State weighs in on whistleblower lawsuit against medical laboratories

California's Medi-Cal program, which provides health care to millions of low-income Californians, has been bilked of hundreds of millions of dollars by medical laboratories that charged the state excessively for their services while trying to freeze other labs out of the market, according to a whistleblower lawsuit backed by the state.

State Attorney General Jerry Brown was scheduled to publicly release details of the case Friday. The suit names about a dozen labs, including the medical laboratory handling the most business in California, Quest Diagnostics.

Just how much money is at stake was not immediately clear. But one estimate put the figure at $500 million, an incomplete amount that could be doubled or tripled after the final tally of millions of claims is calculated.

Capitol Weekly reviewed details of the complaint Thursday afternoon. The suit had been filed under seal, but the seal was removed as Brown was prepared to announce his intervention in the case.

The original false-claims suit was filed four years ago by independent medical laboratory owner Chris Reidel, who complained that major medical labs were under-charging private parties for their services to thwart competition, but at the same time were billing the government's Medi-Cal program at a far higher rate – sometimes 200 or 300 percent higher.

According to the false-claims suit, that billing practice violates state law, which requires the labs to submit bills at a rate that is no higher than is available to all.

Medi-Cal, a state-federal program with a $38 billion budget, handles care for about 6.8 million low-income Californians.

Individually, the costs of the laboratories' services is not large, perhaps a few dollars each.

But multiplied millions of times, the cost associated with the services rises exponentially. One basic blood test, for example, cost $1.42 to the private parties, but was billed to Medi-Cal at five times that amount, according to the complaint. The labs "repeatedly defrauded the Medi-Cal program by repeatedly billing DHCS (state Department of Health Care Services) well in excess of their lowest rates," the suit contends.

The labs, in a practice known as a "pull through," also offered the private parties a below-cost discount rate if they would allow the labs to handle their Medi-Cal business, thus allowing charges at far higher rates, according to the suit. In effect, the laboratories used the publicly funded Medi-Cal program to corner the market.

The process of low-balling the cost to the private parties had the result of making "it impossible for any new laboratories to gain a foothold in a large share of the market," the suit says.

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