Redwood Toxicology: The Medicaid Price Compared With the Price Charged Others

The Redwood Toxicology Medicaid settlement required the laboratory to pay $4,797,578 to resolve allegations that it overcharged Connecticut Medicaid for urine drug testing. The Department of Justice’s allegations compared what Redwood accepted from the public program with the lower prices it charged other customers for the same or substantially similar tests. For someone who knows a laboratory’s customer prices and government billing, that is a recognizable question: why was the program paying more for work the laboratory sold elsewhere for less?

Redwood Toxicology Laboratory, headquartered in Santa Rosa, California, provided urine drug testing for substance abuse patients enrolled in Connecticut Medicaid. The Department of Justice’s March 7, 2022 announcement described a civil agreement with the federal and state governments covering claims submitted from January 1, 2015, through February 24, 2018.

What the Redwood Toxicology Medicaid Settlement Covered

The government alleged that Redwood regularly accepted $38 per test from Connecticut Medicaid while charging other third parties as little as $2 at the same time for the same or substantially similar urine drug tests. The laboratory’s own dealings with other customers supplied the lower-price benchmark.

Connecticut’s Most Favored Nation regulation was the basis of the allegation. As the Department of Justice explained it, clinical laboratories should not seek payment from Connecticut Medicaid at a price higher than the lowest price they charge other third parties for the same or similar services.

Public health care money was paying for substance abuse treatment. The government alleged that Medicaid was paying more for work the laboratory was willing to sell for much less. The lower price already existed inside the business.

The Department of Health and Human Services Office of Inspector General investigated the allegations. The Department of Justice’s announcement identifies the U.S. Attorney’s Office and the Connecticut Office of the Attorney General as handling the case. The agreement resolved the federal and state governments’ claims together.

The Test Behind the Price

A useful urine drug testing price comparison identifies the actual service being sold. The government’s phrase “same or substantially similar” makes the test itself central to Redwood’s case.

The Journal of Family Practice’s 2021 clinical review, Urine Drug Screening: A Guide to Monitoring Tx With Controlled Substances, explains the difference between presumptive screening and confirmatory testing. Immunoassay uses antibodies to detect a drug or metabolite and provides comparatively inexpensive, rapid screening. Chromatography separates the components in a specimen, and mass spectrometry identifies them. The review describes the latter method as more specific, more costly and slower to return results.

The review describes test selection as depending on the clinical question, cost and urgency. A clinician seeking a rapid screen is asking for something different from a clinician seeking confirmation of a particular substance. For a pricing comparison, the method and the substances tested help explain what a customer bought under the broad label of urine drug testing.

A laboratory employee’s knowledge can make that comparison intelligible. If you can explain what a test name means in practice, you may be able to connect a customer invoice to the service represented on a Medicaid claim.

Are Excessive Laboratory Charges Insurance Fraud?

In Redwood’s case, the government alleged that accepting more from Connecticut Medicaid than the laboratory charged others for comparable tests violated the state’s Most Favored Nation rule. The price the laboratory charged its other customers was the benchmark, rather than an estimate of what the test cost to perform.

An insider looking at customer accounts may know the price quoted or invoiced. Someone working with Medicaid claims may know the amount billed and the payment received.

The Claim and the Laboratory Records

For an allegation like Redwood’s, we examine how the requested test, the laboratory’s work, the claim and the customer price fit together.

The requisition identifies the requested testing. The laboratory’s test records explain what it performed. The claim describes the service submitted for payment. Customer pricing and invoices supply the other side of the alleged comparison. We work with the person who understands those records to establish the connections between them.

An order can also request further testing if an initial result meets a condition set by the clinician. That makes the requested work important to understanding the service ultimately performed. In a price comparison, a laboratory professional may be able to explain whether an invoice describes a screen, a confirmatory service or both.

For a billing employee, the useful knowledge may concern how a customer price became an invoice or how a claim became a payment. For a laboratory professional, it may concern which tests a service actually included. For someone negotiating customer accounts, it may concern the prices offered for that work. We bring those perspectives together around the alleged overcharge.

The Same Pricing Issue at Another Connecticut Laboratory

Clinical Science Laboratory reached a separate $1,508,106 settlement in June 2019 over allegations that it accepted the same Connecticut Medicaid rate while charging substance abuse treatment clinics much less for testing.

The parallel is the laboratory’s own lower price. Both cases put that price at the center of the government’s overcharging allegation. For an insider, the customer side of the business is part of the Medicaid story.

What a Laboratory Whistleblower Can Bring

A healthcare employee who understands customer pricing, test selection or government claims may hold the connection that makes an overcharging concern concrete. We work with laboratory insiders to assess that connection and build a case around the conduct they know.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know the Prices Behind the Claims

If you know how a laboratory’s Medicaid billing compares with what it charges other customers, speak to one of our Whistleblower Experts about that price gap. We bring in laboratory fraud whistleblower lawyers who understand payment and pricing disputes, and stay beside you to build your strongest laboratory fraud whistleblower case.