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BCBS Fraud Case Based on Hospital's Lab Arrangement Continues In Mississippi

Lately, many Louisiana hospitals have been approached with proposals for innovative “private pay only” laboratory arrangements. While these types of arrangements may offer more flexibility, hospitals must still carefully evaluate them. Not only is there a potential for a “tying” arrangement that could implicate federal laws, but an ongoing case in Mississippi federal court shows that at least one commercial payer is claiming fraud based on how a community hospital has partnered up with some entrepreneurial Texas lab entities.

Sharkey-Issaquena Community Hospital is located in Rolling Fork, Mississippi, a town with a population of about 5,000 people situated about 45 miles north of Vicksburg. It is a small, community hospital with 29 beds and a 52 bed nursing home. It has been contracted with Blue Cross Blue Shield of Mississippi (BCBS) since January 1995 with reimbursement at a percentage of charge rate. The hospital appears to have more recently entered into a “private pay only” arrangement with a group from San Antonio, Texas that provides lab services: Sun Clinical Laboratory, LLC, Mission Toxicology Management, LLC, and related entities.

Beginning in February 2017, according to BCBS, within just a few short months this small, rural community hospital performed more than 12,000 lab tests and submitted approximately $59 million in claims. Thirty-three million in claims were adjudicated and paid by BCBS, but BCBS quickly began investigating the extreme increase in claims.

According to BCBS, the hospital contracted with the San Antonio group, allowing those entities to perform the lab services and then bill claims using the hospital’s name and billing information. The lab tests were performed for patients from around the country who did not have contact with the hospital or its physicians. Results were sent to providers who had ordered the tests on “Mission Toxicology” or “Sun Clinical Laboratory” forms, but that included the hospital’s CLIA number and Mississippi address, along with a Texas phone number.

On May 4, 2017, BCBS sued the small hospital, the Texas companies, and ten “John Doe” Defendants. The lawsuit alleges breach of contract, ERISA claims, state law fraud, civil conspiracy, negligent misrepresentation, and unjust enrichment against the Texas companies. It seeks actual damages along with consequential, punitive, and exemplary damages and attorney’s fees. Most recently, the hospital and Texas companies filed motions to dismiss, arguing ERISA preemption, a lack of standing for BCBS, and a failure to plead sufficient facts to prove a breach of contract. BCBS fought the motion on all fronts.

On December 17, 2017, the motions were denied. Blue Cross Blue Shield of Mississippi v. Sharkey-Issaquena Community Hosp. et al., 3:17-CV-338-DPJ-FKB (S.D.Miss. 12/13/17), 2017 WL 6375954. The court found that BCBS’ state law claims could proceed because they were not preempted by ERISA under either the conflict or complete preemption doctrines. It further determined that BCBS could assert federal claims as an ERISA fiduciary as well as state law claims on its own behalf.

The BCBS state law claims for breach of contract, fraud and negligent misrepresentation also survived. The court found that collectively, the following provisions at least suggested that Blue Cross did not agree to pay for services to non-patients, ordered by physicians without medical staff privileges which were processed by an off-premises lab:

2.12 “Hospital Service(s)” means those services and supplies provided by HOSPITAL to Subscribers and other patients. Hospital Services do not include services performed by an organization or facility not itself licensed by the state as a general acute hospital.

3.1 HOSPITAL shall provide to Subscribers, insofar as facilities of HOSPITAL permit, Hospital Services which are Medically Necessary when such services are ordered by a licensed physician or other licensed health professional who has appropriate staff privileges at HOSPITAL.

4.1 PLAN agrees to make its payments due under this Agreement directly to HOSPITAL for Covered Services provided to each Subscriber.

5.1 PLAN shall pay directly to HOSPITAL for and in behalf of Subscriber the Payment Amount calculated in accordance with the terms of Plain’s Participating Hospital Policies and Procedures and the Payment Program, as set forth in Attachments A and B, for Services rendered by HOSPITAL to Subscriber.
 
Although the hospital argued that it had no negotiating power against BCBS, that this was a “take it or leave it” contract, and that the terms of the contract were unconscionable, the court was not persuaded. The court was similarly unpersuaded by arguments from the hospital and the Texas companies that the fraud and negligent misrepresentation claims failed to meet the Mississippi state law requirements. Similarly, the Court upheld the civil conspiracy claim and unjust enrichment claims against the Texas laboratories. Additional procedural arguments by the defendants regarding additional necessary parties and BCBS’s standing to file the claim were rejected. The court ultimately held that BCBS had satisfied its burden at this early stage in the pleadings, such that its case against the hospital and the Texas labs can proceed.

With this ruling from the Mississippi federal court, it appears that the case will proceed. This month, the parties have continued through the litigation process, with a number of documents filed under seal. Only time will tell how successful this private payer will be in its fight against what appears to be a lucrative “private pay only” deal for this small hospital.

The takeaway for Louisiana hospitals is clear: Proceed With Caution in these popular “private pay only” lab deals.

BCBS Fraud Case Based on Hospital's Lab Arrangement Continues In Mississippi

Lately, many Louisiana hospitals have been approached with proposals for innovative “private pay only” laboratory arrangements. While these types of arrangements may offer more flexibility, hospitals must still carefully evaluate them. Not only is there a potential for a “tying” arrangement that could implicate federal laws, but an ongoing case in Mississippi federal court shows that at least one commercial payer is claiming fraud based on how a community hospital has partnered up with some entrepreneurial Texas lab entities.

Sharkey-Issaquena Community Hospital is located in Rolling Fork, Mississippi, a town with a population of about 5,000 people situated about 45 miles north of Vicksburg. It is a small, community hospital with 29 beds and a 52 bed nursing home. It has been contracted with Blue Cross Blue Shield of Mississippi (BCBS) since January 1995 with reimbursement at a percentage of charge rate. The hospital appears to have more recently entered into a “private pay only” arrangement with a group from San Antonio, Texas that provides lab services: Sun Clinical Laboratory, LLC, Mission Toxicology Management, LLC, and related entities.

Beginning in February 2017, according to BCBS, within just a few short months this small, rural community hospital performed more than 12,000 lab tests and submitted approximately $59 million in claims. Thirty-three million in claims were adjudicated and paid by BCBS, but BCBS quickly began investigating the extreme increase in claims.

According to BCBS, the hospital contracted with the San Antonio group, allowing those entities to perform the lab services and then bill claims using the hospital’s name and billing information. The lab tests were performed for patients from around the country who did not have contact with the hospital or its physicians. Results were sent to providers who had ordered the tests on “Mission Toxicology” or “Sun Clinical Laboratory” forms, but that included the hospital’s CLIA number and Mississippi address, along with a Texas phone number.

On May 4, 2017, BCBS sued the small hospital, the Texas companies, and ten “John Doe” Defendants. The lawsuit alleges breach of contract, ERISA claims, state law fraud, civil conspiracy, negligent misrepresentation, and unjust enrichment against the Texas companies. It seeks actual damages along with consequential, punitive, and exemplary damages and attorney’s fees. Most recently, the hospital and Texas companies filed motions to dismiss, arguing ERISA preemption, a lack of standing for BCBS, and a failure to plead sufficient facts to prove a breach of contract. BCBS fought the motion on all fronts.

On December 17, 2017, the motions were denied. Blue Cross Blue Shield of Mississippi v. Sharkey-Issaquena Community Hosp. et al., 3:17-CV-338-DPJ-FKB (S.D.Miss. 12/13/17), 2017 WL 6375954. The court found that BCBS’ state law claims could proceed because they were not preempted by ERISA under either the conflict or complete preemption doctrines. It further determined that BCBS could assert federal claims as an ERISA fiduciary as well as state law claims on its own behalf.

The BCBS state law claims for breach of contract, fraud and negligent misrepresentation also survived. The court found that collectively, the following provisions at least suggested that Blue Cross did not agree to pay for services to non-patients, ordered by physicians without medical staff privileges which were processed by an off-premises lab:

2.12 “Hospital Service(s)” means those services and supplies provided by HOSPITAL to Subscribers and other patients. Hospital Services do not include services performed by an organization or facility not itself licensed by the state as a general acute hospital.

3.1 HOSPITAL shall provide to Subscribers, insofar as facilities of HOSPITAL permit, Hospital Services which are Medically Necessary when such services are ordered by a licensed physician or other licensed health professional who has appropriate staff privileges at HOSPITAL.

4.1 PLAN agrees to make its payments due under this Agreement directly to HOSPITAL for Covered Services provided to each Subscriber.

5.1 PLAN shall pay directly to HOSPITAL for and in behalf of Subscriber the Payment Amount calculated in accordance with the terms of Plain’s Participating Hospital Policies and Procedures and the Payment Program, as set forth in Attachments A and B, for Services rendered by HOSPITAL to Subscriber.
 
Although the hospital argued that it had no negotiating power against BCBS, that this was a “take it or leave it” contract, and that the terms of the contract were unconscionable, the court was not persuaded. The court was similarly unpersuaded by arguments from the hospital and the Texas companies that the fraud and negligent misrepresentation claims failed to meet the Mississippi state law requirements. Similarly, the Court upheld the civil conspiracy claim and unjust enrichment claims against the Texas laboratories. Additional procedural arguments by the defendants regarding additional necessary parties and BCBS’s standing to file the claim were rejected. The court ultimately held that BCBS had satisfied its burden at this early stage in the pleadings, such that its case against the hospital and the Texas labs can proceed.

With this ruling from the Mississippi federal court, it appears that the case will proceed. This month, the parties have continued through the litigation process, with a number of documents filed under seal. Only time will tell how successful this private payer will be in its fight against what appears to be a lucrative “private pay only” deal for this small hospital.

The takeaway for Louisiana hospitals is clear: Proceed With Caution in these popular “private pay only” lab deals.

BCBS Fraud Case Based on Hospital's Lab Arrangement Continues In Mississippi

Lately, many Louisiana hospitals have been approached with proposals for innovative “private pay only” laboratory arrangements. While these types of arrangements may offer more flexibility, hospitals must still carefully evaluate them. Not only is there a potential for a “tying” arrangement that could implicate federal laws, but an ongoing case in Mississippi federal court shows that at least one commercial payer is claiming fraud based on how a community hospital has partnered up with some entrepreneurial Texas lab entities.

Sharkey-Issaquena Community Hospital is located in Rolling Fork, Mississippi, a town with a population of about 5,000 people situated about 45 miles north of Vicksburg. It is a small, community hospital with 29 beds and a 52 bed nursing home. It has been contracted with Blue Cross Blue Shield of Mississippi (BCBS) since January 1995 with reimbursement at a percentage of charge rate. The hospital appears to have more recently entered into a “private pay only” arrangement with a group from San Antonio, Texas that provides lab services: Sun Clinical Laboratory, LLC, Mission Toxicology Management, LLC, and related entities.

Beginning in February 2017, according to BCBS, within just a few short months this small, rural community hospital performed more than 12,000 lab tests and submitted approximately $59 million in claims. Thirty-three million in claims were adjudicated and paid by BCBS, but BCBS quickly began investigating the extreme increase in claims.

According to BCBS, the hospital contracted with the San Antonio group, allowing those entities to perform the lab services and then bill claims using the hospital’s name and billing information. The lab tests were performed for patients from around the country who did not have contact with the hospital or its physicians. Results were sent to providers who had ordered the tests on “Mission Toxicology” or “Sun Clinical Laboratory” forms, but that included the hospital’s CLIA number and Mississippi address, along with a Texas phone number.

On May 4, 2017, BCBS sued the small hospital, the Texas companies, and ten “John Doe” Defendants. The lawsuit alleges breach of contract, ERISA claims, state law fraud, civil conspiracy, negligent misrepresentation, and unjust enrichment against the Texas companies. It seeks actual damages along with consequential, punitive, and exemplary damages and attorney’s fees. Most recently, the hospital and Texas companies filed motions to dismiss, arguing ERISA preemption, a lack of standing for BCBS, and a failure to plead sufficient facts to prove a breach of contract. BCBS fought the motion on all fronts.

On December 17, 2017, the motions were denied. Blue Cross Blue Shield of Mississippi v. Sharkey-Issaquena Community Hosp. et al., 3:17-CV-338-DPJ-FKB (S.D.Miss. 12/13/17), 2017 WL 6375954. The court found that BCBS’ state law claims could proceed because they were not preempted by ERISA under either the conflict or complete preemption doctrines. It further determined that BCBS could assert federal claims as an ERISA fiduciary as well as state law claims on its own behalf.

The BCBS state law claims for breach of contract, fraud and negligent misrepresentation also survived. The court found that collectively, the following provisions at least suggested that Blue Cross did not agree to pay for services to non-patients, ordered by physicians without medical staff privileges which were processed by an off-premises lab:

2.12 “Hospital Service(s)” means those services and supplies provided by HOSPITAL to Subscribers and other patients. Hospital Services do not include services performed by an organization or facility not itself licensed by the state as a general acute hospital.

3.1 HOSPITAL shall provide to Subscribers, insofar as facilities of HOSPITAL permit, Hospital Services which are Medically Necessary when such services are ordered by a licensed physician or other licensed health professional who has appropriate staff privileges at HOSPITAL.

4.1 PLAN agrees to make its payments due under this Agreement directly to HOSPITAL for Covered Services provided to each Subscriber.

5.1 PLAN shall pay directly to HOSPITAL for and in behalf of Subscriber the Payment Amount calculated in accordance with the terms of Plain’s Participating Hospital Policies and Procedures and the Payment Program, as set forth in Attachments A and B, for Services rendered by HOSPITAL to Subscriber.
 
Although the hospital argued that it had no negotiating power against BCBS, that this was a “take it or leave it” contract, and that the terms of the contract were unconscionable, the court was not persuaded. The court was similarly unpersuaded by arguments from the hospital and the Texas companies that the fraud and negligent misrepresentation claims failed to meet the Mississippi state law requirements. Similarly, the Court upheld the civil conspiracy claim and unjust enrichment claims against the Texas laboratories. Additional procedural arguments by the defendants regarding additional necessary parties and BCBS’s standing to file the claim were rejected. The court ultimately held that BCBS had satisfied its burden at this early stage in the pleadings, such that its case against the hospital and the Texas labs can proceed.

With this ruling from the Mississippi federal court, it appears that the case will proceed. This month, the parties have continued through the litigation process, with a number of documents filed under seal. Only time will tell how successful this private payer will be in its fight against what appears to be a lucrative “private pay only” deal for this small hospital.

The takeaway for Louisiana hospitals is clear: Proceed With Caution in these popular “private pay only” lab deals.

BCBS Fraud Case Based on Hospital's Lab Arrangement Continues In Mississippi

Lately, many Louisiana hospitals have been approached with proposals for innovative “private pay only” laboratory arrangements. While these types of arrangements may offer more flexibility, hospitals must still carefully evaluate them. Not only is there a potential for a “tying” arrangement that could implicate federal laws, but an ongoing case in Mississippi federal court shows that at least one commercial payer is claiming fraud based on how a community hospital has partnered up with some entrepreneurial Texas lab entities.

Sharkey-Issaquena Community Hospital is located in Rolling Fork, Mississippi, a town with a population of about 5,000 people situated about 45 miles north of Vicksburg. It is a small, community hospital with 29 beds and a 52 bed nursing home. It has been contracted with Blue Cross Blue Shield of Mississippi (BCBS) since January 1995 with reimbursement at a percentage of charge rate. The hospital appears to have more recently entered into a “private pay only” arrangement with a group from San Antonio, Texas that provides lab services: Sun Clinical Laboratory, LLC, Mission Toxicology Management, LLC, and related entities.

Beginning in February 2017, according to BCBS, within just a few short months this small, rural community hospital performed more than 12,000 lab tests and submitted approximately $59 million in claims. Thirty-three million in claims were adjudicated and paid by BCBS, but BCBS quickly began investigating the extreme increase in claims.

According to BCBS, the hospital contracted with the San Antonio group, allowing those entities to perform the lab services and then bill claims using the hospital’s name and billing information. The lab tests were performed for patients from around the country who did not have contact with the hospital or its physicians. Results were sent to providers who had ordered the tests on “Mission Toxicology” or “Sun Clinical Laboratory” forms, but that included the hospital’s CLIA number and Mississippi address, along with a Texas phone number.

On May 4, 2017, BCBS sued the small hospital, the Texas companies, and ten “John Doe” Defendants. The lawsuit alleges breach of contract, ERISA claims, state law fraud, civil conspiracy, negligent misrepresentation, and unjust enrichment against the Texas companies. It seeks actual damages along with consequential, punitive, and exemplary damages and attorney’s fees. Most recently, the hospital and Texas companies filed motions to dismiss, arguing ERISA preemption, a lack of standing for BCBS, and a failure to plead sufficient facts to prove a breach of contract. BCBS fought the motion on all fronts.

On December 17, 2017, the motions were denied. Blue Cross Blue Shield of Mississippi v. Sharkey-Issaquena Community Hosp. et al., 3:17-CV-338-DPJ-FKB (S.D.Miss. 12/13/17), 2017 WL 6375954. The court found that BCBS’ state law claims could proceed because they were not preempted by ERISA under either the conflict or complete preemption doctrines. It further determined that BCBS could assert federal claims as an ERISA fiduciary as well as state law claims on its own behalf.

The BCBS state law claims for breach of contract, fraud and negligent misrepresentation also survived. The court found that collectively, the following provisions at least suggested that Blue Cross did not agree to pay for services to non-patients, ordered by physicians without medical staff privileges which were processed by an off-premises lab:

2.12 “Hospital Service(s)” means those services and supplies provided by HOSPITAL to Subscribers and other patients. Hospital Services do not include services performed by an organization or facility not itself licensed by the state as a general acute hospital.

3.1 HOSPITAL shall provide to Subscribers, insofar as facilities of HOSPITAL permit, Hospital Services which are Medically Necessary when such services are ordered by a licensed physician or other licensed health professional who has appropriate staff privileges at HOSPITAL.

4.1 PLAN agrees to make its payments due under this Agreement directly to HOSPITAL for Covered Services provided to each Subscriber.

5.1 PLAN shall pay directly to HOSPITAL for and in behalf of Subscriber the Payment Amount calculated in accordance with the terms of Plain’s Participating Hospital Policies and Procedures and the Payment Program, as set forth in Attachments A and B, for Services rendered by HOSPITAL to Subscriber.
 
Although the hospital argued that it had no negotiating power against BCBS, that this was a “take it or leave it” contract, and that the terms of the contract were unconscionable, the court was not persuaded. The court was similarly unpersuaded by arguments from the hospital and the Texas companies that the fraud and negligent misrepresentation claims failed to meet the Mississippi state law requirements. Similarly, the Court upheld the civil conspiracy claim and unjust enrichment claims against the Texas laboratories. Additional procedural arguments by the defendants regarding additional necessary parties and BCBS’s standing to file the claim were rejected. The court ultimately held that BCBS had satisfied its burden at this early stage in the pleadings, such that its case against the hospital and the Texas labs can proceed.

With this ruling from the Mississippi federal court, it appears that the case will proceed. This month, the parties have continued through the litigation process, with a number of documents filed under seal. Only time will tell how successful this private payer will be in its fight against what appears to be a lucrative “private pay only” deal for this small hospital.

The takeaway for Louisiana hospitals is clear: Proceed With Caution in these popular “private pay only” lab deals.

BCBS Fraud Case Based on Hospital's Lab Arrangement Continues In Mississippi

Lately, many Louisiana hospitals have been approached with proposals for innovative “private pay only” laboratory arrangements. While these types of arrangements may offer more flexibility, hospitals must still carefully evaluate them. Not only is there a potential for a “tying” arrangement that could implicate federal laws, but an ongoing case in Mississippi federal court shows that at least one commercial payer is claiming fraud based on how a community hospital has partnered up with some entrepreneurial Texas lab entities.

Sharkey-Issaquena Community Hospital is located in Rolling Fork, Mississippi, a town with a population of about 5,000 people situated about 45 miles north of Vicksburg. It is a small, community hospital with 29 beds and a 52 bed nursing home. It has been contracted with Blue Cross Blue Shield of Mississippi (BCBS) since January 1995 with reimbursement at a percentage of charge rate. The hospital appears to have more recently entered into a “private pay only” arrangement with a group from San Antonio, Texas that provides lab services: Sun Clinical Laboratory, LLC, Mission Toxicology Management, LLC, and related entities.

Beginning in February 2017, according to BCBS, within just a few short months this small, rural community hospital performed more than 12,000 lab tests and submitted approximately $59 million in claims. Thirty-three million in claims were adjudicated and paid by BCBS, but BCBS quickly began investigating the extreme increase in claims.

According to BCBS, the hospital contracted with the San Antonio group, allowing those entities to perform the lab services and then bill claims using the hospital’s name and billing information. The lab tests were performed for patients from around the country who did not have contact with the hospital or its physicians. Results were sent to providers who had ordered the tests on “Mission Toxicology” or “Sun Clinical Laboratory” forms, but that included the hospital’s CLIA number and Mississippi address, along with a Texas phone number.

On May 4, 2017, BCBS sued the small hospital, the Texas companies, and ten “John Doe” Defendants. The lawsuit alleges breach of contract, ERISA claims, state law fraud, civil conspiracy, negligent misrepresentation, and unjust enrichment against the Texas companies. It seeks actual damages along with consequential, punitive, and exemplary damages and attorney’s fees. Most recently, the hospital and Texas companies filed motions to dismiss, arguing ERISA preemption, a lack of standing for BCBS, and a failure to plead sufficient facts to prove a breach of contract. BCBS fought the motion on all fronts.

On December 17, 2017, the motions were denied. Blue Cross Blue Shield of Mississippi v. Sharkey-Issaquena Community Hosp. et al., 3:17-CV-338-DPJ-FKB (S.D.Miss. 12/13/17), 2017 WL 6375954. The court found that BCBS’ state law claims could proceed because they were not preempted by ERISA under either the conflict or complete preemption doctrines. It further determined that BCBS could assert federal claims as an ERISA fiduciary as well as state law claims on its own behalf.

The BCBS state law claims for breach of contract, fraud and negligent misrepresentation also survived. The court found that collectively, the following provisions at least suggested that Blue Cross did not agree to pay for services to non-patients, ordered by physicians without medical staff privileges which were processed by an off-premises lab:

2.12 “Hospital Service(s)” means those services and supplies provided by HOSPITAL to Subscribers and other patients. Hospital Services do not include services performed by an organization or facility not itself licensed by the state as a general acute hospital.

3.1 HOSPITAL shall provide to Subscribers, insofar as facilities of HOSPITAL permit, Hospital Services which are Medically Necessary when such services are ordered by a licensed physician or other licensed health professional who has appropriate staff privileges at HOSPITAL.

4.1 PLAN agrees to make its payments due under this Agreement directly to HOSPITAL for Covered Services provided to each Subscriber.

5.1 PLAN shall pay directly to HOSPITAL for and in behalf of Subscriber the Payment Amount calculated in accordance with the terms of Plain’s Participating Hospital Policies and Procedures and the Payment Program, as set forth in Attachments A and B, for Services rendered by HOSPITAL to Subscriber.
 
Although the hospital argued that it had no negotiating power against BCBS, that this was a “take it or leave it” contract, and that the terms of the contract were unconscionable, the court was not persuaded. The court was similarly unpersuaded by arguments from the hospital and the Texas companies that the fraud and negligent misrepresentation claims failed to meet the Mississippi state law requirements. Similarly, the Court upheld the civil conspiracy claim and unjust enrichment claims against the Texas laboratories. Additional procedural arguments by the defendants regarding additional necessary parties and BCBS’s standing to file the claim were rejected. The court ultimately held that BCBS had satisfied its burden at this early stage in the pleadings, such that its case against the hospital and the Texas labs can proceed.

With this ruling from the Mississippi federal court, it appears that the case will proceed. This month, the parties have continued through the litigation process, with a number of documents filed under seal. Only time will tell how successful this private payer will be in its fight against what appears to be a lucrative “private pay only” deal for this small hospital.

The takeaway for Louisiana hospitals is clear: Proceed With Caution in these popular “private pay only” lab deals.

BCBS Fraud Case Based on Hospital's Lab Arrangement Continues In Mississippi

Lately, many Louisiana hospitals have been approached with proposals for innovative “private pay only” laboratory arrangements. While these types of arrangements may offer more flexibility, hospitals must still carefully evaluate them. Not only is there a potential for a “tying” arrangement that could implicate federal laws, but an ongoing case in Mississippi federal court shows that at least one commercial payer is claiming fraud based on how a community hospital has partnered up with some entrepreneurial Texas lab entities.

Sharkey-Issaquena Community Hospital is located in Rolling Fork, Mississippi, a town with a population of about 5,000 people situated about 45 miles north of Vicksburg. It is a small, community hospital with 29 beds and a 52 bed nursing home. It has been contracted with Blue Cross Blue Shield of Mississippi (BCBS) since January 1995 with reimbursement at a percentage of charge rate. The hospital appears to have more recently entered into a “private pay only” arrangement with a group from San Antonio, Texas that provides lab services: Sun Clinical Laboratory, LLC, Mission Toxicology Management, LLC, and related entities.

Beginning in February 2017, according to BCBS, within just a few short months this small, rural community hospital performed more than 12,000 lab tests and submitted approximately $59 million in claims. Thirty-three million in claims were adjudicated and paid by BCBS, but BCBS quickly began investigating the extreme increase in claims.

According to BCBS, the hospital contracted with the San Antonio group, allowing those entities to perform the lab services and then bill claims using the hospital’s name and billing information. The lab tests were performed for patients from around the country who did not have contact with the hospital or its physicians. Results were sent to providers who had ordered the tests on “Mission Toxicology” or “Sun Clinical Laboratory” forms, but that included the hospital’s CLIA number and Mississippi address, along with a Texas phone number.

On May 4, 2017, BCBS sued the small hospital, the Texas companies, and ten “John Doe” Defendants. The lawsuit alleges breach of contract, ERISA claims, state law fraud, civil conspiracy, negligent misrepresentation, and unjust enrichment against the Texas companies. It seeks actual damages along with consequential, punitive, and exemplary damages and attorney’s fees. Most recently, the hospital and Texas companies filed motions to dismiss, arguing ERISA preemption, a lack of standing for BCBS, and a failure to plead sufficient facts to prove a breach of contract. BCBS fought the motion on all fronts.

On December 17, 2017, the motions were denied. Blue Cross Blue Shield of Mississippi v. Sharkey-Issaquena Community Hosp. et al., 3:17-CV-338-DPJ-FKB (S.D.Miss. 12/13/17), 2017 WL 6375954. The court found that BCBS’ state law claims could proceed because they were not preempted by ERISA under either the conflict or complete preemption doctrines. It further determined that BCBS could assert federal claims as an ERISA fiduciary as well as state law claims on its own behalf.

The BCBS state law claims for breach of contract, fraud and negligent misrepresentation also survived. The court found that collectively, the following provisions at least suggested that Blue Cross did not agree to pay for services to non-patients, ordered by physicians without medical staff privileges which were processed by an off-premises lab:

2.12 “Hospital Service(s)” means those services and supplies provided by HOSPITAL to Subscribers and other patients. Hospital Services do not include services performed by an organization or facility not itself licensed by the state as a general acute hospital.

3.1 HOSPITAL shall provide to Subscribers, insofar as facilities of HOSPITAL permit, Hospital Services which are Medically Necessary when such services are ordered by a licensed physician or other licensed health professional who has appropriate staff privileges at HOSPITAL.

4.1 PLAN agrees to make its payments due under this Agreement directly to HOSPITAL for Covered Services provided to each Subscriber.

5.1 PLAN shall pay directly to HOSPITAL for and in behalf of Subscriber the Payment Amount calculated in accordance with the terms of Plain’s Participating Hospital Policies and Procedures and the Payment Program, as set forth in Attachments A and B, for Services rendered by HOSPITAL to Subscriber.
 
Although the hospital argued that it had no negotiating power against BCBS, that this was a “take it or leave it” contract, and that the terms of the contract were unconscionable, the court was not persuaded. The court was similarly unpersuaded by arguments from the hospital and the Texas companies that the fraud and negligent misrepresentation claims failed to meet the Mississippi state law requirements. Similarly, the Court upheld the civil conspiracy claim and unjust enrichment claims against the Texas laboratories. Additional procedural arguments by the defendants regarding additional necessary parties and BCBS’s standing to file the claim were rejected. The court ultimately held that BCBS had satisfied its burden at this early stage in the pleadings, such that its case against the hospital and the Texas labs can proceed.

With this ruling from the Mississippi federal court, it appears that the case will proceed. This month, the parties have continued through the litigation process, with a number of documents filed under seal. Only time will tell how successful this private payer will be in its fight against what appears to be a lucrative “private pay only” deal for this small hospital.

The takeaway for Louisiana hospitals is clear: Proceed With Caution in these popular “private pay only” lab deals.
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