Aetna Sues LabCorp Over Lab Marketing Practices

Aetna’s lawsuit spotlights business tactics used by out-of-network public lab companies

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CEO SUMMARY: Aetna, Inc., sued Laboratory Corporation of America in federal court, seeking injuctive relief for actions taken once LabCorp became an out-of-network laboratory provider for Aetna in July 2007. LabCorp is also accused of a “malicious scheme to continue to receive revenue” from Aetna. However, as an out-of-network laboratory provider, LabCorp has only been using the same marketing schemes and tactics that are standard industry practices long used by public lab firms in similar managed care contract situations.

BY NOW, MANY IN THE LAB TESTING INDUSTRY know about the lawsuit that Aetna, Inc., filed in August Laboratory Corporation of America.

This lawsuit is a first in the lab industry. It opens a window into the often-strained business relationships that major managed care companies have with each of the two Blood Brothers. At the heart of Aetna’s claims against LabCorp are the marketing schemes LabCorp has used to retain access to Aetna patients as an out-of-network provider since July 1, 2007, the date when LabCorp ceased to be an in-network lab.

Aetna’s Lawsuit

The lawsuit was filed on August 19, 2010, in the United States District Court for the Eastern District of Pennsylvania. Plaintiff Aetna asserts, as described in a LabCorp public document, that LabCorp engaged in “unfair competition, misrepresentation, interference and breach of contract, and violation of trade secret laws. Aetna is seeking unspecified monetary damages and equitable relief.”

In the same document, LabCorp stated that it “believes that the allegations are wholly without merit and will vigorously defend the lawsuit.” LabCorp officials declined further comment to THE DARK REPORT on this matter.

“Aetna has negotiated discounted rates with network providers,” stated an Aetna spokesperson to THE DARK REPORT. “By using an out-of-network provider, [Aetna] members who use LabCorp and have no out-of-network benefit in their health plan would have no coverage at all and be responsible for the entire [lab testing] bill.”

“[Aetna] members who used LabCorp and have an out-of-network benefit in their health plan could be responsible for a higher cost-sharing level,” continued the spokesperson. “This is based on the potentially higher billed rates from LabCorp, even if LabCorp was to waive co-pays. LabCorp still has the ability to balance bill the member for [lab test] charges that aren’t covered. In general, this raises costs for everyone. Higher medical costs contribute to higher premiums.”

Essentially, the tactics and schemes employed by LabCorp to continue serving Aetna members after it became an out-of-network laboratory in 2007 are the standard response public lab companies have used in similar situations over the past 20 years. Public lab companies with non-network status do two things that displease the patients’ health insurance companies.

First, with their financial clout, the public lab companies are willing to write off substantial amounts of the out-of-network patient co-pays, deductibles, and out-of- pocket payments assessed by health insurers to motivate patients to stay “in network.” The public lab companies promise the referring physicians that they will never bill the patients for these charges.

The pay-off for the public lab company is that, when it receives the patient specimens, it can then file a claim with the health insurer and be reimbursed at rates which are typically much higher than the deeply-discounted lab test fees the managed care company pays to its in-network laboratories.

Several experienced managed care contracting experts told THE DARK REPORT that Aetna was not likely to prevail in its lawsuit against LabCorp. The consensus was that LabCorp’s defense will be “This is a standard practice in the lab testing industry. All labs do it.”

Is UnitedHealth Watching?

However, one contracting expert, who did not want to be identified, said that, were Aetna to prevail in its lawsuit against LabCorp—whether by court judgement or favorable settlement—it is likely that UnitedHealth Group would go after Quest Diagnostics Incorporated for the same tactics.

It must be pointed out that big dollars can be a factor in Aetna’s decision to sue LabCorp. Aetna says that it paid LabCorp $100 million in 2006 as an in-network labo- ratory provider. Assume that Aetna’s in-network discounted fees were at 50% of Medicare rates at that time. Next, assume that LabCorp has been able to keep, say, 80% of its pre-July 2007 Aetna patient test volume.

If LabCorp was continuing to serve that number of Aetna patients, it would mean that, every year since LabCorp became an out-of-network laboratory in July 2007, the money paid by Aetna to LabCorp represents tens of millions of dollars in additional spending.

Aetna’s Contract with Quest

Moreover, there is one more dimension to this legal battle between Aetna and LabCorp. “Keep in mind that Aetna and Quest Diagnostics have, during the past year, renewed the contract which makes Quest Diagnostics the sole national laboratory for Aetna,” stated one knowledgeable laboratory executive. “Leakage was a big issue during these negotiations.

“I would assume the biggest source of leakage is LabCorp and that Aetna has been disappointed with Quest’s ability to reduce leakage,” continued this executive. “There is a persistent rumor that, in order to retain its exclusive national network lab status, Quest dropped its price to Aetna as one response to the leakage problem.

“It would be expected that Quest, in exchange for the price discount, would ask Aetna to be more aggressive with LabCorp,” he added. “One way that Aetna could become more aggressive with LabCorp is to file a lawsuit.”

At a minimum, these opinions and insights provide a useful framework for understanding why Aetna would go to federal district court and file a lawsuit against LabCorp. Although some experts believe Aetna will have a difficult time prevailing in its lawsuit, the potential remains that a favorable settlement or court judgement for Aetna could provide the precedent for other big health insurance corporations to file copy-cat lawsuits.

Paradox of their own Making

THE DARK REPORT observes that the managed care plans are caught in a paradox of their own making. For the past 20 years, the largest health insurers have extracted huge discounts in lab test prices from public lab companies, in exchange for exclusive or near-exclusive network provider status.

Health insurers were the direct beneficiaries of these deeply-discounted in-network lab test fees, particularly when the public lab could move leakage over to contract rates. But, as the gap grew between the rock-bottom network prices and the more generous out-of-network reimbursement the health insurers have always paid out-of-network labs, public lab companies recognized the economic benefits of staying out-of-network and billing payers at those higher prices.

Seen in this context, Aetna’s lawsuit against LabCorp may be a first indication that public lab companies are willing to optimize the “out-of-network” strategy because the additional reimbursement is much too attractive to ignore.

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