Senate Investigates Billion Dollar Health Care Scam
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The Fiscal Times
November 8, 2011

Senate Finance Committee chairman Max Baucus (D-Mont.) and ranking member Charles Grassley (R-Iowa) on Tuesday demanded the nation’s two largest laboratory testing companies and three largest insurers turn over records from contracts that may have bilked Medicare and Medicaid out of billions of dollars in alleged overpayments.

Recent court settlements in California have recouped more than a quarter billion dollars from Quest Diagnostics and Laboratory Corporation of America, whichallegedly overbilled California’s Medicaid program. The two companies control about half the annual $25 billion lab test market.

A similar suit filed in federal court in Manhattan by a former industry executive claimed the testing companies billed insurers like UnitedHealthcare unprofitably low rates while charging much higher rates to Medicare and Medicaid patients. In addition to the two lab companies and United Health, the Senate Finance investigators demanded records from Aetna and Cigna, two other companies with extensive dealings with the laboratory giants.

The whistleblower suits alleged the schemes relied on sweetheart deals in which managed-care companies required in-network physicians to send their patients’ lab tests to a single testing company. As part of the deal for below-cost prices, the insurance companies allegedly promised to encourage physicians in their networks also to send Medicare and Medicaid patients to the same testing company, which then billed the Centers for Medicare and Medicaid Services (the federal agency that oversees both programs) or state Medicaid agencies at significantly higher rates.

The Senate investigators are seeking copies of lab service agreements, correspondence related to negotiation of the contracts, presentations to boards about contracts, presentations to clinical laboratory testing providers, and other documents related to the so-called “pull-through” deals involving Medicare and Medicaid patients. The letter gave the companies until December 1st to respond.

The federal investigation comes on the heels of a suit by whistleblower Andrew Baker, a longtime lab-test industry executive, who sued Quest and LabCorp under the Civil War-era False Claims Act. He now runs Huntington Life Sciences, a pharmaceutical industry contract research organization. District Court Judge George Daniels unsealed the LabCorp case in September after federal prosecutors notified the court that the Justice Department “has not made its intervention decision as of this time.”

While Justice refused to comment on this case, the government is engaged in a massive effort to clean up waste, fraud, and abuse – estimated to run as high as $70 billion a year  -- in the $485 billion Medicare program. Although a Health and Human Services Department strike force over the past several years has indicted a total of nearly 1,000 individuals and companies, its $2.7 billion in settlements barely scratches the surface of the amount of alleged fraud in the Medicare program.

The federal non-decision in the lab billing suits comes in the wake of two settlements earlier this year in which Quest and LabCorp paid the state of California $241 million and $49.5 million, respectively, for alleged overbilling. The companies did not admit liability in reaching the settlements.

Chris Riedel, chief executive officer of Hunter Labs, a small Silicon Valley-based laboratory that competes with the two industry giants, originally brought the California LabCorp suit. LabCorp charged Medi-Cal five times more than it charged other customers for some tests, according to the suit; for a testosterone test, LabCorp charged Medi-Cal $35.04 but other customers $7.36.

spent 25 years as a foreign correspondent, economics writer and investigative business reporter for the Chicago Tribune and other publications. He is the author of the 2004 book, The $800 Million Pill: The Truth Behind the Cost of New Drugs.