HDL also got approval to question executives from UnitedHealthcare in court over unpaid claims, its third dispute with a health insurance company

Following a string of major setbacks, Health Diagnostic Laboratory (HDL) of Richmond, Virginia, put itself up for sale last week. This action comes after HDL’s announcement in April that it would pay more than $100 million to settle charges with federal investigators that it violated the False Claims Act. Then, early last month, the clinical laboratory company filed for bankruptcy protection.

On Tuesday, July 14, U.S. Bankruptcy Court Judge Kevin R. Huennekens approved HDL’s request to put itself up for sale through a court-monitored auction, the Richmond Times-Dispatch reported. No potential buyer has been named, but the clinical laboratory company has businesses that are interested in acquiring HDL, the Times-Dispatch added.

Medical Laboratory Company Plans to Accept Bids from Buyers through September 4

Court filings show that HDL will accept bids through September 4 and hold the auction on September 10. On September 16, Huennekens will consider the plan of sale, court filings show, the newspaper explained. Completing the sale within the next two months will preserve the value of the business, HDL said in court documents.

It is believed that a substantial amount of the company’s value has already been extracted from the business in the form of dividend payments to shareholders. Financial records provided to several media outlets show that, for 2012, HDL had net total revenue of $417 million and that cash distributions of $83 million were paid to HDL stockholders that same year. These cash distributions took place several years before the federal settlement announced in April 2015.

 

In a Wall Street Journal (WSJ) article, HDL CEO Tonya Mallory (above) denied “any assertion that we have grown and succeeded as a result of anything other than proper business practices.” She continued, “[HDL] has consistently complied with all applicable laws.” (Photo and quote The Wall Street Journal.)

In a Wall Street Journal (WSJ) article, HDL CEO Tonya Mallory (above) denied “any assertion that we have grown and succeeded as a result of anything other than proper business practices.” She continued, “[HDL] has consistently complied with all applicable laws.” (Photo and quote The Wall Street Journal.)

Also last week, Huennekens approved a request from HDL to question under oath executives from UnitedHealthcare about what HDL says are unpaid claims for blood-testing services. UnitedHealthcare has withheld millions of dollars in payments, a factor that HDL officials say contributed to the company’s financial problems, the Times-Dispatch reported.

UnitedHealthcare challenged HDL’s request, saying the medical laboratory company did not provide adequate documentation to support the unpaid claims.

Latest in a Series of Disagreements With HDL

The UnitedHealthcare dispute is not the first disagreement HDL has had with a health insurer. In recent months, HDL has answered charges brought in suits by Aetna Inc. and Cigna. In April, Aetna filed a lawsuit seeking tens of millions of dollars in damages against the blood-testing company, naming HDL and its former sales and marketing company, BlueWave Healthcare Consultants Inc. Since then, HDL has terminated its contract with BlueWave, HDL said the Richmond Times-Dispatch.

Aetna filed its suit on April 10, just hours after the U.S. Department of Justice (DOJ) announced on April 9 that HDL reached a settlement with federal officials. In the settlement, HDL did not admit wrongdoing but agreed to pay as much as $100 million to settle the False Claims Act charges, as Dark Daily reported.

In October 2014, two business units of health insurer Cigna sued HDL for $84 million, alleging that the clinical laboratory company unlawfully waived out-of-pocket expenses for patients and billed the insurer at “exorbitant and unjustified ‘phantom’ rates” according to a Hartford Courant article. Two months later, HDL filed a motion to dismiss the Cigna lawsuit, according to Richmond BizSense. That dismissal motion is pending.

 

Health Diagnostic Laboratory faces new trouble now that health insurer Aetna has sued the clinical laboratory company in Richmond, Virginia. In the lawsuit filed in the U.S. District Court for the Eastern District of Pennsylvania, Aetna is seeking to recover “tens of millions in monetary damages and other appropriate relief.” Last month, HDL reached a settlement agreement with federal investigators over federal fraud charges involving payments to physicians “to process” blood specimens collected in their offices, The Wall Street Journal reported. Cigna also has filed a lawsuit against HDL and seeks $84 million in damages. (Photo copyright Richmond BizSense.)

Health Diagnostic Laboratory faces new trouble now that health insurer Aetna has sued the clinical laboratory company in Richmond, Virginia. In the lawsuit filed in the U.S. District Court for the Eastern District of Pennsylvania, Aetna is seeking to recover “tens of millions in monetary damages and other appropriate relief.” Last month, HDL reached a settlement agreement with federal investigators over federal fraud charges involving payments to physicians “to process” blood specimens collected in their offices, The Wall Street Journal reported. Cigna also has filed a lawsuit against HDL and seeks $84 million in damages. (Photo copyright Richmond BizSense.)

Following the Cigna suit and the federal DOJ settlement, HDL faces some difficult questions in the Aetna lawsuit, such as what will Aetna find during discovery that federal investigators have not already revealed? Aetna said it will use the discovery phase to explore whether kickback payments to physicians were multiplied based on how HDL and BlueWave recommended physicians order tests.

Will Other Health Insurers Initiate Legal Action against HDL?

And, if two large commercial insurers have sued HDL, and the federal government has investigated the lab company, can it be long before others, such as insurers Anthem and Humana, get involved?

In court papers filed in the U.S. District Court for the Eastern District of Pennsylvania, Aetna alleged that the conduct of HDL and BlueWave was “fraudulent, illegal, and tortuous” and caused the insurer to pay at least twice as much as it should have paid for HDL’s blood tests. The managed care company asked for $150,000 for each of four counts and said it seeks to recover “tens of millions in monetary damages and other appropriate relief” according to court documents and a FierceHealthPayer:AntiFraud story.

In its lawsuit, Aetna makes claims against HDL and BlueWave that are similar to those federal officials have made, charging that HDL and BlueWave used a fraudulent billing scheme, including “paying illegal kickbacks to physicians, providing unlawful inducements to patients, and encouraging physicians to order unnecessary blood tests, resulting in fraudulent and inflated medical claims being submitted to Aetna for reimbursement,” The Pennsylvania Record reported.

Allegations That Physicians Were Induced to Order Clinical Laboratory Tests

The kickbacks and inducements caused physicians to order unnecessary blood tests and to send patients’ blood samples to HDL when less expensive clinical laboratories were qualified to do such testing, the lawsuit charges.

BlueWave offered to pay a fee of $20 for each blood specimen sent to HDL, an amount more than six times higher than the $3 that Medicare pays, The Pennsylvania Record added. Also, HDL waived patients’ co-payments, a waiver that amounted to an inducement to use HDL—an out-of-network lab—the lawsuit charges.

“This was done solely to induce the referral of the business to HDL, instead of to an in-network laboratory,” the lawsuit says, adding that HDL never disclosed the patient discounts. “The inflated, billed charges submitted by HDL thereby caused Aetna to pay more for HDL’s services than Aetna would have otherwise paid had it known of the patient discounts,” the lawsuit says.

In January, HDL terminated its contract with BlueWave, saying it would establish a national network of sales representatives. After the termination, BlueWave sued HDL, but in April, a court dismissed BlueWave’s suit against HDL, according to Richmond BizSense.

Medical Laboratory Company Admits No Wrongdoing

In a statement issued after its settlement with federal investigators, HDL did not admit any wrongdoing. “We have taken the step of resolving this matter in order to put these allegations, which stemmed from historical practices once common in the industry, behind us,” HDL said. HDL intended to “move ahead with the important work of helping improve health of millions of Americans,” the company said.

“The payment of processing and handling fees was a longstanding practice in the diagnostic laboratory industry,” HDL added. “In June 2014, when the government for the first time issued new guidance stating that the payments presented risk, HDL, Inc., immediately stopped paying processing and handling fees to referring providers. These allegations were made against a number of companies operating in the clinical laboratory industry by individuals who stand to personally profit by making these allegations,” HDL concluded.

Many aspects of the HDL case are being closely tracked by lab industry attorneys, as well as pathologists and clinical laboratory managers. This is because of the serious nature of the allegations that range from violations of federal anti-kickback laws to major contract breaches with multiple national health insurers.

Federal Settlements and Payer Lawsuits May Establish New Precedents

How the federal government resolves the remaining investigations into several individuals and companies could establish important precedents for how medical laboratories and physicians are to comply with federal healthcare laws. Similarly, the claims made by major health insurance companies, such as whether HDL properly followed the patient billing requirements of its provider contracts, may also result in court decisions that better define the responsibilities of pathology groups and clinical laboratories under the provider agreements they sign with various health insurers.

The scale of the alleged fraudulent behavior of HDL is another reason why it has found itself the target of multiple whistleblower lawsuits that formed the basis of the federal settlement, along with multiple high-dollar lawsuits with several of the nation’s largest health insurance companies. How much money is involved? According to the HDL financial statements circulating among media outlets, HDL generated $417 million in revenue in calendar 2012 and was projected to post revenue of $383 million in calendar 2013.

Richmond Medical Laboratory Company Had $800 Million in Revenue Over Two Years

That means, for that 24-month period, HDL was paid $800 million by Medicare, Medicaid, and private payers! It demonstrates the substantial dollars attached to the alleged fraudulent business practices of HDL and why both federal prosecutors and private health insurers were motivated to take action to recover as much of this money as possible.

Further, pathologists and clinical laboratory managers may want to ponder this question: If a single clinical laboratory company, founded in 2008, could generate almost $1 billion in revenue by its fourth and fifth year of operation using business practices alleged to be fraudulent—and recognized by most lab professionals as not in compliance with federal and state laws—might it be true that Medicare contractors and private payers are seeing similar fraudulent practices among other private lab companies?

Connecting the OIG Study of Questionable Clinical Lab Billing to HDL, Other Lab Firms

Assuming the answer to this question is “yes,” that would go a long ways toward explaining why some lab professionals assert that the Centers for Medicare & Medicaid Services (CMS) seems to have taken a somewhat hostile attitude toward the clinical laboratory industry in recent years.

If HDL, and some number of other lab companies, are in fact operating as alleged in the federal settlement and payer lawsuits, that may be the reason why CMS requested that the Office of Inspector General conduct and submit the study of the clinical laboratory industry that was titled: “Questionable Billing for Medicare Part B Clinical Laboratory Services.

—Joseph Burns

Related Information:

Aetna Files Lawsuit Against Health Diagnostic Laboratory

Cigna Sues Virginia Clinical Lab for $84 Million

HDL Fires Back at Insurer’s $84M Lawsuit

Aetna Second Big-name Payer to Sue Health Diagnostic Laboratory

Lab Under Federal Investigation Cuts Ties with Sales Contractor

HDL Cuts 42 More Jobs

HDL Reaches Settlement Agreement with DOJ

Health Diagnostic Laboratory CEO Resigns

Health Diagnostic Laboratory and Singulex to Pay $48.5M to Settle Fraud Charges Involving Kickbacks and Unnecessary Testing as Feds Sue Two More Medical Labs and Three Executives on Similar Charges

Questionable Billing for Medicare Part B Clinical Laboratory Services, by HHS Office of the Inspector General, August 2014, OEI-03-11-00730

ACLA Responds to OIG Report on Clinical Labs Billing Practices: Lab Industry Committed to Appropriate Use, Cautions Report’s Methodologies Are Questionable