Quest Diagnostics to File Regular Reports with DHCS

Exception reports and transition rates are described in the settlement agreement

CEO SUMMARY: Pathologists, clinical lab executives, and lawyers in California are going to find some surprises when they study the “Settlement Agreement and Release” that was recently signed by the California Attorney General and Quest Diagnostics Incorporated. Quest Diagnostics has indeed agreed to pay $241 million to resolve the allegations in the whistleblower lawsuit. But this agreement reveals that both parties continue to disagree on the interpretation and enforcements of 51501(a).

WHAT, EXACTLY, ARE THE TERMS of the “Settlement agreement and Release” document, dated May 19, 2011, that was negotiated between the California Attorney General (AG) and Quest Diagnostics Incorporated?

This question is foremost in the minds of clinical laboratory executives in California and their attorneys. at the core of the qui tam case filed in 2005 by whistleblowers Hunter Laboratories, LLC, and Chris Riedel—and later joined by the California attorney general (ag)—is California Code of Regulation, Title 22, section (22 CCR §) 51501(a).

Settling 51501(a) Allegations

The language of 22 CCR § 51501(a) describes how a provider, like a clinical laboratory, is to give the Medi-Cal program the same discounted price that it extends to other providers. 51501(a) states, in part that “Not withstanding any other provisions of these regulations, no provider shall charge for any service or any article more than would have been charged for the same service or article to other purchasers of comparable services or articles under comparable circumstances…”

In the “Settlement agreement and Release” document, it is written that Quest Diagnostics specifically denies the allegations of the lawsuit, certain of which are repeated in the agreement. It is also written that “It is Quest’s position that the Settlement amount described in III-a below represents a compromise settlement under 51501(a).” (Italics by TDR.)

This statement likely describes one of the primary legal strategies adopted by the attorneys representing Quest Diagnostics. as its part of the “compromise settlement under 51501(a),” Quest Diagnostics must do the following:

a) It will pay a total of $241 million. The State of California will get $171 million. Whistleblowers Hunter Laboratories, LLC, and Chris Riedel will get $69.9 million.

b) Per California law, Quest Diagnostics will pay reasonable attorneys’ fees and expenses to the qui tam plaintiffs. The specific amount is currently in dispute.

c) Starting august 1, 2011, and continuing through November 1, 2013, every three months, Quest Diagnostics will send written “exception reports” for each of its five business units to the California Department of Health Care Services (DHCS). These exception reports are to identify instances, as defined in the agreement, where, during that three-month period Quest Diagnostics has offered a lower price to a provider than the Medi-Cal price for that test, along with the price that Quest Diagnostics billed Medi-Cal for that same test during that same time period.

d) As an alternative to filing the exception reports for the first five reporting periods identified in the settlement agreement, Quest Diagnostics can submit Medi-Cal claims “to DHCS at no more than eighty-five percent (85%) of Medi- Cal’s then otherwise applicable published fee schedule for all otherwise eligible and proper Medi-Cal claims for tests or services with dates of service from May 1, 2011 through July 31, 2012.” This is called the “Transitional Rate.”

e) Quest Diagnostics “shall appoint and identify to the Settlement Compliance Contact an individual (“Compliance Officer”) with the duty and authority to supervise and reasonably ensure compliance with all of the terms of this Settlement agreement and to communicate with the Settlement Compliance Contact as required by this Settlement agreement.”

How to Comply after 2013

It is these five basic elements in the settlement agreement that should be studied and understood by clinical laboratory executives and their legal counsel. It is notable that this document is silent on how, after November 1, 2013, Quest Diagnostics or any other medical laboratory should comply with the language of California’s 51501(a) law.

Further, another section in the “Settlement agreement and Release” document appears to confirm that the primary legal issue is 51501(a). In section III-C-4, it states that, per fulfillment of certain requirements and subject to specific exceptions, “California will not make any claim against or seek withholding from a Quest Releasee under Section 51501(a), or seek any discretionary suspension or exclusion of a Quest Releasee under Section 51501(a), on the grounds that a price charged before November 1, 2013, for a test performed on or before that date to a non-Medi-Cal purchaser or payor by a particular Reporting Business Unit was less than a price that was charged to Medi-Cal by a different Reporting Business Unit.”

Denies the Allegations

In the settlement agreement and in its own press release about the signing of the settlement agreement, Quest Diagnostics has repeatedly denied the allegations of the qui tam lawsuit. It maintains that it has always conducted its affairs in full compliance with applicable state and federal laws. The complete statements on these points were covered earlier in this issue of THE DARK REPORT. (See pages 5, 7, 9, and 11.)

It is notable that, within this 21-page settlement agreement, there is no language where Quest Diagnostics agrees to comply with the California attorney general’s (and DHCS’) interpretation of 51501(a). as noted in earlier pages, Quest Diagnostics denies all allegations and each party to the agreement is reserving its rights on issues relating to interpretation and enforcement of 51501(a).

In fact, language in the settlement agreement specifically describes that Quest Diagnostics considers the agreement to represent a “compromise settlement under 51501(a).” This language indicates that it can be expected that Quest Diagnostics intends to continue disputing how the State of California interprets and enforces 51501(a) and related statues. It may also signal that one consequence from this settlement agreement is that Quest Diagnostics continues to give lower prices for specific tests to some providers than what it gives to Medi-Cal, at least through November 1, 2013.


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