Are Private Labs Overcharging Medicare?

As Congress and the White House consider serious cuts to Medicare benefits, the U.S. Department of Justice is allowing the nation's two largest laboratories, with the help of insurance companies, to overcharge Medicare by billions.

The refusal of the two labs - Quest Diagnostics and LabCorp -- to give Medicare what is known as a "best price," as required by law, has cost taxpayers at least $15 billion since the late nineties.

For example, Quest and LabCorp have charged Medicare as much as $8.59 for one set of blood tests, but billed private insurers only $1.43 for the same test.

A billion dollars in Medicare lab fees could be saved every year if DOJ would enforce existing laws that prevent kickbacks and overcharges in the Medicare program, and it could recover billions that have been lost if it would intervene into two whistleblower lawsuits I have filed.

A simple legislative fix to clarify the already existing intent of current law -- that Medicare should receive the best price offered by laboratories to their clients -- would eliminate any potential ambiguity that the labs and insurance companies currently claim in their justification of this outrageous, public rip off.

The State of California has codified "best price" language, and the Attorney General of California used it last year to obtain $300 million in settlements from the two labs, resulting from overcharges to the state Medicaid program. See here and here.

Why can't the federal government do the same and for a whole lot more money?

I am a former medical laboratory CEO so I know how the labs and insurance companies scam the system. I witnessed it firsthand and later filed the lawsuits against Quest and LabCorp for violations of the Federal False Claims Act and the Federal Anti-Kickback Statute.
Under law, I am entitled to a percentage of whatever is recovered, but money is not my motivation, and taxpayers would recover far more than I would. I was forced to step down from a company I started because I refused to participate in what I believe to be illegal. Quest, which bought my company, and LabCorp dominate the industry because they are the primary offenders, placing smaller labs and hospitals at a disadvantage and discouraging innovation in the field.

Since 1996, taxpayers through Medicare have paid as much as 700 percent more, in some instances, than private insurers for lab work conducted by the two labs. I estimate that at least $15 billion in Medicare false claims have been submitted to the federal government, fueled by illegal kickbacks to private insurers, such as Aetna, Cigna, United Healthcare and Blue Cross --
Quest's and LabCorp's largest insurance partners.

These two labs are breaking federal laws by deeply discounting lab fees to private insurance companies, sometimes charging them for lab work even below their costs. In exchange, the insurance companies pressure doctors in their networks to send all of their patients' lab work, including Medicare and Medicaid patients, to either Quest or LabCorp.

The labs fund the kickbacks -- in the form of lower lab fees for private insurance patients -- by charging Medicare and Medicaid patients the highest possible fee, instead of offering them a best price, and pressuring doctors to send all their lab work exclusively to them.

Why DOJ has not intervened is a mystery, especially given that the California attorney general has done so and other states are looking into the labs' practices.

The State of Michigan recently filed its own lawsuit, while four California-based labs have filed a similar lawsuit against Quest, Aetna and Blue Cross and Blue Shield. U.S. Senators Chuck Grassley and Max Baucus have launched an investigation.

In 2011, the Government Accounting Office estimated Medicare and Medicaid pays $65 billion in "improper payments" every year. In 2012, DOJ recovered just $4.2 billion in fraudulent payments.

That's a low success rate. Quest and LabCorp continue their scam today because they view legal disputes, such as these, merely as an acceptable cost of doing business.

They won't stop until DOJ or Congress makes them stop.

Andrew Baker is the chairman and CEO of Huntingdon Life Sciences and is engaged in litigation against Quest and LabCorp.