New report could swing settlements in your favor

An inflammatory new report commissioned by the Chicago-based American Hospital Association (AHA) claims that the federal government has no legal basis for requiring outpatient laboratories to unbundle automated lab tests. While the AHA expects it to strengthen the hand of hospitals in negotiating settlements with local U.S. Attorney's offices, the Department of Justice calls the report "misleading" and discounts its findings.

Prepared by the law firm of Jones, Day, Reavis & Pogue in Washington, DC, the report attempts to establish that no legal or regulatory requirement exists forcing hospitals to bundle lab tests for single payment. In fact, it argues that the Health Care Financing Administration, its fiscal intermediaries, and the HHS Office of the Inspector General have historically offered contradictory opinions on the issue.

The report comes when outpatient labs continue to undergo intense federal scrutiny. Indeed, according to the OIG's 1998 work plan, Project Bad Bundle has already resulted in civil settlements with 24 hospitals totaling $8.8 million. Meanwhile, in 1997 alone, the government's LABSCAM initiative led to settlements of $325 million with SmithKline Beecham Clinical Laboratories, $83.7 million with Damon Clinical Laboratories, and $182 million with Laboratory Corporation of America, Inc.

Unswayed by charges that fiscal intermediaries, not hospitals, are responsible for the bundling of claims for automated blood chemistry and hematology tests, the Department of Justice says the report will have no effect on its aggressive use of the False Claims Act to discourage alleged double-billing.

"It's really pretty simple. [The AHA] can get into all sorts of rationalizations, but the bottom line is that if you double-bill the government for tests that you perform, that is a false claim, and that is health care fraud," says Carol Florman, public affairs officer for health care fraud at Justice. "If you run each test separately then you can bill for each test separately. If you run it as one automated test, then you need to bill it as one automated test."

The AHA contends, however, that no legal document exists to back up that assertion. In fact, until recently, different federal agencies seem to have held differing views of laboratory test bundling. For example, as recently as 1997, in its Red Book report to Congress, the OIG made the following statement:

"[A]lthough prices on individual tests are being reduced by legislation, panels are still generally being billed as individual tests to Medicare. Medicare policies are not sufficient to control the billing of profile tests because there is no requirement that the tests ordered as a panel by the physician be billed only as a panel."

Less than a year later, in its 1998 Work Plan, the OIG seems to have done an about-face, characterizing as illegal the "practice of submitting individual bills for separate tests that should be bundled together into a single bill for a group of related tests."

"There was no legislation passed [between 1997 and 1998]; there was no regulation issued," says Mary Greeley, JD, Washington counsel for the AHA. "[The OIG] started Project Bad Bundle and decided they were going to put the focus on hospitals."

Greeley acknowledges that, even armed with the report and its allegations that False Claims Act cases regarding bundling of automated lab tests are without legal merit, its unlikely that hospitals will take the risk of fighting the government in court. No one ever has, she notes, and given the potential costs of litigation, it's unlikely that will change any time soon.

Even so, the report could benefit hospitals at the local level, Greeley claims. "For local hospitals involved in settlement negotiations, I think it will go a long way in strengthening their hand," she says. "A hospital can say to the local U.S. Attorney, 'Hey, you have no legal basis for moving forward with this. Let's call it off here or at a minimum make sure we're talking about a reasonable [settlement] amount."

Greeley adds that the AHA is currently considering its options in leveling its own lawsuit against the government regarding Project Bad Bundle.

To obtain a copy of the Jones, Day, Reavis & Pogue report, contact the American Hospital Association at (202) 638-1100.