Cigna Sues HDL, Alleges Unlawful Fee Scheme

Lawsuit accuses Health Diagnostic Laboratory of defrauding Cigna of as much as $84 million

CEO SUMMARY: In court papers, Cigna alleged that HDL misrepresented patients’ responsibilities by promising not to collect co-payments, co-insurance, or deductibles. Also, HDL promised not to seek reimbursement from patients for any portion of its bills that the health insurer did not cover, the court documents show. HDL misleadingly billed the health insurer at exorbitant rates, the complaint said. HDL also urged physicians and other providers to order unnecessary tests, the court papers show.

IN RICHMOND, VIRGINIA, a troubled Health Diagnostic Laboratory was just hit with an $84 million lawsuit by Cigna for alleged schemes to defraud the health insurer.

The lawsuit was filed in the U.S. District Court in Connecticut by Connecticut General Life Insurance Company and its affiliated health insurer, Cigna Health and Life Insurance Company. This action is the second in as many months involving HDL. In September, The Wall Street Journal reported that federal officials were investigating HDL for violations of the anti-kickback law.

Out-of-Network Rates

In its complaint against HDL, Cigna explained how HDL developed the fee-forgiving scheme. HDL was not in the Cigna network, which would mean that when a patient used any out-of-network lab, the patient normally would bear a portion of the cost of the lab testing. Such costs would come in the form of co-payment, co-insurance or deductibles, which Cigna used as a disincentive to patients to use out-of-network providers.

In its court filing, Cigna alleges that HDL undermined this disincentive through its fraudulent fee-forgiving scheme by misrepresenting patients’ responsibilities. HDL did this by promising physicians and patients that it would not try to collect co-payments, co-insurance, or deductibles, the court documents show. HDL also promised not to seek reimbursement for any other portion of its bill that the plan did not cover, the documents show.

“HDL then misleadingly bills the plans themselves at exorbitant and unjustified ‘phantom’ rates—rates that misrepresent what HDL actually intended to collect,” the complaint said.

The Cigna lawsuit included several examples to illustrate HDL’s scheme. Court records show that, for one patient, HDL submitted a bill for $2,979 to Cigna. Based on this bill, the patient should have paid $649.40, but HDL charged the patient nothing.

Such fee forgiving is a form of medical billing fraud, according to a fraud alert from the Office of Inspector General of the federal Department of Health and Human Services and advisory opinions from the American Medical Association, the complaint said.

Deceive Health Benefit Plans

“The effect of HDL’s scheme is to deceive health benefit plans into paying far more for services than the plans are obligated to pay. But misleading plan members is also essential to the scheme. By convincing patients that HDL offers services at little or no cost (when, in fact, HDL was artificially increasing the cost of healthcare to Cigna and its clients), HDL increases the volume of its business and, at the same time, increases the harm to Cigna and the plans it serves,” the court documents said.

As a result of a special investigation of HDL, Cigna confirmed the billing practices were fraudulent and then reduced or denied claim payments that HDL submitted, the complaint explained.

In addition to the fee-forgiving scheme, Cigna alleged that HDL suggested that physicians order medically unnecessary tests. HDL encouraged physicians and other healthcare providers to order tests, regardless of whether the provider believed the tests were needed to diagnose or treat the patient, the complaint said.

“HDL assures the providers that the patient will not complain if the patient’s plan does not cover these tests because, pursuant to the fee-forgiving practices described above, HDL never bills its patients anything for the services at issue,” the document showed.

Many of HDL’s business practices described in the Cigna lawsuit are familiar to lab executives who have competed against HDL in the years since its founding in 2008. These executives believed that the fees of as much as $20 per patient that HDL was paying to physicians for processing specimens were inducements and violations of federal and state antikick-back laws. But in the absence of effective federal or state enforcement of these laws, laboratory companies competing against HDL had no way to counter such business practices.

High-Flying Lab Performer

HDL was the high-flying laboratory performer in Richmond and got plenty of attention for its phenomenal revenue growth. As reported by The Wall Street Journal in September, HDL’s revenue in 2013 topped $383 million.

Little is known about what caused federal prosecutors to launch their investigation of Health Diagnostic Labs and a handful of similar labs. In that federal case, HDL and four other labs (Atherotech Diagnostics Inc. in Birmingham, Alabama; Berkeley HeartLab Inc., in Los Angeles, California; Boston Heart Diagnostics Corp. in Framingham, Massachusetts; and Singulex Inc., in Alameda, California) allegedly were being investigated for paying physicians to refer patient’s blood samples to the labs, the Journal reported. (See this article and this article in TDR, September 22, 2014.)

Feds Investigating Kickbacks

Federal investigators were looking into whether money HDL and the other labs paid to doctors for patients’ blood samples were kickbacks designed to induce physicians to order tests from these labs, the newspaper said. All of the labs denied the allegations and said they were cooperating with the investigators, according to the Journal.

Following news of the federal investigation, HDL President and CEO Tonya Mallory resigned September 23 from both positions. The company said she was stepping down for personal reasons. Mallory would remain on the board of directors and advise the new President and CEO, Joseph P. McConnell, Ph.D., a co-founder of HDL, who succeeded her in both roles.

McConnell had been HDL’s Chief Laboratory Officer. Before co-founding HDL, McConnell was the director of cardiovascular laboratory medicine and chair of the clinical chemistry fellowship program at the Mayo Clinic in Rochester, Minnesota.

There is another aspect to this case that will be closely watched throughout the lab industry. In both the Cigna lawsuit against HDL and the federal investigation into HDL’s business practices, clinical lab professionals wonder whether the physcians who accepted the various forms of alleged illegal remuneration will also face investigation and prosecution.

After all, a lab that offers illegal payments and bribes can only go forward if enough doctors are willing to accept these payments. It takes both parties to make the scheme work. Yet, too often, federal and state prosecutors will only pursue the laboratory and will not bring charges against individual doctors who accepted payments in exchange for lab test referrals.

Federal Prosecution

One important exception to this situation was last year’s federal prosecution of Biodiagnostic Laboratory Services of Parsipanny, New Jersey. Not only did the owners and many managers of the lab plead guilty to criminal charges, but at least 19 physicians also pled guilty for their role in the scheme.

Thus, many in the clinical laboratory profession approve of the federal investigation of HDL and the decision by a private payer like Cigna to file a lawsuit against Health Diagnostic Laboratory. Step one is bringing these actions against the offenders. Step two is to win these cases and establish a useful precedent.

In Court Documents, Health Insurer Describes a “Fraudulent Fee-Forgiving Scheme” by HDL

IN A LEGAL COMPLAINT FILED OCTOBER 15, Cigna, a health insurer, alleged that Health Diagnostic Laboratory had “a business model designed to game the healthcare system by submitting grossly inflated, phantom ‘charges’ to Cigna that do not reflect the actual amount HDL bills patients. The outline of HDL’s scheme is simple.”

HDL represented to its patients that they would not need to pay anything for clinical laboratory tests that HDL performs on their behalf, the court documents showed.

“HDL misrepresents to members of Cigna-administered plans that they may receive services from HDL without incurring any financial obligation, and that Cigna will be responsible for the cost of services delivered under these conditions. After luring plan members in this way, HDL submits charges to Cigna at astronomical rates, which are much higher than the ‘normal charge’ HDL actually intends to accept as payment in full. Cigna then relies on the representations in HDL’s bills, by paying more for HDL’s services than it is obligated to pay under the relevant plans,” the complaint explained.

In addition, HDL does not typically join major managed care networks, choosing instead to remain out-of-network.

“HDL entices members to use its out-of- network services by expressly promising (i) not to collect any part of the members’ costsharing responsibility, and (ii) not to seek to recover any other portion of its ‘charges’ for which it fails to obtain reimbursement from the plan,” the complaint said.

Included in the complaint is a brochure from HDL that explained to patients that they will not need to pay for lab testing. The brochure says the following:

  • “HDL, Inc. will accept the amount your insurance company allows for each diagnostic.
  • In other words, your ‘out-of-pocket’ cost is ZERO for initial and follow-up testing.
  • HDL, Inc. takes all the risk if your insurance company does not pay for the ordered diagnostics.”




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