Rural Hospital Lab Outreach or Fraudulent Overreach?

Case: In February 2017, hospital management firm LifeBrite paid $400K to acquire a bankrupt rural outreach hospital in North Carolina with network status in Blue Cross Blue Shield North Carolina (BC). Fourteen months later, BC kicked LifeBrite out of its network after discovering what it saw as $11 million worth of fraudulent lab billings. LifeBrite sued the insurer for reneging on $15.5 million in lab reimbursement payments. BC filed a counterclaim accusing LifeBrite of using the hospital as a false billing “front” to “turn a trickle of legitimate monthly billing [for toxicology urine drug tests] averaging $37,400 into an $8.5 million fraudulent river of gold.” The suit contends that LifeBrite billed BC at inflated rates for 500,000+ urine toxicology tests which were “conducted by an affiliated lab that had no relationship with BC, or any connection to the hospital’s patients, the community or medical necessity.”

Significance: This isn’t your conventional fraud case. Neither side disputes that the tests were ordered or delivered. Nor does BC contend that LifeBrite tried to conceal what it was doing. The real question is whether LifeBrite had the right to bill for the tests given that they were performed by an outside lab for non-hospital, out of network patients. BC argues that the “plain language” of the contract limits reimbursement to “tests performed by the hospital, at the hospital and for hospital patients.” LifeBrite says that BC is just trying to get out of the contract and doesn’t understand its business model as a provider of “outsourced high complexity testing” to other hospitals, which it says is permitted by Medicare. BC may not like the lab outreach model but that isn’t the basis for a fraud claim, according to LifeBrite. It also contends that the higher reimbursement rates charged to insurers that BC cites as false billing is a legitimate part of the operational appeal of a for-profit hospital to operate a critical-access rural hospital and keep it financially viable.


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