Brown sues to recover millions in Medi-Cal funds

By Legal News Line | Mar 23, 2009

Jerry Brown (D)

LOS ANGELES (Legal Newsline) - Attorney General Jerry Brown is suing seven private laboratories to recover hundreds of millions of dollars in overcharges he believes were illegally collected against the state's medical program for the poor.

The lawsuits target some of the nation's largest providers of clinical testing, including Quest Diagnostics, which has more than 500 patient centers in California, and Laboratory Corporation of America.

Brown investigated a whistleblower claim made by the chief executive of a competing laboratory company prior to joining the lawsuit against the seven laboratories.

"I confirmed with the California Department of Health Care Services that these practices were illegal," Chris Riedel, the CEO of Hunter Laboratories, said. "We then had a choice: Either join the other labs in violating the law or be unable to compete for business. We choose to suffer the financial consequence, and follow the law."

The lawsuit, which is pending in San Mateo Superior Court, contends that the seven medical labs systematically overcharged the Medi-Cal program over the past 15 years.

"In the face of declining state revenues, these medical laboratories have siphoned off hundreds of millions of dollars from programs intended for the most vulnerable California families." Brown said. "Such a pattern of massive Medi-Cal fraud and kickbacks cannot be tolerated, and I will take every action the law allows to recover what is owed."

Brown sued Quest Diagnostics, Inc., based in Madison, N.J, its affiliate Specialty Laboratories, Inc., based in Valencia, Calif.; and four other Quest affiliates. He also sued Health Line Clinical Laboratories, Inc., now known as Taurus West, Inc., Westcliff Medical Laboratories, Inc., Seacliff Diagnostics Medical Group , Physicians Immunodiagnostic Laboratory, Inc., and Whitefield Medical Laboratory, Inc., all based in California. Laboratory Corporation of America, based in Burlington, N.C., is the final defendant in the lawsuit, according to a press release issued by the attorney general's office.

According to California law, Medi-Cal cannot be charged more than the going rate for similar companies under similar circumstances. But Brown's lawsuit alleges that Medi-Cal was charged six times as much as the defendants charged other customers for the same tests.

The attorney general's officer offered several examples of the overcharging, like $8.59 cents for a blood test that others paid just $1.43, or $30.09 for a hepatitis test that other customers were only charged $6.44 to receive.

"These are not isolated examples," the press release states. "They are part of a pattern of fraudulent overcharging and kickbacks that developed over the past decade."

The steep prices, Brown asserted, came from a systematic approach designed to overcharge the government. The lawsuit claims the defendants started by providing deep discounts to doctors, patients or hospitals, sometimes even providing the tests for free.

In exchange for the discounted rates, the defendants demanded referrals from all the other patients that paid for the tests by an insurance company, Medicare, or Medi-Cal.

"Under California law this amounted to providing an illegal kickback," the press release states.

The new customers' were billed at drastically increased prices with those costs being passed along to Medi-Cal, Brown alleged.

"Additionally, defendants offered their clients who paid them directly (not through Medi-Cal or other insurance) deeper and deeper discounts in order to get a larger share of the lab testing business. This created an unfair playing field, and laboratories that followed the law could not effectively compete. These law-abiding companies were sometimes forced to sell or go out of business completely," the press release states.

The lawsuit was made public this week following an investigation by the attorney general's Bureau of Medi-Cal Fraud and Elder Abuse, which prompted Brown to join the lawsuit.

"At a time when California is laying off teachers and firefighters and is in a massive budget crisis, it is unconscionable that these defendants would bilk the system to the tune of hundreds of millions of dollars," Hunter Laboratories' attorney, Niall P. McCarthy of Cotchett, Pitre & McCarthy said.

The lawsuit asks for three times the amount of damages, civil penalties of $10,000 for each false claim, recovery costs, attorney's fees and expenses, an estimated worth of hundreds of millions of dollars all totaled.

Clinical testing is a $50 billion industry nationwide, according to the attorney general's office. Several of the companies named, including Quest Diagnostics, are among the largest in the industry. Laboratory Corporation of American conducts "more than one million tests on approximately 400,000 samples each day," according the attorney general's office.

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