LabCorp Inks Agreement In Medi-Cal Pricing Case

Although the settlement resolves this qui tam case, it remains unclear how California interprets 51501(a)

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CEO SUMMARY: In its “Settlement Agreement and Release” with the California Attorney General (AG), Laboratory Corporation of America has negotiated terms that essentially match the agreement that exists between Quest Diagnostics Incorporated and the California AG. These settlements signal the end of chapter one in the story about deeply-discounted lab test pricing that is less than what labs bill Medi-Cal, the state’s Medicaid program. But chapter two is likely to bring more surprises for labs in the Golden State.

ON AUGUST 30, THE CALIFORNIA ATTORNEY GENERAL announced a final settlement with Laboratory Corporation of America in a six-year-old Medi-Cal whistleblower case.

This agreement resolves LabCorp’s role as one of seven defendant laboratory companies in the original qui tam action filed by Hunter Laboratories, Inc., and Chris Riedel back in 2005. This outcome was expected because LabCorp had disclosed the basic terms of its tentative agreement with the state earlier this year.

It can be said that the settlement with LabCorp brings to a close one chapter in the ongoing story about deeply-discounted laboratory test pricing marketing practices in the California.

But at the same time, resolution of this whistleblower case opens a second, new chapter on this controversial topic. That’s because the language of each “Settlement Agreement and Release” inked between the California Attorney General (AG) and the nation’s two largest laboratory companies appears to create a future moment in time when the state will enforce the state law known as 51501(a) according to its interpretation of that statute.

Until that date, the language of the “Settlement Agreement and Release” appears to allow both LabCorp and Quest Diagnostics Incorporated—under the terms of their respective agreements with California—to continue offering discounted lab test prices to some providers that are less than the prices they bill Medi- Cal for the same lab tests. How this plays out in California’s intensely competitive market for laboratory testing services remains to be seen.

There were no surprises in the LabCorp settlement. The nation’s second largest lab testing company will pay $49.5 million. Of this amount, $35.1 million will go to the State of California. Whistleblowers Hunter Laboratories and Chris Riedel will get $14.4 million. LabCorp will also pay the legal fees of the whistleblowers.

 Same Settlement Language

Notably, LabCorp has a “Settlement Agreement and Release” with the California Attorney General (AG) that, in all essential respects, is identical to the agreement that was executed earlier this year between Quest Diagnostics Incorporated and the California AG.

In LabCorp’s settlement agreement, it states that “California and Qui Tam Plaintiffs allege that the LabCorp Defendants submitted or caused to be submitted false claims for payment to the California Medical Assistance Program, which is California’s Medicaid Program (Medi-Cal)… in violation of California Code of Regulations, title 22, Section 51501(a)…”

The same document further states that “The LabCorp Defendants specifically deny any and all liability and wrongdoing. The LabCorp Defendants contend: (a) that their billing practices were at all times in material compliance with Section 51501(a), industry practice, and all other applicable laws and regulations…”

Thus, neither the State of California nor LabCorp has prevailed in their respective interpretations of how to comply with 51501(a). THE DARK REPORT was first to note this same fact was true of the “Settlement Agreement and Release” executed between the California AG and Quest Diagnostics earlier this year. (See TDR, June 13, 2011.)

As was the case in the settlement with Quest Diagnostics, LabCorp is to submit quarterly reports to the state that identify specific instances where it has extended a lab test price to a provider that is lower than the price for that test which it billed the Medi-Cal program. Like Quest, LabCorp can opt for a “transitional rate” when it files claims with Medi-Cal. The reporting requirement ends on February 1, 2014.

One way to read the language of the settlement agreements signed by LabCorp and Quest Diagnostics is that each company has negotiated a period of time that ends on February 1, 2014, during which they can offer substantially lower prices to providers in California while continuing to submit claims to Medi-Cal at a higher price. What happens after that date is left undefined. Lab lawyers must read between the lines to understand the true nature of the settlement agreement.

Further, does this aspect of these settlement agreements give the two national lab companies a competitive pricing advantage over other labs in California for the next 29 months? Will the California Department of Health Care Services (DHCS) now proceed to enforce its interpretation of 51501(a) against other California laboratories? Or, will DHCS allow labs now competing against the two blood brothers to match those low prices—at least until February 1, 2014?

Assume that the settlement of this whistleblower lawsuit closes chapter one in the story of the interpretation of 51501(a) and that chapter two is how California’s lab testing marketplace operates between now and February 1, 2014.

Discounted Lab Test Prices

It could be that chapter three in this story is how similar lab test pricing qui tam lawsuits known to be active in the states of Florida, Georgia, Massachusetts, Nevada, and Virginia are resolved.

This is a story with significant consequences for the entire laboratory testing industry, since one outcome could be the end of deeply-discounted lab test prices that are not also offered to the Medicaid programs in certain states.

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