Labs In Court

A roundup of recent cases and enforcement actions involving the diagnostics industry

ACLA Goes for Knockout Punch in PAMA Lawsuit

 Case: Having survived a first-round setback, the American Clinical Laboratory Association (ACLA) went back on the offensive asking a federal court to strike down CMS’ scheme for implementing PAMA’s market-based prices for lab tests as “unreasonable” and contrary to the intent and terms of the statute. The agency’s decision to exclude hospital labs from data collection resulted in artificially low prices that don’t reflect true market rates, the ACLA contends. Consequently, some labs “face a serious threat of being forced out of business, others are being forced to scale back essential services, and patients are being deprived of the services they need.”

Significance: The court challenge is, in some ways, just a sideshow in the lab industry’s campaign for PAMA pricing relief. If ACLA prevails on the summary judgment motion, CMS would probably appeal to the federal circuit court, just the way ACLA did last year when the roles were reversed and CMS won on summary judgment. A decisive litigation outcome would probably require years, and perhaps a Supreme Court ruling. Chances are, the issue will be decided way before then via negotiation and compromise. And if CMS doesn’t relent on the regulatory front, there’s also the possibility that Congress will intervene by enacting new pricing legislation. The real significance of the court case is in how it affects leverage. Thus, winning on summary judgment would put the ACLA and lab industry in a much stronger bargaining position. (For more on the PAMA court challenge, see Lab Compliance Advisor (LCA), Sept. 10, 2019.)

New Jersey Lab Pays Over $300K to Settle Specimen Supply Kickback Claims

Case: The latest lab to get into trouble for offering free specimen collection supplies to ordering physicians is Histopathology Services LLC d/b/a Pathline Emerge. After self-disclosing the conduct, the New Jersey lab agreed to pay $310.978 to settle kickback claims.

Significance: Free test cups and other specimen collection supplies seem pretty minor and routine and certainly not the kind of “remuneration” that triggers the kickback law. But the OIG takes a much different view. The most notorious example is the Millennium case involving free point-of-care test cups. In October 2016, Millennium agreed to a $256 million settlement, which is still a record high for a case involving health care fraud by a lab.

Feds Take Down Florida Substance Abuse Clinic Principles for Drug Test Fraud

Case: A trio of individuals associated with a Miami substance abuse facility were charged with taking part in a scheme to bill private insurers for tests that weren’t medically necessary or, in some cases, ever provided. As has become the norm in these cases, the defendants also face charges of money laundering.

Significance: The Miami bust is part of the larger coordinated healthcare fraud “takedown” that was announced in September targeting 67 individuals across four federal districts who are allegedly responsible for $160 million in fraudulent billing.

Hospital Stops Paying Lab After It Fails to Provide Medical Necessity Audit Records

What Happened: Blue Cross Blue Shield (BCBS) initiated a billing audit of an Alabama hospital after noticing its average urine drug tests had spiked from 30 to 1,100 per month. The hospital asked its lab provider to furnish the physician orders and other records BCBS auditors needed to verify the tests were medically necessary but the lab didn’t provide them. As a result, BCBS denied the hospitals’ claims. In turn, the hospital withheld the $245,000 it still owed the lab under their lab services contract. The lab sued the hospital for breach of contract.

Ruling: The lab moved for summary judgement, i.e., a ruling in its favor without a trial but the Alabama federal court refused. The hospital violated the contract by not paying the lab; but the lab also violated the contract by not providing the records the hospital needed to give the auditors. Was the lab’s violation a “material breach” justifying the hospital’s refusal to meet its own contractual obligation to pay? A trial would be necessary to answer that question, the court concluded [Riverboat Group v. Creek, 2019 U.S. Dist. LEXIS 179753].




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