Lab billing company arrangements with hospitals, in which the lab tries to boost its reimbursement by using a hospital's insurance contracts, can take on several forms, according to Brian Bauer, an attorney with Hall Render in Detroit who has studied lab billing arrangements and advised hospitals considering them. He estimates he's seen 25 to 30 cases.
At one extreme, a company buys the struggling rural hospital and uses its favorable reimbursement contracts with commercial insurers to get better reimbursement for labs, even labs from patients who didn't visit that hospital. Other arrangements may involve companies partnering with hospitals to increase their lab revenue.
Rural hospitals receive more for tests than lab companies because of their higher fixed costs and lower volume, Bauer said. In a lawsuit filed in September, Aetna alleged a group of lab companies bilked the insurer and others out of more than $21 million by billing for labs from a rural Oklahoma hospital, even though they were performed at labs across the country, thereby taking advantage of the hospital's higher reimbursement rate. In one example, Aetna said it paid the hospital $2,250 for a test it would have paid a "large legitimate" lab company $120 to perform.
The arrangements are typically structured so that they're legally compliant, although they don't always square with insurers' provider agreements, Bauer said.
Bauer wasn't familiar with Rennova Health, a lab company that is getting into the hospital business, but said the potential for creating such a lab arrangement could be a potential motivator for buying the hospital, given the hospital's financial situation.
Rennova CEO Seamus Lagan , who also currently serves as Rennova's interim CFO after a former interim CFO resigned in October, remains unfazed. He said he can't "can't change the perception of some people," but that months down the road they'll be proven wrong. "We're quite proud of our record of compliance." He said Rennova does not plan to perform toxicology testing in the hospital, nor does the company plan to use the hospital to bill for toxicology or other types of lab tests for anything outside of care provided to patients in the hospital or by local doctors.
Related: Lab company Rennova is an unlikely buyer of CHS hospital
Brock Slabach, senior vice president of the National Rural Health Association, said partnerships between lab companies and hospitals can work out for hospitals, so long as they agree to prudent purchasing fees with the labs and controls over who does the billing. Slabach said he's also aware of cases where such arrangements ended with insurers canceling their contracts with hospitals. Even then, he doesn't blame hospital decision-makers.
"When you're desperate, you're looking at bankruptcy or you're looking some kind of dire situation you're facing financially, and one of these companies comes along and offers something that's too good to be true, it's tempting to listen to this presentation and say, 'Well, one answer is, what do we have to lose? We're going to close anyway,'" he said.
Michael Lane, managing director with the healthcare strategic advisory firm Hammond Hanlon Camp in Chicago, said he's never seen a lab testing company buy a hospital for the purpose of running a hospital.
That said, Lane said big commercial insurers are well aware of the arrangements and are cracking down on them nationwide. Most of the disputes are being settled outside of the courts, through arbitration and mediation, he said.
"You're seeing less and less of that happening," Lane said. "I think it's all unraveling right now, frankly."
