"Lab Industry Update"

Ohio Hospitals Prevail in Suit Against Federal Lab Claims

Five-year legal battle over allegations of lab test billing violations is settled

IT TOOK FIVE YEARS, but federal courts finally gave victory to the Ohio Hospital Association (OHA) in its long-running battle against federal regulators over laboratory test billing issues.

Early last month, the OHA signed a settlement with the federal government which resolves the OHA lawsuit. More importantly, it preserves an earlier, very important, federal court ruling which upheld a hospital’s legal right to directly challenge government billing investigations through the courts as well as administrative processes.

Early Warning To Labs

“We are pleased with what we consider to be a very positive outcome,” stated Mary Yost, Vice President of Public Affairs at the Ohio Hospital Association. “It affirms that hospitals and all healthcare providers have a right to pursue legal due process whenever allegations of improper billing procedures are raised by government officials.”

Yost, during an interview with THE DARK REPORT, identified three significant outcomes from the OHA’s lawsuit. “Our initial accomplishment came in October 1996, when we originally filed this action. After the suit was filed, the government backed off from its claims involving the most contentious of the three laboratory test billing codes.

“The OHA argued that, at the time these lab tests were billed, no guidance or regulations were issued which specifically required such test codes to be billed in the manner the government claimed,” said Yost. “Once our suit was filed, however, government regulators in both Ohio and other parts of the country dropped these codes from their allegations of billing improprieties.

“Our second success was the appellate court ruling in December 1999,” she continued. “This accomplished two basic things. One, it affirmed the right of hospitals and all health providers to use the courts as part of the due process in responding to government charges. Two, it gave hospitals the right to go to court without facing the threat of the False Claims Act.”

Appellate Court Ruling

Under the False Claims Act, fines for violations are mandatory and can be as much as $10,000 per incident. “The appellate court’s ruling eliminated the government’s game of  ‘settle with us now or you will have to roll the dice should you go to court and we prevail in proving violations of the false claim act’,’ said Yost. “Now hospitals have the right to challenge such claims using due process, and without facing the threat of huge penalties under the false claims act.

“The third major benefit is that, under the settlement, our hospital members who have corporate integrity agreements can forego filing detailed and burdensome compliance reports,” she explained. “Instead, they can simply send a letter certifying that they are in compliance.”

“Operation Bad Bundle”

These corporate integrity agreements had been signed by Ohio hospitals as part of their resolution of claims that they had improperly billed government health programs for certain lab test codes. The lab billing probe, initially started by the Justice Department in Ohio, was eventually widened to other states and became known as “Operation Bad Bundle.”

As part of this probe, more than 150 Ohio hospitals paid millions to settle fraud and abuse allegations. Nationally, the government collected $63 million from 288 hospitals through early this year.

THE DARK REPORT was first to report on the significance of the Ohio billing investigation. It was also first to publish a detailed interview with federal attorney James Bickett, who spearheaded the federal investigation in Ohio. (See TDR, July 22, 1996.)

Demand Letter To Hospitals

In that state, the Justice Department sent letters to virtually all hospitals. It demanded that they review claims for certain test codes dating back as far as 1989, calculate the amount of money that was inappropriately billed and send a check to Medicare for double that amount. If the hospital didn’t comply, it was threatened with the full force of the False Claims Act, which triggers a minimum $10,000 penalty per incident.

Throughout the 1990s, the commercial laboratory industry was confronted by similar allegations of billing fraud and similar arguments were offered at that time. Without political influence in Congress, however, the commercial lab industry chose to settle the allegations. This was not to be the case with the federal claims concerning hospital laboratory billing practices.

Once the national nature of the Justice Department’s billing probe was recognized, there was an immediate and effective reaction by the hospital industry. The hospital lobby went into action and the resulting political heat caused federal regulators to dampen their efforts to press these claims upon hospitals.

Throughout the 1990s, the commercial lab industry, when confronted with similar allegations of billing fraud, lacked political clout in Congress. That was not to be the case for the hospital industry.

From a legal perspective, it appears that the Ohio Hospital Associations’ case was fundamentally sound. This is demonstrated by the fact that, over five years, federal attorneys could not prevent the lawsuit from moving forward. The key ruling was made in December 1999 by the 6th Circuit Court, which reversed a lower court ruling that threw out the lawsuit and affirmed the standing of hospitals to sue the federal government.

Settlement talks began in earnest earlier this year after federal attorneys failed to get a rehearing at the circuit court level and the Supreme Court refused to hear the case.

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