Quest, LabCorp defrauded Medicaid, lawsuit says

Testing giants Quest Diagnostics ($DGX) and LabCorp ($LH) have been gouging Virginia's Medicaid system, according to a lawsuit, inflating prices by as much as 1,000% of what they charged private insurers.

As Bloomberg reports, California's Hunter Laboratories filed the suit on the state's behalf, alleging that the two companies lied about test prices when billing Virginia, violating a state law that requires healthcare companies to charge Medicaid what they charge other customers.

For example, Quest invoiced Medicaid as much as $10.42 for a common blood test while charging private outfits as little $1.42 for the same kit, according to the suit, and LabCorp's Medicaid rates were "far in excess" of those applied to group purchasing organizations.

In a statement, Quest underlined the fact that Hunter, a reference laboratory, is among its competitors and asserted that the lawsuit is without merit.

"We comply with the laws and regulations governing our business, including Medicaid pricing requirements, not only as a legal obligation, but also because it is the right thing to do," the company said.

LabCorp did not respond to a request for comment Wednesday.

The lawsuit seeks an $11,000 penalty for each violation, but the complaint doesn't specify how many false claims Quest and LabCorp allegedly filed, Bloomberg notes. Hunter is pursuing a similar suit against the pair in Georgia, and, back in 2011, the company sued Quest on allegations that it gouged California's Medicaid system, a complaint Quest settled for $241 million, the news service notes.

Hunter, filed the Virginia complaint in 2007, and the suit was unsealed in August and filed in federal court this week.

While the Virginia case is likely alarming to other state payers, the feds have long been concerned that Medicare is being bilked by diagnostics companies. According to an Inspector General report released over the summer, the likes of Quest and LabCorp overcharged Medicare by about $910 million for common lab tests in 2011, as private insurers paid between 18% and 30% less than the federal government.

Quest and LabCorp each get more than 15% of their revenues from Medicare, and both companies have reduced their revenue forecasts over the past year to prepare for a decline in reimbursement for high-volume tests.

- read the Bloomberg story

Editor's note: This story has been updated to include comment from Quest Diagnostics.