Quest’s Competitors File Lawsuit for Prohibited Arrangements with National Health Plans

Over the past several years, some commercial insurers have made a concerted effort to reduce costs associated with laboratory services, which physicians have increasingly relied upon in diagnosing and treating patients. In particular, insurers are concerned with the rise in laboratory services being performed out-of-network and the increased costs associated with such claims. Despite the imposition of higher premiums for out-of-network benefits, insurers are attempting to do indirectly – what they cannot do directly – to restrict the ability of health plan members to receive laboratory services from out-of-network providers.

A federal complaint was filed on November 14, 2012, in the Northern District of California that highlights the extent of such activities alleged to have been taken by Aetna, Inc., Blue Shield of California, and Blue Cross and Blue Shield Association in violation of federal and state law, and charges that such efforts are being initiated in concert with Quest Diagnostics Incorporated, the largest clinical laboratory provider in the nation. Rheumatology Diagnostics Lab., Inc. et al v. Blue Shield of Cal. Life & Health Ins. Co. et al, Case No. 12-5847 (November 14, 2012).

In short the complaint alleges that Aetna and Blue Shield, in order to receive capitated rate discounts on laboratory services, have conspired with Quest to direct all laboratory testing business to Quest by controlling referrals and reducing competition by the following:

• Termination of In-Network Competitors: Both Aetna and Blue Shield are alleged to have terminated the in-network status of numerous clinical laboratories and rejected requests to be added in-network to reduce competition against Quest. It is alleged that Aetna has gone so far as to give Quest the ability to deny a laboratory application. The excluded laboratories are alleged to be unable to compete as out-of-network providers due to the costs incurred by the patients for increased copayments and deductibles.

• Medicare “Pull-Through” Arrangement: Quest is alleged to require network providers from Aetna and Blue Shield to refer all Medicare, Medicaid and other third party payor business to Quest in order to maintain capitated rate discounts on laboratory services, in violation of the Anti-Kickback statute. It is alleged that the arrangement is not commercially viable without receiving the “pull-through” business to make up for the losses on the discounted capitated rate.

• “Bonus Pool” Agreements: As a measure of increasing referrals of Medicare, Medicaid and other third party payor business to Quest, it is alleged that Aetna is paying network providers with surpluses from laboratory services not performed out-of-network.

• “Blue Card” Policy: The national Blue Cross and Blue Shield Association recently amended its long-standing policy for claims submission of laboratory services furnished to Blue Card members from a different state. The lawsuit contends that this was also done to improve Quest’s competitive position. The new policy requires laboratories to submit claims to the Blue Plan in the region where the specimen was collected, rather than where the laboratory test was performed as previously permitted. As a result, if the laboratory is not contracted with that Blue Plan the claim will be deemed out-of-network and claims are not being accepted or adjudicated. Of course, it is nearly impossible for independent laboratories to obtain in-network status with each Blue Plan in the country in which a specimen is drawn.

The Complaint was filed by a group of California laboratories directly impacted by the activities alleged in the Complaint. The plaintiffs claim that these activities violate federal and state laws concerning restraint on competition, intentional interference with business relationships and unfair business practices.

This action is similar to the federal qui tam action filed by NPT Associates (an independent clinical laboratory) in Southern District of New York, alleging that Laboratory Corporation of America (LabCorp) and UnitedHealthcare had engaged in a “pull-through” scheme to reduce its costs for laboratory services, in which UnitedHealthcare would “arrange for or recommend” its network physicians refer Medicare and Medicaid business to LabCorp. United States of America, ex rel. NPT Assoc. v. Laboratory Corp. of America, Case No. 07CV5696 (August 17, 2011). The complaint alleges that UnitedHealthcare attempted to control patient referrals by threatening network physicians with mandatory penalties and contract termination if they refer out-of-network.

The network physicians have also joined the fight in opposition to these alleged activities. In July 2012, a lawsuit was filed in the Los Angeles County Superior Court by various healthcare associations and organizations and numerous individual providers against Aetna Health of California, Inc. for false advertising, breach of contract, unfair business practices, and interference with healthcare providers. Los Angeles County Med. Assoc. et al v. Aetna Health of California, Inc. et al, Case No. 487670 (July 3, 2012). Specifically, the plaintiffs accuse Aetna CA of threatening and illegally terminating provider contracts for referring patients out-of-network, underpaying out-of-network providers, and refusing to authorize or denying coverage for services performed outside the network. All of these practices are alleged to limit patients’ choices. It is believed that this lawsuit is in response to the California suit filed by Aetna in California Superior Court against Bay Area Surgical Management LLC, a company owned by Aetna network physicians operating multiple ambulatory surgical centers out-of-network. Aetna Life Insurance Co. v. Bay Area Surgical Management LLC, Case No. 112CV217943 (Cal. Super. Ct. Feb. 2, 2012).

We are aware that a lawsuit similar to the Rheumatology Diagnostics Lab lawsuit is in the works in another area of the country. Clinical labs throughout the country that have been excluded from provider networks, or whose physicians are pressured to refer only to in-network labs, will be eagerly watching this lawsuits proceed.

This post is contributed by Charles Dunham.

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