Health insurer Cigna recently filed a lawsuit against Sky Toxicology Lab Management and urine drug toxicology (UDT) laboratories Sky Toxicology, Frontier Toxicology and Hill Country Toxicology that, among other things, accuses them of engaging in fraud and a lucrative patient-referral kickback scheme.
All three labs are located in San Antonio Texas. Sky Tox and Frontier Tox are about a block apart from one another, and Hill Country Tox is about a 10 minute drive away. According to the “About Us” pages on the websites, the three UDT labs share the same executive team: W. Wade White, MD-CEO and Medical Director; Lance Hupfeld-Chief Sales Officer; Bradley West-Chief Operating Officer.
Sky Toxicology Lab Management is a limited partnership organized in Florida in 2013, according to the Form D on file with the Securities and Exchange Commission. Its principal place of business has the same address as Sky Toxicology, and it lists Dr. White, Mr. Hupfeld, Mr. West and a fourth individual named Nick Boatman as its executive officers.
Factual Allegations
The vast majority of health insurance plans administered by Cigna are called Administrative Services Only (ASO) plans that are funded by private companies through employee contributions, with Cigna providing claims processing and appeal adjudication services. Cigna has fiduciary responsibility for these plans, which are also governed by the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that provides protection for individuals with private health insurance plans through a set of minimum standards.
Cigna allows members to choose whether they want to receive care from health care providers (including laboratories) that are in Cigna’s network or outside of Cigna’s network. If the member chooses an out-of-network provider, the member will incur more financial responsibility through higher co-pays, deductibles and co-insurance than if they had used an in-network provider.
The member can also be balance billed, which is when the out-of-network provider bills the patient for the difference between what they charged for their services and what the insurance company paid.
Cigna claims it is “widely-known” that patients who pay for even a small portion of their health care out-of-pocket will make “more informed choices regarding medical care, and choose care that is medically necessary, and not simply free of charge.”
Since July 2011, Cigna has paid more than $17.5 million to Sky Tox for over 40,000 processed claims, more than $3.4 million to Frontier Tox for over 5,900 claims, and more than $1.8 million to Hill Country Tox for over 3,400 claims. The overwhelming majority of these claims were submitted under ASO plans.
Sometime in 2015 Cigna’s fraud unit, which is called the Special Investigations Unit (SIU), audited the defendants’ (all of which are out of Cigna’s network) business practices and surveyed numerous Cigna members, and discovered “various schemes and practices to overbill Cigna.” Cigna notes “virtually none” of the defendant labs bill federal or state health care programs, and this alone is a “hallmark” that what the labs are doing is illegal.
Cigna claims the defendants used a fraudulent business model in order to ensure Cigna members and physicians chose them over reputable and less expensive alternatives.
The labs offered opportunities for referring physicians and drug treatment centers to purchase shares in one or more of the defendant labs. These opportunities were “directly tied” to referrals and were only available to those referring providers who “perform sufficient drug testing to meet a required minimum number of specimen referrals for testing per month.” If the required minimum was met, the investor was eligible for dividends, the amount of which was based on laboratory profits. If the required minimum was not met, the investors could have their shares repurchased by the lab(s).
This ownership arrangement induced physicians and drug treatment centers to send as many of their patients and order as many tests as possible to the out-of-network defendant labs. Cigna says the labs artificially increased their average reimbursements by requiring physicians to order several bundled test panels for patients instead of only medically necessary tests. The defendant labs generally charged Cigna about 400% more for their UDT testing than other comparable labs and facilities.
Cigna alleges their members were “entirely unaware” their samples were being sent to an out-of-network laboratory in which their physician or drug treatment facility had an ownership interest.
The labs also created a “Patient Financial Policy” that allowed them to determine, based on financial information provided by the patients themselves, whether the patient was able to pay their cost-sharing responsibility. If not, their co-insurance, co-payment and deductible responsibilities were forgiven.
But Cigna says its SIU determined no surveyed patient ever received an estimate of charges prior to testing, or a bill from the defendant labs. In addition, none of the members actually paid the defendant labs anything. Therefore, Cigna claims the labs simply engaged in a fee-forgiveness scheme, and concealed the true cost of its services so as to prevent patients from requesting their samples be sent to an in-network UDT lab.
Cigna also alleges the labs did not disclose their true charges, but instead submitted “false, grossly inflated charges”. Cigna believed the labs were satisfying the plan terms and requiring patients to pay their out-of-network responsibilities, but that was not the case. As a result, out-of-network costs “skyrocketed”.
Once Cigna discovered what the defendant labs were doing, it asked the labs to provide proof Cigna members were paying their share of the labs’ services before Cigna would pay the labs anything. The labs reportedly refused to provide the information Cigna sought, and contended they have no obligation to collect from Cigna members.
Because of the labs’ conduct, Cigna argues the claims they submitted were not payable, and the money Cigna paid should be returned.
Cigna advances eight counts:
- Declaratory Relief
- Fraud
- Negligent Misrepresentation
- Claim for Money Had and Received
- Claim for Unjust Enrichment
- Tortious Interference with Contract
- Claim for Deceptive Business Practices under Florida’s Deceptive Trade Practices Act
- Claim for Overpayments under ERISA
Cigna’s complaint is here.