LabCorp Cheats Medicare, Costs Billions, Whistleblower Suit Alleges

President Obama recently announced plans to cut $320 billion in Medicare and Medicaid costs, but one whistleblower says to cut costs, the government should focus on curbing lab industry kickbacks he believes defraud taxpayers of billions of dollars.

A recently unsealed federal complaint inching through New York's Southern District Court alleges that Laboratory Corporation of America -- one of the largest providers of medical laboratory testing in the U.S. -- violated the federal False Claims Act by providing kickbacks to UnitedHealthcare in the form of highly reduced prices on tests.

In return, it alleges, UnitedHealthcare induced its in-network providers to send Medicare-reimbursable tests its way. Further, LabCorp became UnitedHealthcare's exclusive in-network lab in 2007 -- a contract that was recently renewed.

The complaint charges that LabCorp provided for "commercially unreasonable" prices on tests that were a third to half of those paid by Medicare, and that this constitutes remuneration paid to UnitedHealthcare in order to induce it to "arrange for" or "recommend" its in-network providers send Medicare tests its way.

The suit alleges that LabCorp believed the contract, including the expected "pull-through" business, would generate additional revenues of $3 billion.

"If, for example, I sell you something for $8 that costs me $15, why am I doing that? For another reason. It's to garner Medicare business," said lab executive Andrew Baker, whose NPT Associates brought the suit on behalf of the government. "The lab industry is basically using Medicare to make money, and they are willfully doing it."

According to allegations, LabCorp execs openly acknowledged the scheme: Higher-ups indicated the company would "lose its shirt" if it didn't capitalize on the opportunity to obtain United's Medicare business.

The suit claims the lab company agreed to pay up to $200 million in the first three years of the contract in order to cover any costs UnitedHealthcare might incur in making such "arrangements" or "recommendations." LabCorp did not return requests for comment and a representative for UnitedHealthcare, which is not a defendant in the suit, said the company was unable to comment on active litigation.

Jim Sheehan, former Medicaid inspector general in New York, said that if litigation continues, LabCorp might well say that the kickbacks are not illegal, and assert that the suit includes no proof of quid pro quo.

"That's what the argument could be," he said. "That this is just a normal commercial interaction. 'We enter into contracts all the time, we hope for referrals -- family doctors don't like to have two boxes outside their doors for tests, they want one.' So 'we hope,' but 'we don't induce.'"

But Baker is convinced of the case's strength, saying he is "encouraged" by recent settlements he sees as similar in their substance.

This summer, the California state attorney general announced a $49.5 million settlement with LabCorp after allegations that it, and other labs, had overcharged the state's Medicare program while providing kickbacks to doctors, hospitals and clinics that referred MediCal patients. In May, the attorney general settled with Quest Diagnostics for $241 million in what a press release describes as the same alleged practice.

What Baker wants to know now is whether the Department of Justice will join him. In August, a federal district court judge unsealed the amended LabCorp complaint after the DOJ filed a notice indicating it had not yet decided.

Under the False Claims Act, a person may bring a civil action on behalf of the U.S. government, which the department can then decide to pursue. If it does, the so-called realtor is entitled to a smaller share of any potential recovery, but experts say it also sends a strong signal: Fewer than 25 percent of such actions result in government intervention.

"If the federal government takes over the case, the odds of success ramp up significantly," explained Larry Singer, director of Loyola University's Beazley Institute for Health Law. "But if the government chooses not to take the case, it can still go forward."

In an email to The Huffington Post, a spokesman for the Department of Justice said that while it did file an initial notice with the court, "no final decision has been reached."

Which means it could still intervene.

Baker plans to litigate regardless, a communications representative he hired explained, saying that the now-chairman of Huntingdon Life Sciences has the means to do so. He is simultaneously appealing a suit filed against Quest Diagnostics, alleging it also violated the False Claims Act by providing kickbacks. It was dismissed because of violations of attorney-client obligations.

If either suit succeeds, Baker stands to win millions, but he is adamant his incentive lies elsewhere.

"This isn't a question of 'I'm a whistleblower and I want to make a fortune,'" he said. "This is personal, and I'm really upset. These abuses are being ignored, and it doesn't make any sense."

Comments

[killkubota]

10:49 AM on 10/27/2011

This sounds pretty weak. Lapcorp provided a loss/leader to UHC in return for the medicaire referrals. What is not alleged, is that UHC improperly ordered tests or billed for tests that were never performed. If UHC did not commit fraud, how did the government lose money? It doesn't matter who did the tests, so long as they were necessary, done and the fee charged was within Medicaire reimbursement guidelines. This sounds like a restraint of trade matter, aka antitrust, not fraud.

[SPITR]

08:55 AM on 10/27/2011

LabCorp and United Health Care need to have the book thrown at them - and their competitors should sue them for lost revenue. The whistleblower should be well compensated.

[Michelle Male]

08:32 AM on 10/27/2011

Just ONE of MANY who are doing the same thing. If the government (Medicare) really wants to save money, they need to start with investigating all the FRAUD that is going on. They can start with double-dipping from doctors' offices and work their way up to the hospitals.

[patpollard6]

08:39 AM on 10/27/2011

60 minutes asked medicare workers why there was so much fraud and the workers replied there wasn't money to pay for clerks to check the fraud as it was submitted. It would be cheaper to hire personnel than pay ou on all of this fraudt. But when medicare became effective in 64 or65 it was only because an outside agency would do the checking. They don't seem to be doing it.

[KarasudaJay]

08:53 AM on 10/27/2011

Remember when people were crying about insurance companies having such high overhead and stating that Medicare has such low overhead and using this as a reason to push for single-payer? The reason Medicare has so little overhead is that it also has so little accountable.

[Michelle Male]

09:02 AM on 10/27/2011

You are absolutely right. I remember that piece shown on 60 Minutes. I remember thinking - You mean to tell me that creating a special department to police the fraud would cost Medicare MORE than what Medicare is losing by paying out on false claims? That, to me, was a ridiculous statement by Medicare. I work in the health insurance industry and I have seen firsthand all the money that Medicare is wasting by paying out on claims that have already been paid. I have also seen Medicare beneficiaries get bills from doctors and hospitals AFTER Medicare and their supplement insurance has already paid the claim. I do my best to report these incidences, but Medicare doesn't seem to care or even know what to do with a fraudulent case when it's being reported! *sigh*

[charluvsdisney]

08:29 AM on 10/27/2011

Let's just give them a little slap on the wrist, oh and maybe a bailout if they get in serious trouble. I can't qualify for full medicaid because I receive $118 a week in unemployment. This country is so screwed up.

[rothomaha]

07:59 AM on 10/27/2011

The natural consequence of the CLIA Act, which enabled huge commercial labs to undercut small, academic labs where quality counted but the compliance fees put them out of business. Another example of collusion between corporations and politicians in a get-rich quick scheme by screwing the taxpayer. I can attest to the poor quality of the testing labs as a provider, but we are left little choice, as this lawsuit makes clear. I wish Mr. Baker and his organization great success!

[soulcage]

07:48 AM on 10/27/2011

The fraud that permeates through these medical companies is legion. Less government regulation and over-sight only encourages this type theft by corporations. Another contributing factor is the fact that no one ever goes to jail when corporations get caught defrauding the government and taxpayers. All these corporations get is a slap on the wrists and a fine. Not Enough! CEO's need to go to jail for a long time. Gov. Rick Scott of Florida is a case point example of what happens when companies steal from medicare....they become multi-millionaires able to buy themselves a seat in the governor's mansion when he should have gotten a 4 x 8 cell in Federal prison instead. This country is so screwed up it isn't even funny anymore. There are just too many crooks in Congress and public office. They make the Mafia look like a troop of girl scouts.

[lken06880]

07:42 AM on 10/27/2011

This is stealing from the taxpayers of the USA and these crooks, including those who take the kickbacks, should be jailed.

[slloyd414]

07:23 AM on 10/27/2011

That's what many of us have said all along... start with the fraud. That will save a lot of money.

[Michelle Male]

08:32 AM on 10/27/2011

I totally agree!

[Scruffyboo2]

07:21 AM on 10/27/2011

I would not be surprised at all if the business community, per se, had not stolen far more money than the Mafia ever dreamed of doing ... the current Wall Street scandal alone would fill that order.

[cpadmitchell]

07:14 AM on 10/27/2011

This is precisely the reason businesses should not be regulated. Without this free flow of funds among corporate giants, the commercial world would screech to a halt to the detriment of politicians needing campaign contributions from the corporate pals. John Boehner and Eric Cantor have been trying to warn us of hte deleterious effects of disastrous regulations for years.

[ccurt78]

06:39 AM on 10/27/2011

I wonder what would happen if you or I defauded the system and were caught. I think we would have to pay ALL the money back and do jail time! Demand of your political representatives they take action against fraud, not campaign contributions.

[mtman233]

06:20 AM on 10/27/2011

The company's don't fear fines, but if they handed out jail time, that might do the trick.

[mreagle50]

11:49 AM on 10/26/2011

One of the biggest costs of healthcare has always been the cheating, yet there was no a whole lot of to do about that when obama and his lackeys passed his healthcare joke.

[peach1436]

06:53 AM on 10/27/2011

Why do we always hear about the cheating that goes on with medicare, medicaid and welfare but no one, not one congress person will do anything to go after the people who fraud the government?