LabCorp (NYSE:LH) is under a federal probe investigating whether the laboratory services firm and others defrauded Medicare and Medicaid.
The Senate inquiry comes months after a $49.5 million settlement with the state of California over claims that LabCorp overcharged California’s Medicaid program and gave doctors kickbacks for patient referrals. In a November 8 letter to LabCorp CEO David King, Senate Finance Committee Chairman Max Baucus and Judiciary Committee ranking member Senator Charles Grassley ask Burlington, North Carolina-based LabCorp to provide information about discounted or below cost lab services offered to managed care organizations and payers in exchange for referrals of other laboratory testing business to LabCorp. The practice is called “pull-through.” The federal inquiry aims to determine whether pull-through overbilled Medicare and Medicaid. The senators have also sent letters seeking information from competitor Quest Diagnostics (NYSE:DGX), as well as payers Cigna (NYSE:CI), UnitedHealth Group (NYSE:UNH), and Aetna (NYSE:AET).
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The letter asks LabCorp to provide company and financial information including its lab services agreements with its five largest managed care clients; correspondence between LabCorp and those five companies and any documents that mention or cover pull-through practices.
LabCorp has until Dec. 1 to respond to the government’s request. LabCorp has said nothing about the Senate pull-through inquiry. But the company is currently involved in litigation in New York over alleged pull-through practices. The company acknowledged the suit in its third quarter financial report, saying the suit claims the company offered kickbacks to UnitedHealth in the form of discounts in exchange for Medicare business. LabCorp said it will “vigorously defend the lawsuit.”
The California litigation settled earlier this year resolved a 2005 suit against LabCorp and seven other lab testing companies. The California Attorney General’s Office conducted a three-year investigation into whether the lab companies offered discounted or free testing to healthcare providers who referred patients of Medi-Cal, California’s Medicaid program, to the companies. Those low prices were allegedly subsidized through overcharges to Medi-Cal.
LabCorp and Quest have come under federal scrutiny before. In the 1990s, both companies were at the center of the “Operation Labscam” probe that investigated fraud in the form of unnecessary tests billed to Medicare. LabCorp settled with the government for $182 million.
