CEO SUMMARY: Two lawsuits filed in federal courts against Laboratory Corporation of America and Quest Diagnostics may have consequences for the entire lab industry. The plaintiffs are patients who allege that the two defendant lab companies charged them as much as 10 times more than what Medicare, Medicaid, or commercial health plans charged. Allegations include overcharging, that labs should disclose prices to patients in advance of service, and other related issues. This article reviews the details of the lawsuit against LabCorp.
Second in a Series
ARE THERE CONSEQUENCES WHEN A CLINICAL LABORATORY COMPANY charges patients anywhere from two to 10 times more for lab tests than what Medicare would pay for that same test? Consumers are pursuing this question in two separate lawsuits filed in federal courts against Laboratory Corporation of America and Quest Diagnostics.
Next year, lawyers for LabCorp and Quest will defend their clients in federal courts in New Jersey and North Carolina against charges that they overcharged consumers for clinical lab testing. Robert C. Finkel, an attorney with Wolf Popper in New York, filed the lawsuits on behalf of 33 plaintiffs. The case against LabCorp is pending in the U.S. District Court for the Middle District of North Carolina, Greensboro Division, on behalf of 14 plaintiffs in eight states. Nineteen plaintiffs from 11 states filed a similar case against Quest in U.S. District Court in New Jersey. Both sides will begin discovery in the coming weeks, and the cases are scheduled to proceed throughout 2020.
As covered in part one of this multi-part series, both lab companies deny the allegations in the lawsuits and asked the courts to dismiss the cases. (See “Lawsuits Allege LabCorp, Quest Overcharged Some Patients,” TDR, Nov. 25, 2019.)
One significant factor that distinguishes the LabCorp case from the case against Quest is that an unnamed former executive of the lab company charged that overbilling self-pay patients was ‘embedded in the culture of the company’ and was so common it was difficult to retain some physician-clients, the lawsuit alleges.
Other issues in the LabCorp case center on plaintiffs’ allegations that LabCorp had a tenuous relationship with patients that left them vulnerable to overcharges, that LabCorp does not reveal charges before the bill goes out but recognizes that doing so is important to patients, and that LabCorp knows how much Medicare will pay for lab tests and informs Medicare beneficiaries of these charges under the advance beneficiary notice provisions. The lawsuit also includes complaints from the 14 named plaintiffs.
In October, LabCorp filed a 285-page answer to the plaintiffs’ amended complaint, saying that the company denied “each and every allegation” in the complaint.
In each lawsuit, the plaintiffs allege that the lab companies overcharged them for laboratory testing services by two to three—and sometimes as much as 10—times higher than what the companies charged consumers whose health insurers fully covered their testing. The plaintiffs were either uninsured or underinsured, meaning their insurance plans did not cover the full cost of their clinical laboratory tests.
Note that in part one, THE DARK REPORT outlined the most serious charges against Quest and Quest’s response. In this part two, we focus on the charges LabCorp faces and the company’s response.
A Tenuous Relationship
At the heart of both cases is whether the defendants should have informed patients of the charges they would face for clinical laboratory tests physicians order.
The plaintiffs argue that they have an implied right to know what they would be charged before the testing is done. Knowing the price beforehand is important so that these defendants could decide to proceed with the testing, seek another lab, or forego testing.
As the case against LabCorp moves forward in court next year, the 14 plaintiffs from eight states will allege that the lab company has a tenuous relationship with patients for several reasons. These reasons leave patients vulnerable to overcharges, the lawsuit charges.
The relationship is tenuous because physicians order clinical lab tests and often collect blood or other specimens in the doctors’ offices, the plaintiffs charges.
Then, the physician sends those samples to a lab the physician or health insurer chooses and the lab tests are run before the lab determines the patient’s financial responsibility.
LabCorp does not reveal price information to patients before bills go out, but the lab company recognizes that revealing prices before performing lab tests is important to patients, the plaintiffs charge. Also, LabCorp says it supports “greater transparency about costs, providing estimates of anticipated out-of-pocket cost prior to specimen collection,” they allege. As a result, the lawsuit says, “Patients are being forced to pay exorbitant sums for clinical lab testing services when they are the party responsible for payment.”
‘Arbitrary List Price’ for Tests
In addition, LabCorp does not have written agreements with patients before testing, the lawsuit states. “As such, the amount such a patient is charged is not a negotiated or contractual rate, but LabCorp’s arbitrary list price,” plaintiffs allege.
In pursuing this argument, the plaintiffs explain that commercial insurance companies, Medicare, and Medicaid all have agreements with LabCorp and other lab companies about what they will pay for their members’ lab tests.
“Accordingly, the market rate for clinical lab testing services can be determined by analyzing the amounts paid by third-party payers who reimburse service providers on a fee-for-service basis (which represent approximately 83% of LabCorp’s United States clinical lab testing revenue), in contrast to the amounts charged for similar services, which are rarely paid and based on arbitrary, unilaterally imposed list prices,” the plaintiffs assert.
For clinical lab tests, Medicare rates are based on third-party payer rates, Medicaid rates are based on state-specific determinations of reasonable rates, the plaintiffs argue. But, they add, commercial insurers consider their rates to be proprietary and maintain them as closely-guarded secrets.
When serving Medicare patients, LabCorp knows how much Medicare will pay for patients and informs patients under Medicare’s advance beneficiary notice requirements. LabCorp could do the same for uninsured and underinsured patients, the plaintiffs charge.
On that point, the plaintiffs go a step further, alleging that in the absence of an agreement on price, the price may be supplied by law, meaning the court can determine a reasonable price for LabCorp’s services for the uninsured and underinsured, the lawsuit explains.
Without such an agreement, LabCorp charges high rates for uninsured and underinsured patients. To describe these rates, LabCorp and other healthcare providers use various terms such as the “fee schedule rate,” “list price,” and “charge-master rate.” In this article, we use the term “list rate.”
Note that at this point in the 142-page amended complaint, the lawsuit compares the list rate to the clinical laboratory fee schedule (CLFS) rates that Medicare published in 2016. “The CLFS provides a reliable reference point for analyzing the reasonableness of list prices associated with clinical lab testing services, as well as determining the market rates thereof, because the CLFS rates are based upon the actual paid amounts of third-party payers,” the plaintiffs allege.
After explaining the difference between the list price and CLFS rates, the lawsuit spends 50 pages to explain the details of each of the 14 plaintiffs’ complaints. In the first one, the lawsuit names Sheryl Anderson, a resident of Alabama who was insured through Blue Cross Blue Shield of Alabama.
In November 2016, Anderson had blood drawn at Sunrise Dermatology in Mobile. Under Anderson’s insurance plan, Quest was the exclusive provider for her clinical lab tests and the plan provided no coverage for lab tests that LabCorp performed.
The lawsuit makes an important point here, noting that LabCorp is an authorized provider for other health insurance plans that BCBS of Alabama offered.
Sunrise Dermatology sent Anderson’s blood sample to LabCorp for testing without her knowledge, the lawsuit alleges. “LabCorp was provided by Sunrise Dermatology with Anderson’s insurance information and either knew or was reckless in failing to know that Anderson’s insurance did not cover clinical lab tests performed at LabCorp,” the plaintiffs charge.
At this point, LabCorp should have informed Anderson about the lack of coverage because LabCorp was a provider with a contract with BCBS of Alabama and had a relationship with Sunrise Dermatology, the plaintiffs allege.
“LabCorp was in the best position to advise Anderson that her LabCorp tests were not covered by her BlueCross insurance, and what rates LabCorp would charge for those tests,” the lawsuit says.
In Court Filings in Separate Cases, LabCorp Denies Charges, Quest Responds to Plaintiff’s Allegations
IN ITS COURT DOCUMENTS, LABCORP DENIED THE PLAINTIFFS’ ALLEGATIONS in the amended complaint. It also asked that the case be dismissed.
In its filing, LabCorp said the amended complaint violates federal civil procedures because it seeks to present an argument and conclusion to which no response is required. Also, LabCorp did not answer some of the allegations because they relate to claims that have been dismissed.
“To the extent LabCorp must provide an answer to these allegations, LabCorp denies those allegations,” the company said. It also said that if there are any headings or footnotes in the amended complaint that constitute an allegation, LabCorp denied those charges.
“LabCorp further denies any remaining allegations of the complaint, if not expressly admitted herein,” the documents added. In response to a request from THE DARK REPORT, LabCorp said it does not comment on pending litigation.
In a separate federal case with similar allegations of overcharging uninsured patients, Quest Diagnostics has argued that the plaintiffs failed to state a claim for breach of implied contract because Quest never agreed to charge the consumers a negotiated third-party rate, nor did it omit the price.
Quest also said the plaintiffs failed to demonstrate that the chargemaster rates were unreasonable. Therefore, the court should dismiss the plaintiffs’ claims of an implied contract, the company said.
In filings next year, Robert C. Finkel, an attorney with the law firm Wolf Popper who represents the plaintiffs in both lawsuits, will seek to certify that each case is a class action lawsuit brought on behalf of all of LabCorp and Quest’s patients who have been overcharged.
Asked to Reduce Charge
On its invoice to Anderson, LabCorp charged $170 for three tests identified with CPT codes 85025 ($31), 90076 ($41), and 80061 ($98), but did not provide a diagnosis, the lawsuit alleges. When Anderson asked LabCorp to reduce the charge, the lab company refused, the lawsuit alleges.
If LabCorp had used the Medicare CLFS rates, Anderson would have been charged a total of $43.22 for the three tests, or $10.59 for 85025, $14.39 for 80053, and $18.24 for 80061, the lawsuit alleges. Note that the lawsuit refers to two different CPT codes (90076 and 80053) for the second test in question. At press time, Finkel was checking on the discrepancy.
In the lawsuit, the plaintiffs allege that the reimbursement rates under the CLFS are consistent with the rates that BCBS of Alabama paid LabCorp when it covered other clinical lab tests for Anderson in 2016. For CPT codes 87086, 87186, 87088, and 87077, the insurer paid $29.10 (or 18.65%) of a $156 claim that LabCorp submitted, the lawsuit charges. Also, BCBS of Alabama paid Springhill Hospitals $38.62 for three CPT codes for Anderson (80050, 80061, and 81003), or 10.55% on a claim for $365.84, the lawsuit alleges.
Invoice Referred for Collection
LabCorp sent Anderson a collections letter from LCA Collections, which the letter identified as an in-house division of LabCorp, the lawsuit charges. Later, LabCorp referred Andersons’ invoice to American Medical Collection Agency (AMCA).
In a second example, the lawsuit explains the details of charges LabCorp sent to Mary Carter, a patient in Maryland, who was insured with Cigna. In May 2015, a physician prescribed blood tests for Carter, saying the tests were medically necessary, the lawsuit alleges. The blood was drawn at a LabCorp facility and LabCorp performed eight tests. Cigna denied coverage for the tests saying Carter’s plan provided benefits only for covered expenses for treatment or diagnosis of an injury or illness.
LabCorp’s bill for the eight tests was $711 and would have been $189.90 under the 2016 CLFS, the lawsuit alleges. Carter paid $484 by credit card but then was billed $227. After LabCorp sent her a collection letter demanding payment, Carter paid the full amount and now seeks a refund of the $227, the lawsuit alleges.
These two federal lawsuits could result in rulings and court decisions that set a legal precedent in how all labs are to quote prices to patients before service. For that reason, lab managers may want to track the progress of these cases through the federal court system.
Unnamed Witness in Federal Court Case Says Overbilling Certain Patients Was Routine
ONE OF THE MOST SIGNIFICANT DIFFERENCES BETWEEN THE TWO LAWSUITS alleging that Laboratory Corporation of America and Quest Diagnostics overbilled uninsured or underinsured patients is that the LabCorp lawsuit includes allegations from an unnamed former LabCorp executive.
The former executive charges that overbilling self-pay patients was common at LabCorp. Physician-clients often would complain about the high rates LabCorp charged to self-pay patients, the lawsuit alleges. After making such complaints, some physicians would refuse to send patients’ specimens to LabCorp, court documents show.
In the amended complaint that the plaintiffs filed in the case, the unnamed former executive is identified as Confidential Witness 1 or CW1.
“According to CW1, overbilling self-pay patients was ‘embedded in the culture of the company,’” the amended complaint alleges. The amended complaint was filed in August 2018 in the case of Anderson, Carter and others against Laboratory Corporation of America Holdings in the U.S. District Court for the Middle District of North Carolina, Greensboro Division. Discovery in the case is scheduled to commence next month.
The unnamed witness worked in Ohio for LabCorp in several positions over 15 years, ending in August 2016. CW1’s job titles included District Manager, Specialty Sales Representative, and Business Development Executive, the complaint explains.
“While employed by LabCorp, CW1’s primary responsibility was encouraging oncologists and pathologists to use LabCorp’s diagnostic services for their patients,” the lawsuit shows. “CW1 was the primary point of contact between LabCorp and those physicians.
“According to CW1, LabCorp has multiple sets of fee structures. LabCorp has fee structures for third-party payers, such as insurance companies (e.g., Blue Cross, Aetna, UnitedHealthcare), that were substantially below the fee structures for ‘selfpay patients,’ (i.e., persons who either did not have insurance, or whose insurance failed to cover the LabCorp lab testing). CW1 explained that the negotiated rates for third-party payers are highly guarded,” the complaint alleges.
At least once a month, CW1 fielded complaints from ordering physicians about the fees LabCorp charged to self-pay patients, court documents show.
“For example, CW1 recalls that LabCorp would charge a self-pay patient $5,500 for a flow cytometry test, whereas it would accept payment of $800 from a third-party payer for the same test, and as little as $400 from hospital clients who wished to be billed directly, while cost was below $200,” the complaint alleges.
‘CBC Test Billed at $300’
“Another example, according to CW1, is a CBC (complete blood count) plus routine chemistry profile that would cost LabCorp about $1 to run, and would be billed at $18 to an insurer such as UnitedHealth, but would be billed at approximately $300 to a self-pay patient,” the lawsuit shows.
“LabCorp’s practices with respect to overbilling self-pay patients sometimes made it difficult for CW1 to maintain good relationships with his clients. As such, CW1 would speak frequently within LabCorp about these matters. One such conversation concerning rates LabCorp charged to self-pay patients occurred in August 2016 with a company vice president, the lawsuit says. The vice president and others at LabCorp told CW1, that it was LabCorp’s “policy to charge the list price fee (the highest fee schedule) to self-pay patients,” court filings allege.
The lawsuit continues, “According to CW1, when an insured person is referred for testing, price is never questioned by either the physician or the patient. The uninsured are vulnerable to price gouging as they are grouped in with the insured while being processed for testing. Thus, they are, by default, charged the list price.”
It was difficult for self-pay patients to know what they would be charged, the lawsuit charges. “CW1 also emphasized that it would be unreasonable for a patient to ask about pricing when blood is being taken in the physician’s office or one of LabCorp’s draw stations because the phlebotomist (individual who draws blood) would have no idea or access to pricing information,” the lawsuit alleges.
“CW1 had first person knowledge of these allegations. S/he was provided the opportunity to review these allegations and consented to their use in this complaint,” the lawsuit section concludes.
Contact Robert Finkel at 212-451-9620 or firstname.lastname@example.org.