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Multiple Blue Cross Insurers Sue Nebraska-based Clinical Laboratory Company for Alleged COVID-19 Test Price Gouging

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.

In three separate lawsuits, Blue Cross Blue Shield of Kansas City (Blue KC), Premera Blue Cross, and Blue Cross Blue Shield of Minnesota (BCBS of Minnesota) charged that Nebraska-based GS Labs charged as much as $979 for a SARS-CoV-2 PCR test, a test for which Medicare pays about $51, according to State of Reform.

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.

Graphic from Premera Blue Cross court documents

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.
  • A 2021 Centers for Medicare and Medicaid Services inspection of GS Labs’ Omaha facility found the lab posed “immediate jeopardy,” potentially putting patients at risk for serious harm.
  • 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.

Andrea Downing Peck

Related Information:

Blue Cross and Blue Shield of Kansas City v. GS Labs, LLC

Lawsuit Seeks a Judgment to Ensure Blue KC Members Are Not Required to Pay GS Labs’ COVID-19 Testing Reimbursement Demands

Lab Files Counter Claim Against Blue KC in Price Gouging Dispute

GS Labs’ Responses to Questions from APM Reports

Blue Cross and Blue Shield of Minnesota Files Lawsuit Against GS Labs

Premera Blue Cross vs. GS Labs, LLC

Premera Sues GS Labs, Alleging COVID Price Gouging

This Lab Charges $380 for a COVID Test. Is That What Congress Had in Mind?

Testing the Limits

CMS Complaint Against Omaha GS Labs, LLC

Milestone for National Testing Laboratory: GS Labs Tests One Millionth Patient For COVID-19 As Pandemic Continues to Challenge Nation

GS Labs Countersues Blue Cross Blue Shield of Minnesota: Federal Court Filing Accuses Insurer of Antitrust Violations, Conspiring with Cartel of BCBS Affiliates, Violating CARES ACT, False Advertising and Consumer Fraud