Insurers from three states claim pandemic start-up medical lab company charged as much as $979 for SARS-CoV-2 PCR test
In an unprecedented move, Blue Cross insurers in three states are suing a clinical laboratory company in Nebraska for test price gouging during the COVID-19 pandemic. The lawsuit claims that the lab company charged as much as 10 times more than other labs for similar tests.
The interesting twist to the pricing aspect of this story is that the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) requires insurers to pay the full publicly-posted cost of COVID-19 testing. This means that, in many cases, the insurers may have no choice but to pay.
Is GS Labs, which was formed by an investment firm in the early months of the COVID-19 pandemic, yet another example of unscrupulous clinical laboratory operators taking advantage of the demand for COVID-19 testing during the early years of the coronavirus pandemic? GS Labs says no. The courts will decide.
Taken from the Premera Blue Cross court documents, the chart above shows GS Labs’ test prices compared with Medicare reimbursement rates. “As demonstrated by the following chart, the prices GS Labs charges insurers for COVID-19 testing well exceed the reimbursement rates set by Medicare Administrative Contractors, and in some cases are nearly ten times Medicare rates,” Premera states in the documents. Nevertheless, the federal CARES Act requires insurers to pay any COVID-19 test price a clinical laboratory posts publicly on its website. (Graphic copyright: Premera Blue Cross.)
Responding to Nationwide Demand for COVID-19 Testing
In October 2020, GS Labs began offering COVID-19 tests to provide Omaha residents with “convenient and quick testing options with same-day appointments and same-day results,” according to the company’s website. In response to nationwide demand, GS Labs quickly opened more than 20 testing COVID-19 testing sites across multiple states in its first three months of operations.
Today, GS Labs operates 14 rapid COVID testing locations in Iowa (1), Minnesota (6), Nebraska (1), Oregon (1) and Washington (5), but is under fire in several states for alleged price gouging.
Blue Cross Blue Shield of Kansas City was the first insurer to file suit in July 2021, alleging unreasonable reimbursement rates. The Kansas City Business Journal reported that GS Labs responded with a counter suit a month later accusing Blue KC of a “reckless disregard for the law” and attempting to bully its way out of paying for $9.7 million in COVID-19 testing fees.
The CARES Act states that, in the absence of a contractual payment agreement, insurers are required to pay the “cash prices” testing providers post on their public websites.
Christopher Erickson, a GS Labs Partner, told The New York Times (NYT), the law is on GS Labs’ side. “Insurers are obligated to pay cash price, unless we come to a negotiated rate,” he said.
In the fall of 2021, Premera Blue Cross also filed suit in Washington state alleging the lab routinely uses deceptive practices to run multiple unnecessary COVID tests on patients at an inflated cost. “In the words of one former employee, it ‘manipulates people into thinking they need all three COVID [sic] test’ that GS Labs offers, such that ‘[p]atients are being lied to just so th[e] company can make a profit,’” court documents state.
Premera also alleges in its lawsuit that GS Labs failed to report test results in a timely manner and returned hundreds of tests that were “by its own admission, tainted by “deviat[ions] from applicable laboratory standards for testing facilities.”
“This is fraud, and it’s fraud against Premera, it’s fraud against the industry, and more importantly, it’s fraud against the customers,” Courtney Wallace, DNP, Premera’s Director of Strategic Communications, told Washington State Wire.
And earlier this year, Blue Cross Blue Shield of Minnesota sued GS Labs to recover more than $10 million in over payments made since the start of the pandemic. A BCBS of Minnesota new release states that GS Labs “consistently charged more than five times the median market rate for its most commonly administered COVID-19 diagnostic test.”
CMS Inspection Finds GS Labs Site Posed “Immediate Jeopardy”
APM Reports spent nearly a year investigating the startup lab. Its team of journalists interviewed more than 65 GS Labs customers, former employees, and public health professionals, and reviewed thousands of pages of public documents. It concluded the lab “at times delivered inaccurate results, faced backlogs, charged high prices, and pushed customers into unnecessary tests.”
The APM Reports investigators found:
The company was slow to inform public health officials in several states about positive cases and in a few instances reported negative results to patients who had COVID-19. Other patients never received test results or received someone else’s results.
Overwhelmed by the number of tests it was processing, GS Labs at one point had a month-long backlog of untested samples.
Health officials in three states found GS Labs’ work was slower and less reliable than other labs.
According to APM Reports, in an email to colleagues about flaws in GS Labs’ operation in Washington state, Melissa Pond, [then] Program Manager for Clark County Washington’s COVID-19 Response Team, wrote, “[It] makes me so angry that they brought their greed to our community. They just popped up to make money knowing they would fly under the radar as long as possible and close their doors when someone caught them!”
Providing COVID-19 Testing During a Time of Need
APM Reports noted GS Labs’ founders formed the company in the early days of the pandemic after their friends and family could not find tests following a COVID exposure.
GS Labs is a subsidiary of City+Ventures, an Omaha investment and development company. Its portfolio includes an aviation investment company, car wash chain, car dealerships, restaurants, and other businesses.
City+Ventures’ co-founders, Erickson and Danny White had no healthcare investments prior to 2020, APM Reports noted. But early that year, the two men had joined with Gabe Sullivan and Darin Jackson, MD, who currently owns Prestige Medical Laser Solutions in Omaha, to create a men’s health and anti-aging company called 88MED. During the pandemic, that company transitioned to COVID-19 testing and was renamed GS Labs.
It is worth noting that GS Labs responded at length and in detail to the questions raised by the APM Reports investigation. It is useful reading for clinical laboratory leaders who wish to be fully informed on both sides of the controversy.
In its rebuttal, the company pointed out it had processed more than 2.1 million tests nationwide with less than 1.5% of its results being called into question. It maintained “GS Labs’ policy has never been to ‘push’ tests on anyone” and stated its cash prices “were higher than some testing providers,” but “lower than others” and reflected the company’s significant start-up costs.
GS Labs wrote, “At a time when our communities desperately needed increased COVID testing capacity, GS Labs took action to deliver that testing, investing more than $150 million in a business whose prospective success and lifespan were extremely uncertain. By filling a critical gap in COVID testing, GS Labs literally saved lives, and we are extremely proud of the service that we have provided to the communities we serve.”
GS Labs also has countersued BCBS of Minnesota, denying all prior allegations made by the insurer and alleging 21 counter claims.
Sabrina Corlette, JD, Research Professor and Project Director at Georgetown University Center on Health Insurance Reforms, has studied coronavirus testing prices. She told the NYT, “This is not like neurosurgery where you might want to pay a premium for someone to have years of experience.” She pointed out the CARES Act may provide GS Labs with the legal grounds to charge above market prices.
“Whatever price the lab puts on their public-facing website, that is what has to be paid,” she said.
GS Labs may have found a legal loophole to justify its sky-high COVID-19 testing prices, but consumers may view this behavior by a clinical laboratory company as unethical and yet another reason to be disillusioned with America’s healthcare system.
When people receive COVID-19 testing at an out-of-network facility, federal law requires insurers to pay that clinical laboratory’s posted ‘cash price’ when negotiated prices have not previously been established
In the latest example that some COVID-19 testing companies are charging significantly higher prices than others, The New York Times (NYT) recently reported that one COVID lab company with “more than a dozen testing sites” throughout the US was charging $380 for a COVID-19 rapid test that can be purchased at many drug stores for $20. Sadly, this practice, the NYT also noted, is protected by federal law.
Media reporters and the lay public are not fully aware of the long-established clinical laboratory test payment modalities that govern the daily performance of tests ordered as part of regular healthcare. Thus, when the COVID-19 pandemic hit—along with tens of billions of federal dollars to pay for SARS-CoV-2 tests—it triggered a gold rush of people wanting to get into the clinical laboratory testing business specifically to make money.
It is the bad actors in this group who are tainting the entire clinical laboratory industry with often outrageous business practices that, at best, cross ethical lines—such as overpricing tests to consumers—and at worst, represent fraudulent behavior, such as inducing medically-unnecessary tests, then submitting claims for these tests.
Even as the pandemic appears to be waning, news outlets are reporting instances of insurers being charged higher “cash prices” for tests performed by out-of-network testing laboratories. Worse yet, federal law requires insurers to pay these exorbitant prices and they are not happy about it.
In-Network versus Out-of-Network Pricing
In its report, the NYT noted that the CARES Act (H.R. 748) requires insurers to pay whatever “cash prices” out-of-network labs post online, and that this is leading to “expensive coronavirus tests” that could ultimately be reflected in future “higher insurance premiums” charged to healthcare consumers.
One company the NYT highlighted in its report is GS Labs in Omaha, Neb., a provider of COVID-19 testing throughout the US. The testing company’s COVID-19 Pricing Transparency webpage lists these prices for the following COVID-19 tests:
“Insurers are obligated to pay cash price, unless we come to a negotiated rate,” Christopher Erickson, a GS Labs Partner, told the NYT.
Negotiate or ‘Pay the Provider’s Cash Price’
In Missouri, Blue Cross and Blue Shield of Kansas City (Blue KC) has filed a lawsuit against GS Labs. “This action seeks a judgment declaring Blue KC and our members are not required to pay GS Labs’ unreasonable, inflated reimbursement demands,” according to a Blue KC news release.
However, section 3202 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act “specifies the process for private health insurance plan issuers to reimburse providers of COVID-19 diagnostic tests. Specifically, a reimbursement rate negotiated for such test prior to the public health emergency declared on January 31, 2020, continues to apply for the duration of the emergency. If a reimbursement rate was not negotiated prior to the emergency declaration, an issuer may either negotiate such rate or pay the provider’s cash price.”
In its own news release, GS Labs said it has “countersued Blue KC over the insurance company’s failure to pay $9.7 million for COVID tests covered by federal law.”
According to a legal expert who spoke with the NYT, GS Labs has grounds for its test charges due to the CARES Act. “Whatever price the lab puts on their public facing website, that is what has to be paid. I don’t read a whole lot of wiggle room in it,” said Sabrina Corlette, JD, Research Professor and Co-Director of the Center on Health Insurance Reforms at Georgetown University.
“Unfortunately,” noted Loren Adler (above), Associate Director of the USC-Brookings Schaeffer Initiative for Health Policy, in a blog post, “this ‘cash price’ is not a market-determined price—it is irrelevant to patients because all options have to be made free to them by law, so there is little constraint on how high this is set by testing entities. Nor is there any reason for out-of-network entities to accept any less than this amount (other than a desire to contract in the future with the insurer for fear of a public relations backlash). Moreover, in theory the patient can still be surprise balance billed if the provider’s charge is higher than this ‘cash price,’ though it is unclear why any provider would list a ‘cash price’ lower than their charge.” (Photo copyright: The Brookings Institution.)
In his analysis, Adler suggested the law be revised to require commercial insurers to pay for COVID-19 testing at Medicare prices.
Patient Receives a $54,000 ‘Surprise’ Bill for COVID-19 Out-of-Network Test
The patient, Travis Warner, reportedly has insurance from Molina Healthcare through the federal Health Insurance Marketplace. After an employee at his company tested positive for COVID-19, Warner drove 30 miles outside of Dallas in search of COVID-19 testing sites. He eventually visiting an out-of-network free-standing emergency room in Lewisville where he received PCR diagnostic and rapid antigen tests. The results of the tests were negative for COVID-19. But the bill was a shock.
The total bill came to $56,384. Molina Healthcare paid its negotiated rate of $16,915.20 for the testing and facility fee, leaving Warner responsible for the remaining $54,000!
In the end, Warner did not have to pay the bill. Molina resolved the charge with SignatureCare and, in a statement to KHN, wrote, “This matter was a provider billing error, which Molina identified and corrected.”
For its part, SignatureCare Emergency Centers, with freestanding centers throughout Texas, said it has a “robust audit process” to flag errors and processed “thousands of records a day” at the height of the pandemic, according to KHN, which reported the business showing a $175 price for a COVID-19 test on its website.
“If the insurance company is paying astronomical sums of money for your care, that means in turn that you are going to be paying higher (insurance) premiums,” Adler told KHN.
Insurance Group Finds Price Gouging
“Price gouging on COVID-19 tests by certain providers continues to be a widespread problem,” according to a statement by America’s Health Insurance Plans (AHIP), a national association representing insurers.
AHIP has studied COVID-19 test prices since April 2020. It released a survey earlier this year which found COVID-19 test prices were on average $130. However, AHIP also found that out-of-network providers charged “significantly higher” (more than $185) for more than half (54%) of COVID-19 tests (PCR, antigen, antibody) in March 2021—a 12% increase since 2020. More than 27% of COVID-19 tests in March 2021 were done out-of-network, a 6% increase since 2020.
However, in, “COVID-19 Lab Test Prices Give Some Health Plans ‘Indigestion’,” Dark Daily’s sister publication, The Dark Report, wrote, “Interestingly, [AHIP] researchers reported that the share of COVID-19 tests claims submitted from ‘high-cost locations’—identified as hospitals and emergency departments—declined from 18% in the first three months of the pandemic to only 5% during the first three months of 2021.”
Niall Brennan, President and CEO of the Health Care Cost Institute (HCCI), told KHN, “People are going to charge what they think they can get away with. Even a perfectly well-intentioned provision like [the CARES Act] can be hijacked by certain unscrupulous providers for nefarious purposes.”
Of course, most medical laboratories priced their tests fairly and have performed them in an efficient and professional manner during the pandemic. So, it is unfortunate to learn through AHIP’s survey findings and the media that some COVID-19 testing providers are posting prices that may confuse patients and affect their health insurance premiums.
