Federal prosecutors allege that this nurse practitioner ordered more genetic tests for Medicare beneficiaries than any other provider during 2020
Cases of Medicare fraud involving clinical laboratory testing continue to be prosecuted by the federal Department of Justice. A jury in Miami recently convicted a nurse practitioner (NP) for her role in a massive Medicare fraud scheme for millions of dollars in medically unnecessary genetic testing and durable medical equipment. She faces 75 years in prison when sentenced in December.
In their indictment, federal prosecutors alleged that from August 2018 through June 2021 Elizabeth Mercedes Hernandez, NP, of Homestead, Florida, worked with more than eight telemedicine and marketing companies to sign “thousands of orders for medically unnecessary orthotic braces and genetic tests, resulting in fraudulent Medicare billings in excess of $200 million,” according to a US Department of Justice (DOJ) news release announcing the conviction.
“Hernandez personally pocketed approximately $1.6 million in the scheme, which she used to purchase expensive cars, jewelry, home renovations, and travel,” the press release noted.
Hernandez was indicted in April 2022 as part of a larger DOJ crackdown on healthcare fraud related to the COVID-19 outbreak.
“Throughout the pandemic, we have seen trusted medical professionals orchestrate and carry out egregious crimes against their patients all for financial gain,” said Assistant Director Luis Quesada (above) of the FBI’s Criminal Investigative Division, in a DOJ press release. Clinical laboratory managers would be wise to monitor these Medicare fraud cases. (Photo copyright: Federal Bureau of Investigation.)
Nurse Practitioner Received Kickbacks and Bribes
Federal prosecutors alleged that the scheme involved telemarketing companies that contacted Medicare beneficiaries and persuaded them to request genetic tests and orthotic braces. Hernandez, they said, then signed pre-filled orders, “attesting that she had examined or treated the patients,” according to the DOJ news release.
In many cases, Hernandez had not even spoken with the patients, prosecutors said. “She then billed Medicare as though she were conducting complex office visits with these patients, and routinely billed more than 24 hours of ‘office visits’ in a single day,” according to the news release.
In total, Hernandez submitted fraudulent claims of approximately $119 million for genetic tests, the indictment stated. “In 2020, Hernandez ordered more cancer genetic (CGx) tests for Medicare beneficiaries than any other provider in the nation, including oncologists and geneticists,” according to the news release.
The indictment noted that because CGx tests do not diagnose cancer, Medicare covers them only “in limited circumstances, such as when a beneficiary had cancer and the beneficiary’s treating physician deemed such testing necessary for the beneficiary’s treatment of that cancer. Medicare did not cover CGx testing for beneficiaries who did not have cancer or lacked symptoms of cancer.”
In exchange for signing the orders, Hernandez received kickbacks and bribes from companies that claimed to be in the telemedicine business, the indictment stated.
“These healthcare fraud abuses erode the integrity and trust patients have with those in the healthcare industry … the FBI, working in coordination with our law enforcement partners, will continue to investigate and pursue those who exploit the integrity of the healthcare industry for profit,” said Assistant Director Luis Quesada of the Federal Bureau of Investigation’s Criminal Investigative Division, in the DOJ press release.
Conspirators Took Advantage of COVID-19 Pandemic
Prosecutors alleged that as part of the scheme, she and her co-conspirators took advantage of temporary amendments to rules involving telehealth services—changes that were enacted by Medicare in response to the COVID-19 pandemic.
The indictment noted that prior to the pandemic, Medicare covered expenses for telehealth services only if the beneficiary “was located in a rural or health professional shortage area,” and “was in a practitioner’s office or a specified medical facility—not at a beneficiary’s home.”
But in response to the pandemic, Medicare relaxed the restrictions to allow coverage “even if the beneficiary was not located in a rural area or a health professional shortage area, and even if the telehealth services were furnished to beneficiaries in their home.”
Hernandez was convicted of:
One count of conspiracy to commit healthcare fraud and wire fraud.
Four counts of healthcare fraud.
Three counts of making false statements.
Medscape noted that she was acquitted of two counts of healthcare fraud. The trial lasted six days, Medscape reported.
Hernandez’s sentencing hearing is scheduled for Dec. 14.
Co-Conspirators Plead Guilty
Two other co-conspirators in the case, Leonel Palatnik and Michael Stein, had previously pleaded guilty and received sentences, the Miami Herald reported.
Palatnik was co-owner of Panda Conservation Group LLC, which operated two genetic testing laboratories in Florida. Prosecutors said that Palatnik paid kickbacks to Stein, owner of 1523 Holdings LLC, “in exchange for his work arranging for telemedicine providers to authorize genetic testing orders for Panda’s laboratories,” according to a DOJ press release. The kickbacks were disguised as payments for information technology (IT) and consulting services.
“1523 Holdings then exploited temporary amendments to telehealth restrictions enacted during the pandemic by offering telehealth providers access to Medicare beneficiaries for whom they could bill consultations,” the press release states. “In exchange, these providers agreed to refer beneficiaries to Panda’s laboratories for expensive and medically unnecessary cancer and cardiovascular genetic testing.”
Palatnik pleaded guilty to his role in the kickback scheme in August 2021 and was sentenced to 82 months in prison, a DOJ press release states.
Stein pleaded guilty in April and was sentenced to five years in prison, the Miami Herald reported. He was also ordered to pay $63.3 million in restitution.
These federal cases involving clinical laboratory genetic testing and other tests and medical equipment indicate a commitment on the DOJ’s part to continue cracking down on healthcare fraud.
In a handful of cases, health insurers reversed denials after physicians or patients posted complaints on social media
Prior authorization requirements by health insurers have long been a thorn in the side of medical laboratories, as well as physicians. But now, doctors and patients are employing a new tactic against the practice—turning to social media to shame payers into reversing denials, according to KFF Health News (formerly Kaiser Health News).
Genetic testing lab companies are quite familiar with prior authorization problems. They see a significant number of their genetic test requests fail to obtain a prior authorization. Thus, if the lab performs the test, the payer will likely not reimburse, leaving the lab to bill the patient for 100% of the test price, commonly $1,000 to $5,000. Then, an irate patient typically calls the doctor to complain about the huge out-of-pocket cost.
“There are times when you simply must call out wrongdoings,” she wrote in an Instagram post, according to the outlet. “This is one of those times.”
In response, an “escalation specialist” from BCBSIL contacted her but was unable to help. Then, after KFF Health News reached out, Nix discovered on her own that $36,000 in outstanding claims were marked “paid.”
“No one from the company had contacted her to explain why or what had changed,” KFF reported. “[Nix] also said she was informed by her hospital that the insurer will no longer require her to obtain prior authorization before her infusions, which she restarted in July.”
“I think we’re on the precipice of really improving the environment for prior authorization,” said Todd Askew, Senior Vice President, Advocacy, for the American Medical Association, in an AMA Advocacy Update. If this was to happen, it would be welcome news for clinical laboratories and anatomic pathology groups. (Photo copyright: Nashville Medical News.)
Physicians Also Take to Social Media to Complain about Denials
Two weeks later, he reported that the treatment was approved soon after the tweet. “When did Twitter become the preferred pathway for drug approval?” he wrote.
Eunice Stallman, MD, a psychiatrist from Boise, Idaho, complained on X (formerly Twitter) about Blue Cross of Idaho’s prior authorization denial of a brain cancer treatment for her nine-month-old daughter. “This is my daughter that you tried to deny care for,” she posted. “When a team of expert [doctors] recommend a treatment, your PharmD reviewers don’t get to deny her life-saving care for your profits.”
However, in this case, she posted her account after Blue Cross Idaho reversed the denial. She said she did this in part to prevent the payer from denying coverage for the drug in the future. “The power of the social media has been huge,” she told KFF Health News. The story noted that she joined X for the first time so she could share her story.
Affordable Care Act Loophole?
“We’re not going to get rid of prior authorization. Nobody is saying we should get rid of it entirely, but it needs to be right sized, it needs to be simplified, it needs to be less friction between the patient and accessing their benefits. And I think we’re on really good track to make some significant improvements in government programs, as well as in the private sector,” said Todd Askew, Senior Vice President, Advocacy, for the American Medical Association, in an AMA Advocacy Update.
However, KFF HealthNews reported that Kaye Pestaina, JD, a Kaiser Family Foundation VP and Co-Director of the group’s Program on Patient and Consumer Protections, noted that some “patient advocates and health policy experts” have questioned whether payers’ use of prior authorization denials may be a way to get around the Affordable Care Act’s prohibition against denial of coverage for preexisting conditions.
“They take in premiums and don’t pay claims,” family physician and healthcare consultant Linda Peeno, MD, told KFF Health News. “That’s how they make money. They just delay and delay and delay until you die. And you’re absolutely helpless as a patient.” Peeno was a medical reviewer for Humana in the 1980s and then became a whistleblower.
The issue became top-of-mind for genetic testing labs in 2017, when Anthem (now Elevance) and UnitedHealthcare established programs in which physicians needed prior authorization before the insurers would agree to pay for genetic tests.
Dark Daily’s sister publication The Dark Report covered this in “Two Largest Payers Start Lab Test Pre-Authorization.” We noted then that it was reasonable to assume that other health insurers would follow suit and institute their own programs to manage how physicians utilize genetic tests.
At least one large payer has made a move to reduce prior authorization in some cases. Effective Sept. 1, UnitedHealthcare began a phased approach to remove prior authorization requirements for hundreds of procedures, including more than 200 genetic tests under some commercial insurance plans.
However, a source close to the payer industry noted to Dark Daily that UnitedHealthcare has balked at paying hundreds of millions’ worth of genetic claims going back 24 months. The source indicated that genetic test labs are engaging attorneys to push their claims forward with the payer.
Is Complaining on Social Media an Effective Tactic?
A story in Harvard Business Review cited research suggesting that companies should avoid responding publicly to customer complaints on social media. Though public engagement may appear to be a good idea, “when companies responded publicly to negative tweets, researchers found that those companies experienced a drop in stock price and a reduction in brand image,” the authors wrote.
KFF Health News reported that the federal government is proposing reforms that would require some health plans “to provide more transparency about denials and to speed up their response times.” The changes, which would take effect in 2026, would apply to Medicaid, Medicare Advantage, and federal Health Insurance Marketplace plans, “but not employer-sponsored health plans.”
KFF also noted that some insurers are voluntarily revising prior authorization rules. And the American Medical Association reported in March that 30 states, including Arkansas, California, New Jersey, North Carolina, and Washington, are considering their own legislation to reform the practice. Some are modeled on legislation drafted by the AMA.
Though the states and the federal government are proposing regulations to address prior authorization complaints, reform will likely take time. Given Harvard Business Review’s suggestion to resist replying to negative customer complaints in social media, clinical labs—indeed, all healthcare providers—should carefully consider the full consequences of going to social media to describe issues they are having with health insurers.
Proposal comes as patient advocacy group reports poor compliance by hospitals with the federal price transparency regulation; AHA pushes back
Recent data compiled by Patient Rights Advocate, a non-profit group dedicated to nationwide healthcare transparency, appears to indicate that as many as two thirds of US hospitals continue to ignore hospital transparency rules established by Congress in 2021, according to an op-ed published in the Washington Examiner.
This may be why the Biden Administration has now proposed new amendments aimed at strengthening those requirements. According to KFF Health News (formerly Kaiser Health News), this new proposal “aims to further standardize the required data, increase its usefulness for consumers, and boost enforcement.”
However, “the goal of exact price tags in every situation is likely to remain elusive,” KFF Health News noted.
“Noncompliant hospitals are preventing patients and payers from shopping around for high-value care—and inflating healthcare costs in the process,” wrote Sally C. Pipes, President and CEO of Pacific Research Institute, in her Washington Examiner column.
Pathologists who were near the top of a Health Care Cost Institute (HCCI) list of medical specialties that most often billed out of network may be affected by CMS’ proposed new amendments to the transparency rule.
“The nonprofit group Patient Rights Advocate just published its fifth report exploring how hospitals are complying with federal price transparency requirements. About two-thirds are still flouting the rules. That’s unacceptable,” wrote Sally Pipes (above), President and CEO of Pacific Research Institute, in an op-ed she penned for the Washington Examiner. Federal law also requires clinical laboratories to post their prices for testing. (Photo copyright: The Heartland Institute.)
Hospitals, Clinical Laboratories Required to Post Chargemaster Prices
“Each patient is unique and uses a slightly different bundle of services,” Anderson added. “You might be in the operating room for 30 minutes, or it might be 45. You might need this lab test and not that one.”
The KFF Health News story noted that health insurers have been subject to even stricter regulations, “with more prescriptive details and tougher penalties for noncompliance,” since 2022. CMS’ latest proposed amendments would bring requirements for hospitals that are more in line with those that apply to payers, KFF reported.
As described in the Federal Register, the proposed rule aims to:
Require hospitals to include a new data element known as the “consumer-friendly expected allowed charges,” KFF Health News noted.
Require hospitals to “affirm the accuracy and completeness of their standard charge information displayed in the MRF.”
Require hospitals to place a link to pricing information in the footers of their web pages.
The rule also includes provisions for enhanced enforcement of pricing transparency requirements. Under one proposal, CMS would publicly identify hospitals that are not in compliance.
Jeffrey Leibach, MBA, a healthcare finance strategist and Partner with the consulting firm Guidehouse, told KFF Health News that the new rules will make it easier for third-party data firms to create online price comparison tools. “And, ultimately, consumers who want to shop will then find this data more easily,” he said.
The proposal comes on the heels of a July report from Patient Rights Advocate (PRA) indicating that only 36% of US hospitals were in full compliance with the current transparency requirements. The report was based on an analysis of 2,000 hospital websites. However, that was an improvement over earlier reports. In February, the group reported that 24.5% were fully compliant, compared with 16% in August 2022.
Most hospitals in the report posted negotiated prices, but in many cases, “their pricing data was missing or significantly incomplete,” PRA contended. A total of 69 hospitals “did not post a usable standard charges file,” the report stated.
PRA Uses Humor to Highlight Discrepancies, AHA Pushes Back
According to KFF Health News, PRA is running a satirical ad campaign in which retailers adopt the “hospital pricing method,” listing estimates on store shelves instead of actual prices.
“When they ask for a price, we give them an estimate,” says one retail manager in the video ad. “Then we bill them whatever we want.”
“People need price certainty,” PRA founder and Chairman Cynthia Fisher, MBA, told KFF Health News. “Estimates are a way of gaming the people who pay for healthcare.”
However, executives from the American Hospital Association (AHA) pushed back on the video ad and PRA’s claims about HPT compliance. AHA contends that hospitals were flagged as being noncompliant if they left spaces blank or used formulas, both of which are permitted under the current rules.
“Very few health services are so straightforward where you can expect no variation in the course of care, which could then result in a different cost than the original assessment,” AHA Group Vice President for public policy Molly Smith, MS, told KFF. “Organizations are doing the best they can to provide the closest estimate. If something changes in the course of your care, that estimate might adjust.”
As for the July PRA report, in a July 25 AHA press release, Smith stated, “Patient Rights Advocate has put out a report that blatantly misconstrues, ignores, and mischaracterizes hospitals’ compliance with federal price transparency regulations.”
CMS, she said, “has found that as of last year 70% of hospitals had complied with both federal requirements and over 80% had complied with at least one. Due to the ongoing efforts of the hospital field, these numbers are surely higher today. Third party analyses have agreed that hospitals have made tremendous progress.”
But then what is motivating the government’s new amendments to the price transparency rule? Regardless, clinical laboratories and pathology groups should continue to monitor progress of these new amendments to the federal hospital transparency rule.
US Department of Justice sends a strong message that it will continue to root out fraud involving clinical laboratory owners and operators
Arkansas clinical laboratory owner/operator Billy Joe Taylor has been sentenced to 15 years in federal prison and ordered to pay nearly $30 million in restitution, according to a June 8 press release from the US Attorney’s Office for the Western District of Arkansas.
Taylor pleaded guilty in October of 2022 to conspiracy to commit fraud and money laundering. He and his accomplices submitted $134 million in false or fraudulent claims to Medicare before and during the COVID-19 pandemic.
The claims came from five laboratory companies owned and operated by Taylor and his co-conspirators. All claims centered around respiratory illness tests or urine drug tests that were either not medically necessary or not ordered by medical providers, the DOJ’s press release states.
Taylor’s 15-year sentence in federal prison and huge restitution reinforces the fact that the federal Department of Justice (DOJ) will indict—and convict—owners and managers of clinical laboratory companies accused of healthcare fraud.
Billy Joe Taylor, owner/operator of five clinical laboratories in four states, was sentenced in June to 15 years in prison and ordered to repay nearly $30 million in fraudulent test claims made to Medicare prior to and during the COVID-19 pandemic. This conviction is part of an ongoing campaign against healthcare fraud being conducted by the US Department of Justice. (Photo copyright: Arkansas Democrat-Gazette.)
Details of Taylor Fraud Case
Taylor allegedly obtained private personal and medical data from Medicare beneficiaries and then used that information to submit and resubmit claims to Medicare for diagnostic tests. More than $38 million was received from Medicare on those fraudulent claims, the DOJ noted.
In 2021, Taylor claimed innocence and told Arkansas Business that the accusations were “sensationalism-type claims from the government that were completely erroneous and false.”
As a young man, Taylor planned to go into the clinical laboratory field when he was still in high school. He got started by volunteering at his hometown hospital in Stigler, Oklahoma, the Free Library reported. Eventually hired by the hospital to draw blood, run tests, and keep quality control and inspection data, Taylor later moved to other hospitals before partnering in 2009 to start Advanced Laboratory Services (ALS) of Oklahoma City, Oklahoma.
A pulmonary embolism and stroke forced Taylor to sell his share in ALS, and not long after returning as a consultant, his business partner sold the lab company. Taylor joined two people from a Tulsa laboratory to start a new company, acquiring Medtest Laboratories LLC of Hurricane, West Virginia, and Vitas laboratory LLC in 2017. He hoped to compete with national laboratories, earning up to $2 million per month, the Free Library reported.
Other Clinical Laboratory Testing Fraud Schemes
The DOJ’s aggressive efforts to crack down on healthcare fraud over the past years have produced multiple court cases against clinical laboratory owners, managers, and the doctors who conspire with them. Dark Daily has covered such fraud cases in numerous ebriefings over the years.
In 2021, the DOJ’s Healthcare Fraud Unit brought “criminal charges against 14 defendants, including 11 newly-charged defendants and three who were charged in superseding indictments, in seven federal districts across the United States for their alleged participation in various healthcare fraud schemes that exploited the COVID-19 pandemic and resulted in over $143 million in false billings,” a DOJ press release announced.
In a statement to the press, Deputy Attorney General Lisa O. Monaco said, “The multiple healthcare fraud schemes charged today describe theft from American taxpayers through the exploitation of the national emergency … These medical professionals, corporate executives, and others allegedly took advantage of the COVID-19 pandemic to line their own pockets instead of providing needed healthcare services during this unprecedented time in our country.
“We are committed to protecting the American people and the critical healthcare benefits programs created to assist them during this national emergency, and we are determined to hold those who exploit such programs accountable to the fullest extent of the law,” she added.
Monaco’s statement emphasizes the DOJ’s expanding focus on healthcare fraud. The DOJ formed the Health Care Fraud Strike Force in 2007 to handle cases like Taylor’s. The program is composed of 15 teams operating out of 25 federal districts. During the 15 plus years the Strike Force has been active, the DOJ has charged more than 5,000 defendants who collectively billed over $24 billion to both private insurers and federal healthcare programs.
Therefore, it behooves clinical laboratory managers to ensure all lab operations are well-within the bounds of legality. The DOJ is taking its hunt for healthcare fraudsters quite seriously.
Cybersecurity experts recommend clinical laboratories have in place a plan for performing tests and distributing results prior to a cyberattack
Hospitals of all sizes continue to be prime targets for sophisticated cyberattacks, where hackers remotely disable a healthcare network’s computer systems—including its laboratory information system—and extort ransomware payments. Similar attacks are happening to clinical laboratories and other providers, although not with the same frequency.
Recently, hospitals in Illinois, Idaho, Vermont, Indiana, and other states had their ability to treat patients severely reduced and, in some cases, completely shut down by cybercriminals, endangering lives and costing millions of dollars in damages.
Today’s hospitals rely on information technology (IT) for patient care workflow, internal/external communication, billing, and medical laboratory testing. It’s this reliance on computer/internet technology combined with the vast quantities of protected health information (PHI), that makes hospitals such ripe targets for attack.
In June, a US cancer center had to take its digital services offline which “significantly reduced patient treatment capability” following a ransomware attack by a group of hackers known as the TimisoaraHackerTeam (THT), MedCity News reported.
“Patients don’t stop getting sick just because a hospital is hit by a ransomware attack,” Christian Dameff, MD, emergency physician at UC San Diego Health and lead author of a study that looked into how cyberattacks affect other hospitals in the area, told ABC News. “They have to go somewhere. So, what this research shows is that those patients go to neighboring hospitals that can be overwhelmed.” Clinical laboratories can also become overwhelmed with test orders when nearby hospitals lose their ability to distribute the results of critical lab tests. (Photo copyright: UC San Diego Health.)
“The attack halted the hospital’s ability to submit claims to insurers, Medicare or Medicaid for months, sending it into a financial spiral,” Linda Burt, RN, Vice President of Quality and Community Services at St. Margaret’s, told NBC News. “We were down a minimum of 14 weeks. And then you’re trying to recover. Nothing went out. No claims. Nothing got entered. So, it took months and months and months.”
Meabwhile, 88-bed Idaho Falls Community Hospital experienced a cyberattack in May that required it to divert ambulances to other hospitals for 24 hours, CNN reported. The provider’s sister healthcare facility, MountainView Hospital in Las Vegas, which shares the same computer system, was also affected.
The Idaho Falls attack “forced nurses and doctors … to use pen and paper rather than computers for patient charts,” a hospital spokesperson told CNN.
At the University of Vermont Medical Center (UVM), Burlington, Vermont, a ransomware attack affected healthcare services for 28 days, costing the provider $50 million to recover, and preventing healthcare workers from accessing critical treatment plans for cancer patients, ABC News reported.
UVM’s President and Chief Operating Officer, Stephen Leffler, MD, an emergency medicine physician, told ABC News that the 2020 cyberattack significantly disrupted clinical laboratory operations at UVM.
“When the laboratory had a critical lab result on someone, they couldn’t put it in the electronic medical record,” he explained. “They couldn’t call the floor. And so, we literally had our administrators start going in the lab, standing there and running a paper result to the floors.
“Everything that we do and rely on was down,” he added. “We actually sent some staff to Best Buy to buy Walkie Talkies!
“It can happen to you—even when you think it’s impossible,” Leffler warned.
And at Johnson Memorial Health, Franklin, Indiana, clinical laboratory tests took two hours to perform instead of 30 minutes, NPR said in its report on cyberattacks affecting Indiana providers. The lab had to use “runners” to share handwritten test results with caregivers and patients, NPR explained.
“You ask many CEOs across the country, ‘What keeps you up at night?’ Of course, they talk about workforce, financial pressures, and they say, ‘the possibility of a cyberattack,” John Riggi, National Advisor for Cybersecurity and Risk at the American Hospital Association (AHA), told NPR.
Cyberattacks Affect Surrounding Hospitals
To make matters worse, cyberattacks have a “blast radius” that impacts the healthcare community around an attacked provider, Christian Dameff, MD, Assistant Professor, Emergency Medical Services, University of California, San Diego, told ABC News. Dameff was lead author in a study that looked at how healthcare providers nearby to an attacked provider are affected.
“Healthcare cyberattacks such as ransomware are associated with greater disruptions to regional hospitals and should be treated as disasters,” they wrote.
Vigilance Is Required as Cyberattacks Increase
Ransomware attacks on hospitals climbed from 43 to 91 annually during the years 2016 to 2021, a separate study in JAMA Health Forum reported, adding that large organizations with multiple facilities were increasingly targeted.
The US experienced a 57% increase in cyberattacks in 2022 compared to 2021, according to a Check Point Research (CPR) report. Healthcare ranked second on the list of attacked industries due, according to Check Point, to the quantity and availability of personal and sensitive information, such as social security numbers and medical data.
“We expect the increase in cyber activity to only increase. With AI [artificial intelligence] technologies such as ChatGPT readily available, it is possible for hackers to generate malicious code and emails at a faster, more automated pace,” the CPR report noted.
Work with federal agencies to mitigate cyber threats.
Advocate for increased government cybersecurity assistance.
Hospital clinical laboratory leaders need to be vigilant and work with colleagues to prevent cyberattacks. Check Point’s report advises, for example, avoiding malicious links and unexpected electronic attachments as well as verifying software is legitimate before downloading it. These are standard warnings, but they only work if staff members actually heed these actions.
Also important for diagnostics professionals is having a plan for performing clinical laboratory and anatomic pathology tests and distributing the results in the event of an attack.
New report notes that variations in price for common clinical laboratory tests should not exist ‘regardless of clinical setting’ and yet they do
Hospital laboratory leaders may soon observe employers—especially those in seven particular states—shopping around a bit more when it comes to insurance coverage of clinical laboratory tests for their employees. That’s because a recent study by the Health Care Cost Institute (HCCI ) found that employer-sponsored insurance pays three to six times more for lab tests performed by hospital outpatient labs compared to lab tests done by physician offices and independent clinical laboratories.
In an issue brief it developed in conjunction with West Health, the HCCI revealed that standard clinical laboratory tests cost as much as six times more when performed through hospital outpatient lab outreach programs rather than physician offices in Colorado, Indiana, Nevada, New Mexico, North Carolina, Texas, and West Virginia.
“Among individuals with employer-sponsored insurance, we observe substantially higher prices paid for common lab tests when these tests were billed by hospital outpatient departments (including on- and off-campus locations) compared to when they were performed in physician offices and independent labs,” the report authors wrote.
HCCI is a Washington, DC-based non-profit research institute focused on issues impacting the US healthcare system. West Health, in Washington, DC, and San Diego, is a nonprofit group that works to lower healthcare costs for seniors.
“By their very nature, [clinical laboratory] tests are standardized to be the same regardless of clinical settings, yet our research finds that hospital outpatient departments are typically billing private insurance three times more for the same lab test compared to physician offices and independent laboratories,” wrote Cristina Boccuti, MA, MPP, Director of Health Policy at Health West in the HCCI report. (Photo copyright: West Health.)
Price Markups Vary by Clinical Laboratory Test Type
In their HCCI issue brief, Cristina Boccuti, MA, MPP, Director of Health Policy at Health West; Senior Researcher and doctoral candidate Jessica Chang; and Aditi P. Sen, PhD, Director of Research and Policy at Health Care Cost Institute, wrote, “In this brief, we compare prices (as determined by total payments on claims) for clinical lab tests between hospital outpatient departments (25% of tests in our study) and physician offices and independent labs (75% of tests in our study) among individuals with employer-based health insurance.
“This analysis,” they added, “uses HCCI’s unique commercial claims dataset, which contains claims for 55 million Americans annually. In addition to analysis of individual clinical lab tests, we also examined variation across five broader categories following previously established methods relying on [Current] Procedural Terminology (CPT) codes.”
Those five test categories and percentage of samples studied included:
Clinical Chemistry (54%)
Complete blood count (10%)
Price markups (a calculated ratio based on each setting’s median price) varied by type of medical laboratory test and were usually three to five times higher in a hospital outpatient setting as compared to the physician office or independent clinical lab site. Some urine tests were more than seven times higher.
“Variation should not exist among clinical lab tests,” the HCCI authors wrote. “Analysis of most non-emergent clinical lab tests on a specimen, such as a blood test or urine sample, is identical regardless of factors such as where the test is performed or patient risk.”
The most frequently ordered lab tests with the highest markup included:
Urinalysis (automated with microscopy): $2.72 office/independent lab; $21.39 hospital outpatient (more than seven times price markup).
Comprehensive metabolic panel: $8.85 office/independent lab; $47.13 hospital outpatient (more than five times markup).
General health panel: $22.97 office/independent lab; $127.97 hospital outpatient (more than five times markup).
“Under commercial insurance, some hospital outpatient departments are being paid over $200 for a metabolic panel, which has a medical office-based price of (about) $9,” the HCCI report noted.
Medical Laboratory Test Prices All Over the Map
When HCCI explored clinical laboratory test pricing throughout the US, the researchers found price markups in hospital outpatient settings ranging two to six times higher than the same lab tests performed in offices and independent labs. States with low markups were North Dakota, Arkansas, and Minnesota.
Markups varied within states as well. The HCCI analysts shared an example of lipid profile testing in Pennsylvania, where the average price difference between hospital outpatient and physician offices ranged from $34 in Philadelphia to just $17 in Pittsburgh.
Big Differences in Microbiology, Toxicology Lab Test Prices
As to clinical laboratory testing categories, the report found the greatest price markups were in blood count and urine testing. The biggest median price differences—more than $30 per test—was observed in microbiology and toxicology:
Blood count: $6.34 in office/independent lab versus $29.61 in hospital outpatient setting.
Urine: $4.33 office/independent lab versus $24.39 hospital outpatient.
Microbiology: $16.50 office/independent lab versus $47.80 hospital outpatient.
Toxicology: $12.15 office/independent lab versus $43.65 hospital outpatient.
While individual lab test prices may seem low, the overall investment is huge in the context of 232 million lab tests, and spending is increasing. Nearly $7 billion was spent on medical laboratory tests in 2019, as compared to $5.8 billion on 155 billion tests in 2012, HCCI data shows.
Bill Kerr, MD, co-founder and CEO at Avalon, noted in an article he penned for MedCity News that a hospital outpatient laboratory may receive $100 for a routine test, while a non-hospital lab will get on average $20 for the same test on the same instrument.
“Hospitals frequently argue that they need to charge more to support their specialty test innovation and development. That doesn’t hold true for routine testing though,” he wrote.
Kerr pointed out that physicians could order tests as part of incentives to use hospital-affiliated labs. “Plus,” he wrote, “payers are often hesitant to educate their members about lower-cost lab testing options because of various provisions in their contracts with hospitals.”
What could help, he added, are lab testing price transparency and “payment integrity programs,” that have science “at the core” and aim to flag unneeded and as well as needed tests, especially in oncology.
HCCI Advises Site Neutral Payment, Negotiation
HCCI also made recommendations in its report. They include:
Policymakers for states with the high hospital outpatient setting markups “should use site-neutral payment policies for insurance plans regulated at the state level.”
In negotiations, health insurers and self-insured employers can aim to limit site-based payment differentials for their enrollees and employees.
For hospital clinical laboratory leaders, the HCCI is calling attention to an issue that may eventually restrict the ability of hospitals to bill outpatient lab tests using inpatient pricing.