Insurers Sue To Challenge Pass-Through Bill Schemes

UnitedHealthcare and Anthem file lawsuits charging fraud against labs, other defendants

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CEO SUMMARY: In two separate lawsuits filed in April, UnitedHealthcare (UHC) and Anthem each charged that drug testing companies used pass-through-billing schemes in ways the insurers say are fraudulent. UHC filed its lawsuit on April 18. One day later, on April 19, Blue Cross and Blue Shield of Georgia and other Anthem companies filed suit against lab testing and management companies. The UnitedHealth and Anthem lawsuits said defendants illegally induced requests for lab testing services.

TWO OF THE NATION’S LARGEST HEALTH INSURERS are mad as hell and they’re not going to take it anymore. That seems to be the message UnitedHealthcare and Anthem are sending in court documents filed in April against lab testing companies using pass-through-billing schemes in ways the insurers charge are fraudulent.

On April 19, Blue Cross and Blue Shield of Georgia and 24 health insurers and other companies affiliated with Anthem and doing business as Anthem Blue Cross and Blue Shield, filed suit against:

  • Reliance Laboratory Testing,
  • Medivance Billing Services,
  • Three individuals (Aaron Durall, Jorge Perez, and Neisha Carter Zaffuto),
  • Chestatee Regional Hospital,
  • Durall Capital Holdings, and,
  • DL Investment Holdings.

In the lawsuit, the Anthem plans said that since 2016, the defendants engaged in a widespread scheme to bill for laboratory services that were fraudulent and violated contracts between BCBS Georgia and Chestatee Regional Hospital.

In August 2016, Southern Health Corporation sold the 49-bed Chestatee Regional Hospital in Dahlonega, Ga., to Durall Capital for $15 million. At the time, Chestatee Regional was an in-network provider for Anthem. Aaron Durall is the President of Reliance Labs, the CEO of Chestatee Regional Hospital, and the manager of Durall Capital, the lawsuit said.

Multiple Defendants Named

On April 18, UnitedHealthcare Insurance Company and UnitedHealthcare Services filed a lawsuit In U.S. District Court for the Western District of Texas, naming as defendants:

  • Five individuals (Michael Murphy, MD, Jesse Saucedo Jr., Samantha Murphy, Lynn Murphy, Julie Pricer),
  • Alternate Health Lab,
  • Mission Toxicology,
  • Sun Clinical Laboratory,
  • Sun Ancillary Management,
  • LMK Management, and,
  • Integrity Ancillary Management.

UHC said the defendants illegally induced requests for lab testing services and used financially-strained rural hospitals as fronts to conceal the identity of the labs that performed the testing services.

Also, the defendants conned UHC out of at least $44 million by causing bills to be submitted for lab services, many of which were not ordered or not performed properly, the UHC lawsuit said. In addition, UHC said the defendants grossly inflated the prices of the lab testing services for their own financial gain. “The scheme steals from the insurers and its members and leaves patients with inadequate, sub-standard services and small rural hospitals in financial and operational disarray,” the lawsuit said.

Anthem BCBS Lawsuit

In its lawsuit, Anthem explained the scheme. “Unbeknownst to BCBS Georgia, as soon as it took control of Chestatee Regional Hospital, Durall Capital agreed with defendant Reliance Labs, a non-participating toxicology laboratory located in Sunrise, Fla., to fraudulently bill BCBS Georgia for testing performed at and by Reliance Labs (or other non-participating laboratories engaged by defendants), as if the testing had been performed at and by Chestatee Regional Hospital. When referring providers ordered the testing, they ordered it from Reliance Labs (or other non-participating laboratories), and not from Chestatee Regional Hospital,” the lawsuit said.

The non-participating labs could perform the testing ordered. “Yet, Durall Capital, Reliance Labs, and the other defendants billed the testing through Chestatee because BCBS Georgia would pay Chestatee Regional Hospital substantially more than Reliance Labs would receive if it billed BCBS Georgia directly,” the lawsuit explained. Many of the claims were for urine drug testing and blood-drug testing, the lawsuit added.

“This type of arrangement—where claims are billed by an entity different than the one that performed the service—is commonly known as ‘pass-through billing,’” the lawsuit said.

Under the scheme, Medivance provided billing and collections services and submitted lab testing claims to BCBS Georgia for the other defendants. Neisha Carter Zaffuto is President of Medivance.

The defendants had a nationwide network of referring providers and laboratories, who provided patients’ specimens. Some of those providers submitted their patients’ specimens “in exchange for a cut of the amount that Chestatee was reimbursed by BCBS Georgia,” the lawsuit added.

UnitedHealthcare Lawsuit

In the first line of its lawsuit, United stated the case clearly, saying, “Defendants have executed a quintessential healthcare fraud scheme. They illegally induce requests for lab testing services. They then use financially-strained rural hospitals as ‘fronts’ to conceal the true identity of the lab that performed the testing services.”

As in the case Anthem brought against the 14 defendants, UHC said the defendants caused bills to be submitted for lab services and many of those services were not ordered or not performed properly. In addition, the defendants grossly inflated the prices of those services.

UHC also made a point about the defendants’ scheme that was similar to legal claims Anthem raised. “Defendants’ fraudulent scheme not only steals from plaintiffs and its plans, it leaves patients with inadequate, sub-standard services and small rural hospitals in financial and operational disarray,” the lawsuit said.

The lawsuit named San Antonio anesthesiologist Michael Murphy, MD, as the architect of the scheme and the owner and operator of a network of some of the defendants, including these companies: Sun Clinical Laboratories, Sun Ancillary Management, Integrity Ancillary Management, Alternate Health Lab, and LMK Management.

In general, the scheme involves two steps. “First, defendants induce healthcare providers, sometimes through kickbacks, to refer United members’ lab specimens to Sun Clinical Laboratories or Mission Toxicology,” the UHC lawsuit said. “Second, defendants set up ‘lab programs’ at in-network rural hospitals, which they use to submit insurance claims to United that are intended to make it appear that laboratory test specimens were referred to, and that testing was performed by, the rural hospitals.”

But, in reality, the specimens were sent to out-of-network labs that Murphy and Saucedo owned, the lawsuit said. When it submitted the resulting claims, the defendants charged as much as 50 times the actual cost of the testing and used the rural hospitals’ identities, the lawsuit explained.

“United processed the claims and reimbursed the services as though they were performed by the in-network rural hospitals, even though the vast majority— if not all of the testing—was actually performed by out-of-network labs located hundreds or thousands of miles away from the rural hospitals for a fraction of the cost billed,” the lawsuit said.

‘Conned into Paying $44 Mil’

The result was that, “United has been conned into paying at least $44 million for improper lab claims.”

After UnitedHealthcare paid the claims, the defendants instructed the employees at the rural hospitals to transfer 95% of the funds to their own entities, UHC charged.

Many pathologists and clinical lab managers will welcome the fact that two of the nation’s largest health insurers decided to file lawsuits against the participants of pass-through billing schemes involving urine drug tests.

Judge Rules for Payer in Pass-Through Billing Case

IN ANOTHER LAWSUIT where pass-through billing of urine drug tests is being challenged by a large insurer, defendant labs and individuals have lost an important ruling.

In an Aetna, Inc., lawsuit filed in September, a judge ruled against the defendants who had sought to get the case dismissed against five clinical lab companies, a hospital, three lab management companies, two physicians, and two other individuals. Also, Judge Berle M. Schiller in the U.S. District Court for the Eastern District of Pennsylvania transferred the case to the U.S. District Court for the Western District of Texas.

In his ruling, Schiller ruled against the defendants who asked the judge to dismiss Aetna’s complaint.

In its September court filing, Aetna said the defendants bilked Aetna, its members, and its client employers out of $21 million in a healthcare billing fraud scheme. (See TDR, Dec. 11, 2017.)

In court papers, Aetna named 14 defendants: the 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 Company, LLC; Sun Clinical Laboratory, LLC; Sun Ancillary Management, LLC; Integrity Ancillary Management, LLC; Seth Guterman, MD; David Wanger; Michael L. Murphy, MD; and Jesse Saucedo, Jr.

Some of these are the same individuals, lab companies, and management firms named in the UnitedHealthcare case described elsewhere in this story.

In 2016, Aetna said in its filing, the defendants gained control of Newman Memorial Hospital, a 25-bed critical access hospital in Shattuck, Okla. At the time, the Newman Hospital was struggling financially, the lawsuit explained.


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