Rural Hospital Laboratory Pass-Through Billing: When Outside Tests Get Hospital Rates

Rural hospital laboratory pass-through billing uses a hospital’s billing identity to collect its higher insurance rates for tests performed elsewhere. The hospital’s contract is the asset. Where the specimen went, who ran the test and whose name appeared on the claim explain this form of hospital billing fraud. When an arrangement knowingly sends false laboratory bills to Medicare or Medicaid, it can support a hospital False Claims Act case.

The Test and the Claim Tell Different Stories

Pass-through billing puts a provider’s name on work another laboratory performed. The Healthcare Fraud Prevention Partnership’s May 2018 laboratory report, Examining Clinical Laboratory Services, describes a provider paying a laboratory for testing and then billing as though it performed the tests itself. The report identifies reasons for doing this, including getting around a laboratory’s lack of a payer contract or avoiding scrutiny of the laboratory.

The arrangement crosses several desks. A provider orders a test, a specimen goes to a testing site, and a claim reaches the insurer. The referral source, performing laboratory and billing entity can tell different parts of that story. The contract and the claim show which version the insurer paid for.

The partnership describes rural arrangements in which specimens travel from non-rural communities to a rural laboratory, others in which the testing stays elsewhere but the rural facility bills, and still others in which nobody tests the sample. The same billing identity can conceal very different paths for a specimen.

The Contract Rate Made a Distressed Rural Hospital Valuable

A distressed rural hospital’s laboratory insurance contract rates can be the attraction for an outside testing business. The partnership explains that some rural providers receive higher reimbursement to encourage care in underserved areas. Pass-through schemes target those facilities for that rate.

The report describes consulting companies approaching financially strapped rural facilities with offers to establish a laboratory or use the one already there. The inducement may be partial ownership of the laboratory or direct kickbacks. Samples collected elsewhere then generate claims at the rural rate, sometimes without ever reaching the rural laboratory.

One partnership member described hundreds of laboratory orders from urban Philadelphia billed as though a laboratory in rural Kansas had processed them. In another example, a private payer reported receiving $33.8 million in laboratory claims from providers with no staff privileges at the rural health clinic that billed them.

The higher rate was meant to encourage rural services. In the arrangement the report describes, the rural facility’s name could earn that rate while the testing stayed somewhere else.

The Testing Business Behind the Referral

A laboratory’s supply of specimens can be as important to the billing business as the hospital’s rate. The partnership’s report describes sober home testing schemes in which operators establish an in-house laboratory or work with a co-owned or conspiring testing facility. Free rent or payment of insurance premiums can draw residents into the arrangement, while their urine tests generate insurance claims.

The partnership’s laboratory report explains the clinical distinction. Presumptive urine drug screening answers whether a suspected substance is present. Definitive testing assesses the level or quantity of a specific substance. Its members raised concerns about routinely using the more expensive definitive testing in place of presumptive screening. An insider may know whether the test choice followed the patient’s care or the laboratory’s revenue plan.

The Journal of AHIMA’s 2017 article on healthcare fraud, Busting Bad Medicine: A Call to Action Addressing Healthcare, Fraud, Waste, and Abuse, discusses allegations involving Health Diagnostic Laboratory, physician compensation for referrals and medically unnecessary blood tests billed to federal healthcare programs. The useful parallel is the connection between the payment for a referral and the testing it produces.

Higher Rates Were Supposed to Keep Rural Care Available

The partnership warns that hospitals participating in rural pass-through schemes can go bankrupt, leaving patients with fewer services or a closed hospital. The rate intended to support care can instead support a testing business that puts the local facility at risk.

In its December 2020 report on rural hospital closures, the Government Accountability Office measured the travel burden in communities affected by closures. Among the affected communities in that study, the median distance to general inpatient services rose from 3.4 miles in 2012 to 23.9 miles in 2018.

The insurer pays the laboratory bill. The community bears the loss when the hospital stops providing care.

Who Chose the Hospital’s Name for the Claims

People in hospital finance, laboratory operations and billing can see why management routed outside tests through one particular hospital, the decision a test report never explains. The partnership’s examples put the performing laboratory, the billing facility and the ordering provider in different places. Someone inside the arrangement may know who chose that separation and what the hospital received for its part.

We connect that knowledge to the payer contract, specimen records, test results and claims to establish whose work the hospital billed. The point is the decision behind the paperwork: why this hospital’s name appeared on testing done elsewhere, and who kept that arrangement running.

The same concern about whose work supports a bill also appears in hospital billing without required provider supervision and in claims involving excluded providers.

What Management Did After the Billing Warning

A hospital compliance warning can connect a disputed billing practice to the people who had authority to change it. The warning’s recipient, the claims it identified and management’s response are evidence of what happened inside the organization. If a hospital internal audit identified an overpayment, we help the whistleblower connect the investigation and management’s response to the billing that continued.

The 2009 Journal of Forensic & Investigative Accounting study of hospital billing risk, Medicare Billing Risk Perceptions of Hospitals Operating Under Corporate Integrity Agreements, describes independent internal audits and written findings sent to hospital leadership and the compliance committee. For an insider who saw a laboratory arrangement continue after a billing warning reached management, the response can explain more than the policy’s reassuring language.

Why Repeated Lab Claims Escape Audit

The partnership’s report identifies a problem across laboratory billing: payers tend to devote limited fraud-review resources to expensive individual claims, leaving low-dollar tests less likely to be audited one at a time.

The Journal of Forensic & Investigative Accounting study’s historical case table describes allegations involving Abington Memorial Hospital and more than 70,000 false clinical-laboratory claims to Medicare over nine years. That example concerns repeated claims, rather than rural contract rates. It shows why an insider’s account of a recurring billing decision can matter across a large set of tests.

When Government Programs Pay the Lab Claims

Knowingly billing Medicare or Medicaid for laboratory work falsely presented as the hospital’s own can put government money behind the same mismatch between test and claim. Our whistleblower experts examine who paid the claims and what the hospital represented, alongside the insider’s account of who directed the billing. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

The Arrangement Behind the Hospital’s Name

You may know why a hospital chose a laboratory arrangement, where the tests were run and who insisted on using its billing credentials. Speak with our whistleblower experts about the arrangement behind those bills. We connect that inside knowledge to the contracts, referrals and claims, bring in whistleblower lawyers who know hospital laboratory billing, and stay beside you through the case.