Aetna Moves Closer to Recovering Money in Lab Billing Fraud

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By Mary Anne Pazanowski

Oct. 20 — Aetna Inc. Oct. 17 moved one step closer to recovering money it says it lost due to a blood testing laboratory’s false billing scheme ( Aetna Inc. v. Health Diagnostic Lab., Inc. , 2016 BL 344901, E.D. Pa., No. 15-cv-1868, 10/17/16 ).

Latonya Mallory, the former chief executive officer of now-defunct Health Diagnostic Laboratory Inc. (HDL), must answer Aetna’s claims the lab overbilled for services it provided to Aetna members.

The U.S. District Court for the Eastern District of Pennsylvania rejected Mallory’s attempt to escape the insurer’s claim she green-lighted the overbilling scheme. The court said Aetna’s complaint adequately showed it was injured by Mallory’s participation in the ploy. HDL allegedly paid illegal kickbacks to doctors for referrals and waived members’ payment obligations.

Aetna and other health insurers, like Cigna, appear to be pursuing lawsuits against providers based on alleged kickbacks and fee-forgiveness programs “more aggressively than they have in past years,” Andrew Cookingham, at Thompson & Knight LLP in Dallas, told Bloomberg BNA. Providers’ fee-forgiveness activities especially have caught insurers’ attention because they threaten the insurers’ business models.

Insurers contract with in-network providers to pay for services at predetermined rates, Cookingham explained. Members’ out-of-pocket costs usually are lower when they use these in-network providers. That, in turn, creates incentives for patients to use those providers.

Incentives Compromised

This system gets thrown off when out-of-network providers waive members’ fees, Cookingham said. If a patient can receive the same services from an out-of-network provider, possibly at a lower out-of-pocket cost, then the patient has no incentive to visit the in-network provider. In the meantime, the insurer may wind up paying the out-of-network provider more because it doesn’t have contracted-for rates.

Cookingham, who represents providers in health-care reimbursement and coverage litigation, said the “legal landscape is relatively unsettled right now” with respect to fee-forgiveness suits. Aetna recently won a multimillion-dollar verdict against a group of California ambulatory surgical centers, but Cigna just lost to two out-of-network hospitals in Houston.

This case also involves an alleged kickback scheme in which HDL paid doctors to send their patients’ blood samples to it for testing. This adds another level because patients usually don’t know or care which lab their doctors send their blood tests to, Cookingham said. Patients also may not even known which lab the doctor used until they get the bill.

Aetna and Mallory’s attorney didn’t respond to Bloomberg BNA’s requests for comment.

False Claim Act Case Settled

HDL in 2015 agreed to pay $47 million to the federal government to resolve allegations its scheme violated the federal False Claims Act ( 69 HCDR, 4/10/15 ).

HDL denied the allegations, but agreed to the settlement to avoid the inconvenience, uncertainty and expense of litigation. It entered into a five-year corporate integrity agreement with the Department of Justice.

The Richmond-Va.-based company filed for bankruptcy in June 2015, and a federal bankruptcy judge approved its liquidation plan in March.

Frisco, Texas-based True Health Diagnostics purchased HDL’s assets in September 2015 through the bankruptcy process. True Health announced in August it completed its first year of the corporate integrity agreement it voluntarily assumed when it acquired HDL’s assets.

Aetna’s suit against HDL is stayed as a result of the bankruptcy filing, but the insurer still is proceeding against Mallory, marketing company BlueWave Healthcare Consultants Inc. and BlueWave’s owners, Floyd Dent III and Robert Bradford Johnson.

Massive Scheme

Aetna didn’t give an exact dollar figure in its complaint, so it isn’t certain just how much money it believes it is owed as a result of the overbilling scheme, which allegedly took place over several years. In 2013, HDL reportedly took in $375 million in revenue.

Cookingham said there must be “tens (if not thousands) of” insurance claims at issue, though Aetna didn’t say how many claims it believes it overpaid.

The “most hotly contested” issue in the lawsuit likely will be whether Aetna lost anything at all, Cookingham said. Indeed, Mallory argued Aetna’s alleged injuries were too vague and conclusory in her motion to dismiss the lawsuit for lack of standing. Aetna failed to allege any specific individualized harm, she argued.

The court, however, said Aetna’s allegations were sufficient to defeat the dismissal motion, which tests only the matters contained in the complaint. At a stage when Aetna is expected to produce proof of its losses, the decision might be different.

The amount of Aetna’s alleged harm “is going to vary from claim-to-claim, based on what type of insurance product the patient had and how the plan determined the amount to pay,” Cookingham said.

If, for example, a member’s plan specified the amount to be paid for out-of-network testing services, “then the defendants would have a strong argument that fee forgiveness, even if true, caused Aetna no harm because” the insurer was going to pay the designated rate regardless of the amount billed, Cookingham said.

Individual Defendants’ Liability

Aetna’s reasons for pursuing individual defendants like Mallory aren’t public, but Cookingham had some ideas.

It looks like Aetna settled its claims with HDL as part of the bankruptcy proceeding, but the insurer still could argue that the settlement hasn’t made it whole, Cookingham told Bloomberg BNA.

The complaint, moreover, alleged Mallory and the others made millions of dollars due to the alleged kickback and fee forgiveness scheme. If true, “Aetna no doubt wants that money,” he said.

Finally, “Aetna may want to make an example of these defendants to try and prevent other providers” from engaging in similar fee-forgiveness or kickback plans, Cookingham said.

John M. Elliott, Gregory S. Voshell and Mark Joseph Schwemler, of Elliott Greenleaf & Siedzikowski PC, Blue Bell, Pa.; and James C. Crumlish III, Blue Bell, represented Aetna. Joshua D. Wolson, Jay E. Kagan and Mark W. Halderman, of Dilworth Paxson LLP, Philadelphia, represented BlueWave, Dent and Johnson. Robert C. Drake, of Robert C. Drake LLC, Philadelphia, represent Mallory.

To contact the reporter on this story: Mary Anne Pazanowski in Washington at

To contact the editor responsible for this story: Peyton M. Sturges at

For More Information

The court’s decision is at

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