CEO SUMMARY: Last month’s lawsuit filed by Blue Cross Blue Shield of Mississippi against a small rural hospital in Mississippi and multiple defendant lab companies in Texas is the latest attempt by health insurers to rein the widespread fraud that threatens to overwhelm the pain management and toxicology sectors of healthcare. Increasingly, the nation’s community and rural hospitals are being approached and asked to provide lab testing and billing in dubious schemes.
FIRST IN A SERIES
Editor’s Note: Ongoing fraud and abuse involving lab testing is now a national problem that continues to grow. The different types of schemes, the new forms of inducements, and the involvement of different types of providers seen today are much more sophisticated than any seen in past years.
THE DARK REPORT is starting a series of intelligence briefings to help pathologists and clinical lab managers understand the complexity of these illegal arrangements. In recent months, many hospital lab administrators have told THE DARK REPORT that their CEOs are being approached to recruit their hospitals into these arrangements.
AMID ONGOING REPORTS OF RAMPANT FRAUD in the pain management and toxicology sectors of clinical lab testing, a recent lawsuit filed in Mississippi could mark a turning point in payers’ willingness to take legal action against entities that are submitting claims that are based on potentially fraudulent and abusive business arrangements.
What is notable about this lawsuit is that it names, as one defendant, a community hospital, along with other defendants that provide toxicology testing services. Another notable fact is the claim in this lawsuit that a 29-bed rural hospital submitted almost $34 million in lab test claims to a single payer in just 120 days!
Scheme Targets Hospitals
In recent years, operators of toxicology and pain management testing lab companies have developed a scheme in which they convince a community hospital or a rural hospital to enter into a business agreement whereby the hospital agrees to provide certain lab testing services and to bill—as an in-network provider—for all lab tests performed by the labs or providers who are part of this agreement.
If lab managers are aware that their hospital’s administration has been approached with offers to enter into similar-sounding lab testing arrangements, then they may want to learn more about this unusual lawsuit that was filed last month.
Presentations about these new lab testing arrangements that are given to hospital administrators, describe the agreement with a new acronym—HOPD. It stands for “hospital outpatient diagnostics.”
On May 4, 2017, Blue Cross & Blue Shield of Mississippi filed a lawsuit in the U.S. District Court for the Southern District of Mississippi against a small community hospital and several lab companies. Named as defendants were:
- Sharkey-Issaquena Community Hospital
- Sun Clinical Laboratory, LLC
- Mission Toxicology ManagementCompany, LLC
- Mission Toxicology, LLC
- Mission Toxicology II, LLC
- 10 unnamed “John Does”
The 29-bed hospital is located in Rolling Fork, Miss. (population 2,500). The other defendants are based in Texas.
Multiple Claims In Lawsuit
In the court documents, Blue Cross lists the following claims: breach of contract, fraud, civil conspiracy, negligent misrepresentation, and unjust enrichment. The lawsuit says that, “between February and May, 2017, the hospital submitted to the insurer claims totaling in excess of $33.8 million. Of that, Blue Cross has paid out more than $9.8 million. Claims submitted, but which the plaintiff contends are misrepresented, thus not covered, amount to over $24 million.”
The suit alleged that, “since February, 2017, claims are being submitted to Blue Cross for payment for laboratory services that: 1) purported to have been performed at and by the hospital; 2) were not ordered by a licensed health professional with appropriate staff privileges at the hospital; and, 3) were not performed at the hospital in Rolling Fork, Miss.”
According to court documents, in January, 1995, Blue Cross contracted with the hospital to provide “hospital services which are medically necessary when such services are ordered by a licensed physician or other licensed health professional who has appropriate staff privileges at [the] hospital.” Blue Cross further stated that its contract with the hospital excluded “services performed by an organization or facility not itself licensed by the state as a general acute hospital.”
Billing With Hospital’s Name
Further, Blue Cross alleged that the hospital entered into a contract with one or more of the defendants to allow them to use the hospital’s name and billing information to submit claims, even though the laboratory services were not to be performed at or by the hospital.
By subsequently submitting what it calls misrepresented claims, Blue Cross asserted the hospital breached its contract with the insurer. Blue Cross further asserted that the hospital attempted to obscure its breach by “leasing” an employee and space at one or more of the defendants’ facilities in an attempt to conceal the breach. The hospital’s attempt to conceal, Blue Cross claimed, was a further breach of contract. The insurer additionally stated that it believes that one or more of the defendants is reimbursing the hospital for this “arrangement.”
“The contract provides for a percentage of charge reimbursement rate…because of [the hospital’s] small rural nature,” Blue Cross stated in the complaint, also writing that, “Blue Cross contracted at this rate with the hospital as a hospital, and not as a laboratory for non-hospital patients; and, certainly not to allow third parties to take advantage of the percentage of charge rate.”
Blue Cross has asked the court that it not be required to pay misrepresented claims that are pending and to bar the hospital and defendant laboratories from submitting misrepresented claims going forward. The insurer asked for actual and consequential damages, prejudgment and post-judgment interest, and costs from the hospital.
Against the laboratory defendants and their affiliates, Blue Cross seeks actual and consequential damages, as well as punitive and exemplary damages, attorneys’ fees and costs, and prejudgment and post-judgment interest.
Are Payers Quicker To Act?
The fact that Blue Cross took legal action only three months after it began receiving claims submitted by the defendants could suggest that payers are becoming more attuned and vigilant to the various “red flags” that would signal lab companies using fraudulent and abusive business practices.
In the lawsuit, Blue Cross described an important characteristic of the HOPD scam model. The lab companies and other providers participating in the agreement need the hospital’s in-network provider status in order to submit the lab test claims and have them be reimbursed. That is why the hospital lab is asked to use its provider number and NPI for the test claims that will be submitted to different health insurers.
This seems to be the case in the Mississippi lawsuit. In the court documents, Blue Cross described how its initial investigation revealed that, under the “arrangement” between the hospital and Sun and the Mission Companies, orders for laboratory services were submitted to Sun Clinical Laboratory, Hermann Drive Surgical Hospital, Houston, TX, CLIA #45D2027576 and Mission Toxicology, 2145 NW Military Hwy #102, San Antonio, TX, CLIA #45D2071649.
Hospital’s CLIA Number
The court documents further stated that the lab test results were submitted to the providers who ordered the tests on forms with Mission Toxicology or Sun Clinical Laboratory logos—but with the hospital’s CLIA number and Mississippi address and with a Texas phone number.
Blue Cross pointed out in its complaint that the hospital’s CLIA number “is for laboratory work performed in the hospital laboratory” and that the “laboratory work related to the misrepresented claims was not performed in the hospital in Rolling Fork.”
Blue Cross further asserted that the misrepresented claims did not meet the medical necessity provisions of benefit plans as required under its contract with the hospital, and that defendants failed to submit the claims in the proper venue, that is “in the state in which the specimen is drawn.”
There is another most important insight to be gleaned from the lawsuit filed by Blue Cross against the rural hospital and the other defendants. Blue Cross alleges that this 29-bed rural hospital submitted almost $34 million in outreach lab test claims in only 120 days.
Billing For Big Dollars!
However, this is just one health insurer. What is the dollar total of lab test claims that Sharkey-Issaquena Community Hospital submitted to all other health insurers, Medicare, and Medicaid during that same 120 days?
It is reasonable to assume that this hospital—in its role as part of this lab testing scheme—submitted a substantially greater amount of claims to all other payers. Collectively, could this mean that Sharkey-Issaquena submitted lab test claims totalling from $68 million to $100 million during this same four-month period?
If true, two numbers can be extrapolated. First, these assumptions indicate that Sharkey-Issaquena is billing Blue Cross in Mississippi at a rate of $108 million per year. Second, its billings to all payers could be anywhere from $180 million to $300 million on an annualized basis.
This lawsuit is a road map that lab administrators and pathologists can use to understand one type of illegal lab test scheme, along with the huge magnitude of dollars that are involved.
Developments in UnitedHealthcare’s Lawsuit in Florida Against Tox Labs, Other Providers
LAST YEAR, UnitedHealthcare Group, Inc., the nation’s largest health insurer, filed a $50 million lawsuit in Florida against five urine-drug testing labs, three lab management companies, a physician, other individuals, and several recovery centers.
The lab defendants included Sky Toxicology, Frontier Toxicology, Hill Country Toxicology, Eclipse Toxicology, and Axis Diagnostics. All of the labs have the same address in San Antonio.
In the 57-page complaint, UHC alleged that the defendants perpetrated a scheme to defraud UHC and other payers through deceptive and unfair trade practices related to claims for urinalysis (UA) tests. In the complaint, UHC also charged that the defendants offered kickbacks to those who refer patients for large quantities of UA for testing. In addition, UHC alleged negligent misrepresentation, unjust enrichment and interference with the contract UHC had with the labs.
Seven months later, the court dismissed the case, saying UHC did not have standing to bring the case against Sky Toxicology and other defendants under the federal Employee Retirement Income Security Act of 1974 (ERISA). That dismissal came on Nov. 1.
The next day, Sky Toxicology and the other defendants countersued UHC, saying that in 2015 UHC alleged that the San Antonio labs committed fraud against the insurer and stopped processing the labs’ claims. This lawsuit was filed in the federal Texas Western District Court.
ERISA preemption Question
In the countersuit, Sky Toxicology and other defendants charged that UHC did not pay them under the assignment of benefits provisions of the UHC contract and that the non-payment totaled millions of dollars in claims. “Plaintiffs have exhausted all administrative remedies and extensively tried to settle its issues with United without success,” the plaintiffs said in the countersuit.
The defendants also charged in the countersuit that UHC had breached its contract with its health plan members by failing to pay for UA testing while the labs performed the duties as outlined in their contracts with UHC.
At the same time, court documents say UHC denied the labs’ access to UHC’s administrative procedures and so the labs claimed that they had sustained damages totaling the amount of claims denied, a figure that would be determined at trial. The labs also had damages for all attorneys’ fees and costs.
In their countersuit, the labs claimed that ERISA applies to their case and so UHC would need to respond to the lab companies’ demands. The case has been on hold since the end of March when it was stayed for 45 days. Then it was stayed twice more, the most recent time on May 10. That stay expires on July 1.
Cigna Sued Same Lab Firms
The UHC case was not the first one that a health insurance company brought against these defendants. On July 17, 2015, Cigna filed a lawsuit in the federal Southern District of Florida’s West Palm Beach Division, listing as defendants: Sky Toxicology, Sky Toxicology Lab Management, Frontier Toxicology, and Hill Country Toxicology. Cigna alleged fraudulent claims of $20 million. The lawsuit noted that the defendants were entities organized in Florida and with the same registered agent at the same street address in Delray Beach.
Unlike in the UHC case, however, the parties in the Cigna case settled. In May 2016, the plaintiff and the defendants reached an agreement to resolve all claims. Under the agreement, the parties asked the court to dismiss the action, and each party said it would be responsible for its own attorneys’ fees and expenses.