Cigna Audits Tox Test Labs For Proof that Patients Paid

Health insurer wants proof that patients paid copayments before it will pay toxicology lab claims

CEO SUMMARY: In an unusually strong move, health insurer Cigna is auditing laboratories, including some labs that do toxicology testing. In these audits, the health insurer seeks documentation that the testing is medically necessary and that the laboratories are collecting copayments and deductibles from patients before Cigna pays the labs for the toxicology test claims. A lawyer working on these cases says that tactic may violate some state prompt-payment laws.

FINALLY, ONE MAJOR HEALTH INSURER is taking steps to crack down on the billing practices of certain labs, including toxicology lab companies. Lab professionals aware of these business practices consider them to be abusive and have waited for insurers to act.

Cigna, Inc., is taking a tough stand against toxicology lab companies, according to a lawyer familiar with the audits. For the claims being audited, Cigna requests documentation of medical necessity.

In a potentially ominous development for the lab industry, Cigna has begun to ask toxicology labs to submit proof of patient payment before it will reimburse those claims. Cigna has also filed a lawsuit against several toxicology lab companies alleging they submitted fraudulent and inflated claims. (See sidebar on page 7.)
Cigna did not respond to a request for comment.

These developments have come to the attention of Richard S. Cooper, an attorney with the national law firm of McDonald Hopkins. Several labs have contacted him about Cigna’s latest moves.
“Cigna’s effort to require documentation of patients’ payments may be counter to prompt-payment laws,” stated Cooper. “There is also a question as to whether Cigna’s member contracts support such a procedure. If they do not, this could serve as the basis for an ERISA-based claim by a qualifying laboratory. Our firm is working with several toxicology laboratory companies that have received audit notices from Cigna since the beginning of the year.”

Contract Language Next?

One important detail about Cigna’s crackdown is that each lab that has contacted Cooper’s office is not in Cigna’s lab network. “As of this time, I am unaware of any in-network labs that have received audit letters or have been asked by Cigna to demonstrate medical necessity or that patients have paid their portions of their lab bills,” explained Cooper. “Perhaps some participating labs have. But, if not, it calls into question why non-participating labs are being singled out for a different procedure.

“Also, all of the audits we’ve seen that Cigna has conducted in the laboratory sector relate to toxicology testing,” he said. Cigna also is conducting analogous audits of surgery centers and substance abuse treatment centers, Cooper added.

Cigna Sues Three Out-of-Network Tox Labs; Alleges that These Labs Overcharged for Tests

IN A LAWSUIT FILED LAST MONTH, Connecticut General Life Insurance Company and Cigna Health and Life Insurance Company charged that three Florida toxicology lab companies conducted a pattern of wrongful actions, including a fraudulent scheme to overcharge the insurer.

The lawsuit was filed July 17 in U.S. District Court for the Southern District of Florida in West Palm Beach. Cigna named Sky Toxicology, Ltd., Sky Toxicology Lab Management, LLC, Frontier Toxicology Ltd., and Hill Country Toxicology, Ltd., as defendants.

According to public records, the same group of executives operate the four companies named in Cigna’s lawsuit. They are W. Wade White, M.D., CEO and Medical Director; Bradley West, Chief Operating Officer, and Lance Hupfeld, Chief Sales Officer.

Cigna requires its members to pay a higher percentage of the charges from out-of-network providers and the labs are all out of network, Cigna said. “Without this obligation, some outof-network providers could submit charges to healthcare plans which have no relation either to the provider’s actual costs or to the actual market for medical services, and members would have no incentive to avoid those providers,” Cigna said in its lawsuit.

Failing To Bill patients

Court documents alleged that Sky Labs is a group of related out-of-network diagnostic laboratories that attracted patients by misrepresenting patients’ responsibilities for payment, failing to bill or actually obligate the patients for their required cost-share obligations, and by promising not to seek reimbursement from the patients for any portion of its bill that the plan does not cover.

These lab companies did not tell Cigna that they were forgiving patients’ fees, the insurer said. “Put simply, the charges that Sky Labs submits to Cigna are inflated and fraudulent because they misrepresent the true amount billed to patients. In reliance on Sky Labs’ misrepresentations, Cigna has paid well over $20 million in claims that it was not obligated to pay under the terms of the relevant plans,” court documents showed.

Florida has declared such “fee forgiveness” schemes to be illegal and enacted a law criminalizing this conduct, Cigna said in its court filing. What’s more, Cigna charged that the labs engaged in a patient-referral kickback scheme.

Physician Inducements

Cigna alleges that, to steer patients to its facilities, Sky Labs induces physicians and drug treatment centers to refer patients to their [Sky Labs] out-of-network labs by offering the referring providers ownership interests in the entities operating the laboratories, and then paying the referring providers kickbacks in the form of “dividends,” which relate to the number of specimens referred to the laboratories, the court documents showed.

In court papers, Cigna said that Sky Toxicology, Ltd., Frontier Toxicology, Ltd., and Hill Country Toxicology, Ltd., are all limited partnerships in Florida. However, on the websites of these companies, addresses in San Antonio, Texas, are provided.

Cigna has agreements with in-network providers, but out-of-network providers— including labs—charge rates that they set on their own. “With few exceptions, the amounts out-of-network providers charge for their services are higher than the contractual rates agreed to between Cigna and in-network providers,” Cigna commented. “Then the outof-network providers ‘balance bill’ Cigna plan members.”

The court documents showed that, from July 2011, Cigna issued payments to the entities as follows: $17.5 million to Sky Toxicology (40,000 processed claims), more than $3.4 million to Frontier Toxicology (5,900 claims), and more than $1.8 million to Hill Country Toxicology (3,400 claims).

Audits Are First Step

“Usually the audit letter from Cigna is the first step,” stated Cooper. In these audit letters, Cigna asks for documentation of medical necessity and for evidence of patient billing and of patient payment. This is where Cigna’s efforts are more stringent than those of other health insurers. Most health plans want to see evidence that the clinical laboratory has made a good faith effort to collect by sending bills to patients.

“Labs know—or they should know—that they cannot routinely waive copayments, deductibles, or coinsurance,” he added. “An exception can exist for true financial hardship cases. Labs need to do more than simply send a single bill to a patient.

“All providers, including labs, must make good faith efforts to collect,” Cooper said. “The fact that a patient hasn’t met his or her obligation does not preclude a payer from paying the lab’s share of a bill.
“Frankly, collection rates in certain toxicology settings may not be particularly good, but that has nothing to do with the lab’s effort to collect the deductible and coinsurance payments,” he stated. “A lab needs a procedure to follow so that it can show that it has made a good-faith effort to collect patients’ deductible and coinsurance payments.

Compliance requirements

“The procedure should be specific, and the lab should instruct personnel and contractors about the compliance requirements for billing and collecting such amounts,” continued Cooper. “Also, laboratories should instruct sales and marketing personnel that they cannot deviate from this policy.

“Labs need to follow those procedures before they waive or reduce any amounts patients owe, and any waiver or reduction must be compliant,” noted Cooper. “Also, when health insurers audit a lab, the lab should know the prompt-payment laws in their state.

“Until now, we have not seen payers seeking proof of payment,” he commented. “But that’s just one part of the problem. The larger issue is the delay in payment until the laboratory submits evidence of patient payment. This delay can have a meaningful and harmful financial impact on a laboratory.

“I can understand a payer asking for evidence that the laboratory has billed patients for what they owe,” explained Cooper. “But for a health insurer to require evidence of patient payment seems to go beyond what is appropriate.

Prompt-payment Laws

“I also see the potential for delays in payment to laboratories to be violations of state prompt-payment laws,” he said. “Prompt-payment laws exist in most states. These laws vary in terms of the prerequisites, exceptions, and time periods for payment.

“It would be interesting if Cigna could point to prompt pay statutes in which proof of patient payment is a recognized prerequisite to its prompt payment obligation,” he added.
Cigna’s actions may signal a change in payer policy that could eventually become part of the managed care contracts insurers ask clinical laboratories and pathology groups to sign, warned Cooper. “However, to date, I’ve seen nothing like that in Cigna contracts. Any such requirement would have to be consistent with applicable prompt pay statutes and underlying member contracts,” he concluded.

Contact Rick Cooper at 216-348-5438 or


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