Tuesday, September 27, 2011

Meanwhile, back in the Lab (LabCorp, that is)

If you're a United HealthCare insured and you've had any lab work done the past few years, then you're probably familiar with LabCorp. That's because they're (apparently) the largest such labs in the market, and they (again, apparently) had quite the cozy relationship with UHC.

Maybe a little too cozy for some: Andrew Baker (formerly of Unilab) has filed a suit against LabCorp, alleging a rather massive fraud at the expense of Medicare and its beneficiaries (not to mention taxpayers). In brief, LabCorp is accused of charging Medicare much more than it charged United HealthCare, which is also accused of pressuring its network doc's to use LabCorp exclusively.

I was offered, and gladly accepted, the opportunity to interview Mr Baker. Here's that interview, as well as some observations:

InsureBlog: Thanks for agreeing to speak with us, Mr Baker. Could you tell us a little about yourself, and why you brought this lawsuit?

Andrew Baker: Of course. I was President of MedPath, which was owned by Corning Glassworks. That was spun off, and I ended up buying the lab, which became Unilab. Eventually, I sold the lab to a private equity firm, which then re-sold it a short time later at a much greater price. I was a bit curious about the difference because, as far as I could tell, the market itself hadn't changed dramatically in such a short time, and I didn't understand how the value could have increased so quickly and so greatly.

As it turns out, the lab had increased its use of "pull-through" business, which I had objected to during my tenure there. This is the practice of enticing business through deep discounts and kickbacks, and I was, and continue to be, an opponent of it.

After speaking with several law firms, I decided to press forward, because it's wrong and anti-competitive to small business. as well as costly to Medicare.

IB: Your fact sheet accuses UHC of threatening to kick providers out of their network if they didn’t play ball. This seems unlikely. What proof can you offer that this occurred?

AB: We have plenty of documentation to back that up. Doctors were not happy to have their livelihood threatened, as would be the case if they were kicked out of UHC's network.

IB: The Stark Law has some pretty severe restrictions regarding this kind of activity. Why would providers risk their own licenses (insurance notwithstanding) in such a scheme?

AB: That really applies to providers steering patients to vendors in which the doctors have an ownership stake, which was not the case here. In fact, this was sort of a reverse-Stark situation, in that doctors who refused to participate could end up losing, but were actually paid nothing for the referrals.

IB: In reviewing the facts, it’s clear that Medicare was not defrauded in the generally understood meaning of the term. If LabCorp had not discounted their billed charges to UHC, Medicare would have paid the exact same amount. So who got hurt here?

AB: Medicare could have been paying less versus the capitated (insured) plans. The law says they can't charge Medicare and insurers different amounts, and yet they did, and so Medicare, and thus the taxpayer, ended up spending more than necessary [ed: here's where Mr Baker and I really part company; I'll explain why in a moment].

IB: The fact sheet and legal briefs refer to UHC’s fully insured business. Was their ASO line also involved? What did the TPA’s and plan sponsors think of this arrangement?

AB: Yes, I believe that was the case, although it wasn't consistent along all the lines. That is, some plans got the severely discounted rate, and others didn't.

IB: It appears that the folks who most benefited from this arrangement were UHC’s insureds, who will now have to pay higher costs. Is that right?

AB: Yes, that seems to be the case. But why should UHC benefit at Medicare's expense?

IB: What relief are you actually seeking here? How much do you think you’ll net from this lawsuit?

AB: I want the rules to change so that Medicare gets the same rates as UHC and others, or "Most Favored Nation" status, and I want the existing rules enforced so that this pull-through activity comes to an end.

As to what my share of any settlement might be, I really have no idea. Frankly, it's not something I necessarily count on; I have other business and income. And, of course, being in England now, half would go to taxes anyway. I do plan to donate at least a portion of any proceeds to charity.

IB: Thanks, Mr Baker, for your time and candor, and best of luck with your efforts.

I'd like to thank Co-Blogger Kelley and FoIB Nate for their help in formulating the questions and reviewing the final interview, and to Ania Kapla of Hinton Communications for making it happen.

Now, let's cast a more critical eye on this lawsuit, shall we?

Before we start, I do want to mention that I had asked Mr Baker about his standing to bring the lawsuit. He demurred (correctly) to his attorneys, who confirmed that this is a qui tam (aka "whistleblower") lawsuit, so standing is not an issue here.

Based on the facts we've been given (and which I will happily forward to interested readers), it seems pretty clear that LabCorp engaged in fraud based on Medicare's definition of fraud.

Isn't that nit-picking, you may ask?

No, it's not, and here's why: the general legal definition of fraud is "a false representation of a matter of fact ... by false or misleading allegations, or by concealment of what should have been disclosed — that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury."

Medicare fraud, though, is really more analogous to "breaking our rules." As Kelley explains:

"We would not consider this fraud since the labs billed Medicare the correct fee and collected the correct fee. However, the government states this is fraud because the lab charged Medicare more than they charged the other lab. In the business world, this is called giving discounts for volume."

The key is that "if LabCorp had not discounted their billed charges, Medicare would have still paid EXACTLY the same amount. No more or no less money was paid by the Federal Government to LabCorp than to any other labs for the same service."

As to Mr Baker's assertion that this was a sort of "reverse-Stark" scenario, in that doc's weren't remunerated for referrals, but punished for the lack of them, well, that doesn't hold water, either. As Kelley points out, he's "technically incorrect because the physician would benefit financially by keeping his United Healthcare patients, so the Stark Law could be applied in this case. The Stark Law is written such that it implies any type of compensation, be it pens and pads, or monies received from "funneled patients."

Mr Baker also avers that "the law says they can't charge Medicare and insurers different amounts, and yet they did," which serves as the crux of his Medicare fraud argument.

Kelley expands on this point:

"The law states that all patients must be charged the same amount, without differentiation based on any type of preferred status: i.e. physician courtesy discounts, discounts to people without insurance, etc. It is not that LabCorp charged a different amount, it is that they accepted a reimbursement lower than the Medicare Fee Schedule. Thus, the lawsuit stems not from the charges but the reimbursement accepted."

So who was hurt here?

Not Medicare or its beneficiaries or the taxpayer. Not United HealthCare's insureds, who benefited from lower health care costs (hey, aren't we supposed to want that?). It seems to me that the only folks who were really hurt by this activity - and I'm in no way minimizing their loss - would be the smaller labs who couldn't compete. And that's not a little thing: absent a level playing field, free markets founder.

Still, I'm having a very difficult time casting LabCorp as "bad guys" here. If anyone fits that role, it's Medicare and HHS Secretary Shecantbeserious. As we saw just two weeks ago, it's darned near impossible to get that agency to actually police its providers. Of course, it's not their money, so no harm no foul.

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