Meet the Company That Outlined Its Kickback Scheme in PowerPoint

Last Updated Aug 31, 2011 12:21 PM EDT

Labcorp's (LH) $50 million settlement with the California attorney general over a kickback scheme highlights the federal government's bizarre lack of interest in whether Medicare is being ripped off for hundreds of millions of dollars nationally by companies that provide diagnostic tests for doctors and hospitals.

The scheme wasn't difficult to figure out -- the company described it in PowerPoint slideshows that told employees what "not" to do. Prohibiting employees from breaking the law is fine, of course, but the Labcorp slideshows only made sense if the company knew how to execute a complicated "pull-through" kickback scheme, and knew it was wrong. One PowerPoint had a chapter labelled "Kickbacks."

In the Labcorp settlement, the company will pay $49.5 million to settle allegations that 5.5 million
claims for reimbursement from the state's Medi-Cal program, spread over 14 years through 2009, were overbilled by $72 million. About 79 percent of all Labcorp's Medi-Cal testing invoices were overbilled, the whistleblower lawsuit that triggered the settlement claims.

In May, the state settled a similar case against Quest Diagnostics (DGX) for $241 million. Both companies were accused of doing the same thing: Providing millions of dollars in low-cost or below-cost testing to private insurance companies in return for those companies requiring doctors serving their network to refer Medi-Cal patients to Labcorp and Quest for testing. Labcorp and Quest then billed Medi-Cal much greater amounts for identical tests. Labcorp offered tests to private companies for as little as $1, the suit claims.

Federal prosecutors, however, do not appear to be interested in finding out whether this practice extended into Medicare nationally or other states' Medicaid plans. In the Quest case, which is on appeal, the U.S. Department of Justice officially declined to get involved. In Labcorp and Quest's 10-Q disclosures to the SEC neither company notes any federal investigations or litigation regarding their billing in other states.

That lack of interest is all the more conspicuous once you learn that Florida, Virginia, Michigan, New York and Massachussetts have all sent subpoenas to Labcorp on the same issue, according to the 10-Q. Quest has been sued in New York by a whistleblower on the same issue, according to its annual report.

The kickback slideshow
Here's a selection of images from Labcorp's internal PowerPoints and HR documents which were created to encourage its employees not to break the law. One slideshow began with the chapter heading, "Kickbacks":


It then said that the company should not provide below-cost testing to clients:


In an HR memo, the company went into more detail on its "prohibited" discounting practices. It banned its staff from tying client discounts to "the value of Medicare or Medicaid testing":


Fair enough, but why -- or how -- would anyone offer a private client a discount tied to Medicaid? The section only makes sense if you also know that healthcare insurance companies were happy to require their doctors refer Medicaid patients to Labcorp in return for below-cost testing.

It's hard to put a number on how much taxpayers' money has been wasted on "pull-through" overbilling. But the plaintiffs in the Quest case estimate it could be as much as $1 billion.

Related: Image by Flickr user quaziefoto, CC.

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