HDL LogoBy Peter Galuszka

There’s been plenty of discussion about the evils of rising health care costs, but unfortunately, one only hears of government wrong-doing.

Private industry actually spearheads a lot of the price gouging — sometimes with government complicity.

And it just so turned out that a high-flying Richmond firm — Health Diagnostic Laboratory  — was at the heart of a scandal that involved ripping off the Medicare program.

The Wall Street Journal on Monday was awarded a Pulitzer Prize for investigative reporting for exposing Medicare fraud. As a result of a front-page story published last Sept. 8, Tonya Mallory, the chief executive and co-founder of HDL, resigned. A few weeks ago, HDL was fined $47 million (while admitting no wrongdoing) after  their Sept. 8 story last year, for paying doctors kickbacks to use their blood tests.

The Journal broke the story after a court battle. It fought to lift a 33-year-old injunction that kept private data regarding Medicare patients. Once the data floodgates were opened, reporters pieced together all kinds of juicy information about health care firms, including HDL.

I have the story here on my “The Deal” blog in Style Weekly.

The upshot? Unlike what you often read on this blog, the problems of rising health care costs may not exactly be government sloth and inefficiency. It can be the private sector gaming the system to their benefit.

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10 responses to “Pulitzer-Winning Series Exposed Richmond Firm”

  1. “Unlike what you often read on this blog…”

    The only time anyone has read that government and only government is the problem with health care is when you put words in peoples’ mouths!

    The U.S. health care system is a mess, and that includes the vast array of special interests — hospitals, physicians, pharmaceutical companies — that helped create it and profit from the status quo. The area where we differ is how to change the system. You think magical government fairy dust will make it all better. I think a market-driven focus on productivity and innovation is more likely to eliminate the hundreds of billions of dollars of inefficiency in the system.

    Remember, HDL wasn’t gaming market incentives — it was gaming government incentives.

  2. and we never have a problem with these companies gaming the non-govt health insurance industry?

    “Medicare Is More Efficient Than Private Insurance”


    Medicare Has Controlled Costs Better Than Private Insurance

    Medicare Has Lower Administrative Costs Than Private Plans.
    Medicare’s overhead is dramatically lower.
    Medicare administrative cost figures include the collection of Medicare taxes, fraud and abuse controls, and building costs.

    So-called “competition” in the private health care market has driven costs up.
    In most local markets, providers have monopoly power. Consequently, private insurers lack the bargaining power to contain prices.

    In most areas, two or three dominant insurers dominate the regional market, limit competition and make it extremely difficult if not impossible for new insurers to enter the marketplace and stimulate price competition.

    Medicare Advantage, which enrolls seniors in private health plans, has failed to deliver care more efficiently than traditional fee-for-service Medicare.

    Medicare Is Publicly Accountable, Private Plans Are Not

  3. Peter Galuszka Avatar
    Peter Galuszka

    DId I wrote, “Unlike what Jim Bacons has said on this blog?” No, I didn’t, but there is a constant mantra that the private sector would handle health care much better if there were less government regulation and spending.

    And, there’s been lots of Richmond boosterism about HDL and “high tech startups.”

    This particular story is a cautionary tale.

  4. Steve Haner Avatar
    Steve Haner

    A few years ago HDL was giving free tests and I had one done. When I shared the results with my own doctor, he said all that detailed information was really not needed and he didn’t recommend I do more than the standard lipid test. He and I had another conversation recently about how he never participated in the things that HDL was doing to promote its services, but he went on to describe some of the things he was offered and other doctors took.

    It did leave me wondering how many times over the years something had been recommended to me because some drug company or device company had induced the doctor. In the real estate world, at some point when a bank and a broker and a title insurance company have a cozy relationship involving shared revenue (kick backs), that relationship is disclosed. If there were more transparency in the medical world, maybe the free market rhetoric would apply. Right now not so much.

    Maybe a nice sign in the lobby that says, this doctor accepts trips and meals from the following drug companies or laboratory service companies….(or make the beautiful sales ladies wear signs. Heck, I’ll buy anything Penny on Big Bang Theory is selling…).

    And many that’s your point, Peter? The WSJ got the data released after a legal battle and all kinds of bad stuff came to light. Transparency.

  5. Turns out – Medicare was not the only insurance defrauded by a long shot:

    ” Aetna files lawsuit against Health Diagnostic Laboratory”

    “Another insurance company has filed a lawsuit seeking potentially millions of dollars in damages against the Richmond-based blood testing company Health Diagnostic Laboratory Inc.

    Aetna Inc., a Hartford, Conn.-based health insurer, said it is seeking “tens of millions in monetary damages” for what it claims was a “fraudulent billing scheme” by HDL and its former contract sales provider.

    HDL, which has it main office and laboratory in downtown Richmond, already is fighting a similar lawsuit filed in October by insurer Cigna Health and Life Insurance Co.”


    Part of rankles me about the initial stories is that organizations and media that are predisposed towards opposition to government in general will “lead” by with stories that illustrate their biases – while not bothering to get the rest of nor report it in the story – which if they did, would invalidate the central anti-govt premise of their original story and in fact – show that the govt is the one who actually caught the fraud.

    It turns out that it was Medicare that initiated the investigation that ultimately exposed the fraud – and from that – other private insurance companies knew they were also being defrauded.

    but this is not how these stories typically get told. Instead they start off as a a story illustrating the failures of inept/incompetent govt trying and failing to do health care ,something opponents of the govt feel ought not to be doing health care the first place – and the reason why our health care costs are so high.

    but – too many of use, today are lazy and ignorant and we tend to believe the sound-bites .. and it becomes a political cudgel to then argue that in the US the cause of expensive health care – is the govt. It makes no sense if one examines all the evidence including the fact that the countries that less expensive than us ALL have MORE govt involved – not less.

    on this particular story – a simple GOOGLED excerpt of more than one source shows this:

    “According to the WSJ story, federal healthcare authorities are looking into a practice by HDL and other medical laboratory companies of paying physicians “to process” blood specimens collected in their offices. As described by the WSJ, this “processing fee” was as much as $20 and included a $3 portion for the venipuncture.

    In fact, the WSJ reported that the Health and Human Services Office of Inspector General (OIG) had issued a special fraud alert in June that explained how this practice violates federal law. HDL told the WSJ that, after the release of the fraud alert, it had stopped paying processing fees to physicians.”

    so – the actual truth here is that the govt portrayed as inept and incompetent – exposed the fraud and not the supposedly more efficient and more competent private sector.

    The truth is that typically Medicare reimbursement rates – drive the reimbursement rates of the private sector who base them on the Medicare rates.

    ” We analyze Medicare’s influence on private payments for physicians’ services. Using a large administrative change in payments for surgical procedures relative to other medical services, we find that private payments follow Medicare’s lead. On average, a $1 change in Medicare’s relative payments results in a $1.30 change in private payments. We find that Medicare similarly moves the level of private payments when it alters fees across the board. Medicare thus strongly influences both relative valuations and aggregate expenditures on physicians’ services.”

    Excerpt from: ”

  6. re: ” Private industry actually spearheads a lot of the price gouging — sometimes with government complicity.”

    friendly amendment:

    Private industry actually spearheads a lot of the price gouging — sometimes with government complicity but often as not with private industry complicity that also gets victimized”.

    the sentence does not flow as well but the point is that there are not just private industry companies scamming the govt. They scam other companies as well as consumers.

    the idea that private industry/capitalism is the antidote to inept and incompetent government – that idea is for gullible rubes of which there are no shortage of these days given our roiled politics and lazy quests for soundbite knowledge.

  7. Peter Galuszka Avatar
    Peter Galuszka

    Thanks larryg,

    Yes, the government did initiate the probe that exposed price inflation. This underlines, once again, how this mixed oligarchic system of health insurance and medical care is scam city. Yet, on this blog, you have the touting of reports rom the “Thomas Jefferson” institute that Medicaid expansion should be denied because hospitals make enough money. Hah!

    What argues for a single-payer system is just this. You have people pushing the “free market system” but what we have is anything but. A few years ago, the Journal did a story about how much Carillion out on Roanoke overcharged for colonoscopies compared to the surrounding area. The Times did a similar series looking into what different places charged for different procedures.

    Testing is no different. In the HDL case, I interviewed Tonya Mallory recently for a a story and she told me she that the $17 was a fair price to pay doctors because they are competing with Labcorp and other testing outfits that have collection clinics. HDL doesn’t.

    Speaking of LabCorp, they have the most obnoxious billing system ever. About three times a year my doctor orders simple blood and cholesterol tests for me. His practice is owned by hospital giant HCA. They apparently have a deal with LabCorp. I have no idea what each test vosts and there is no way I can vet what I really want to pay for. So, I go to LapCorp and get the test. They run it through my insurer which may nor may not pay for some of it. Then, I get a truly obnoxious and off-putting bill from LabCorp demanding that I “pay immediately.” Of course, I have no idea how they came up with the bill. It may be the first time I have received any information about it, but LabCorp is already treating me like a deadbeat.

    This is hateful stuff when you are trying to get a simple health test.

    How can “the market” work if I, the eventual payer, have no input into what I am getting testing for and how the billing system works?

    This is something that the Jim Bacons of the world can’t answer as they try to push a “free market” system onto an entity that can’t handle it.

    Best thing for the U.S. is a single payer system most likely run by the feds. Every other advanced industrial nation has one and their health data is better than ours.
    Steve Brill has a new book out about this. Hope to read it.

  8. Steve Haner Avatar
    Steve Haner

    Peter, I too know my way to a few LabCorp locations around Richmond and have been mystified by their billing practices. I just pay them what Anthem says I owe them and ignore efforts by them or anybody else to “balance bill.” Frankly I’m pretty amazed at how inexpensive their tests really are when you compare what Anthem paid to what LabCorp billed. But I worry about the uninsured who are billed the retail price.

    I don’t absolutely dismiss the benefits of a freer market in health care but the problem is creating it might be impossible now that we’ve built this monstrosity we have. But one conclusion I’ve reached and will stand by is the P.J. O’Rourke Theorem: “If you think health care is expensive now, see what it costs when it’s free.” The buyers have to have skin in the game, have to be paying some level of co-pay or deductible. Even in the Medicaid arena. And there does need to be more transparency.

    But in all the discussions I’ve had with doctors or hospitals over major issues, including one surgery and then a surgery that was cancelled at the last minute, I never asked anybody “what will this cost?” These were not elective operations and I chose the doctor I wanted for other reasons. (Who wants to go to the cheapest heart surgeon in town?) But with the deductibles and co-pays I face now, any elective procedure will involve a cost-benefit analysis.

  9. For all its faults maybe we should be careful for what we wish for. I see few press items detailing the types of issues that stateside healthcare consumers experience in UK and Canada, or even in our own “free” VA services across the harbor in Hampton.

    A close family member visited an ER recently on a Saturday (!) morning with severe abdominal/back pain and was sent home with pain meds. Since to relief was short lived, she returned and was admitted. Early the next morning (Sunday) a surgeon (who was on call and had been to no less than five Tidewater hospitals that day) was called in and implanted a necessary stent thus providing immediate amelioration.

    This is not to say everything is rosy – however – I’m grateful for what we do have even with all its supposed warts.

  10. Sorry should have been “the relief” …

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