, BRLI said that “Horizon fraudulently misrepresented to BioReference that NJ DIRECT was a Managed Care product and therefore subject to the Managed Care Exclusion.” This meant Horizon was not paying BioReference Laboratories for those lab test claims.

Was New Jersey Defrauded?

One interesting claim raised in this case by BioReference is that Horizon may have defrauded the State of New Jersey. BRLI said in the court filing that:

The impact of Horizon’s fraud may extend well beyond BioReference. Upon information and belief, NJ DIRECT is self-funded by SHBP (and/or the State of New Jersey), meaning that SHBP pays Horizon to administer the plan, but bears the ultimate financial risk and expense of actual medical services provided to its members. Unless Horizon is refunding or crediting to SHBP any refunds Horizon receives from BioReference pursuant to the Managed Care Exclusion, Horizon would be enjoying an improper windfall at the expense of both BioReference and SHBP.

THE DARK REPORT contacted the executive offices of Horizon Healthcare Services for comments on this case. As of press time, no spokesperson had responded to this request.

Draw your Own Conclusions

Readers can draw their own conclusions from the excerpts of the court case provided here. As well, the complete court filings can be accessed at the courthouse and its website.

At a minimum, the extracts of the claims made by BRLI in its court documents presented here certainly indicate that the actions of this health insurer—if true— are a demonstration of how payers can play one public lab company against another to cut their lab testing costs.

How a Health Insurer Played One Lab Against Another

HEALTH INSURERS HAVE BECOME increasingly sophisticated in playing one public lab company against another as a way to continually reduce their costs for lab tests.

In the legal case filed by BioReference Laboratories against Horizon Healthcare Services of New Jersey, just such a contract strategy was used by Horizon to extract additional price concessions from BioReference, court records show.

In the lawsuit, BioReference described the sequence of events that gave Horizon an opportunity to use one lab company’s lower pricing as a negotiating lever against BioReference. The lawsuit said:

In late 2006, Horizon attempted to designate LabCorp as its exclusive provider of laboratory services under all of Horizon’s insurance products. LabCorp had previously served as the exclusive provider of laboratory services for Horizon’s Managed Care products. With respect to non-Managed Care programs, such as PPOs and indemnity plans, LabCorp had competed with BioReference and Quest, among other laboratories, in providing services to Horizon’s members.

Upon information and belief, in exchange for substantial economic inducements from LabCorp, Horizon agreed in late 2006 to terminate its existing provider agreements with BioReference and Quest, essentially anointing LabCorp as Horizon’s sole full- service in-network laboratory for all of its members under all of its products.

By letter dated December 28, 2006, Horizon notified BioReference that it was terminating the 2003 Contract without cause, effective March 31, 2007.

Following negotiations between representatives of BioReference and Horizon… Horizon agreed in February 2007 to rescind its previous termination letter, con- tingent upon BioReference accepting new contractual conditions and payment rates.




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