New Jersey regulator tells United to justify lab referrals

The health plan's threatened fines to physicians who send patients to out-of-network laboratories comes under scrutiny. But United defends its protocol.

By Bob Cook — Posted May 14, 2007

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One state regulatory agency is demanding that UnitedHealth Group show why it shouldn't face its wrath for a controversial rule that threatens fines and other sanctions for physicians whose patients are referred to out-of-network laboratories.

The New Jersey Dept. of Banking and Insurance, in an April 10 filing, said United's new lab protocol appeared to be in violation of several state statutes and regulations.

It ordered that United "appear and show cause why it should not be required to pay restitution or take other remedial measures" regarding the effects of its proposed sanctions on physicians. A hearing is expected to be scheduled.

The department's action was based on a request from the Medical Society of New Jersey to review whether United's lab protocols were legal.

On March 1, United instituted a protocol nationwide that would fine a physician $50 each time a patient was referred to an out-of-network lab. In addition, the protocol said physicians could face lower reimbursements or could be dropped by United for repeated offenses.

United developed the protocol after signing a 10-year exclusive deal with Laboratory Corp. of America, the nation's second-largest independent lab network. That left the No. 1 lab network, Quest Diagnostics, out of the network. However, United said more than 1,500 local and regional labs were still part of its network.

The AMA and many state and specialty societies spoke out against United's protocol and its threatened punitive actions, which they saw as undue influence on patient care.

Generally, a patient who gets care outside of a health plan's network pays a higher rate, and the doctor does not face sanctions for that decision, though in the case of lab work, patients rarely choose where they get it done.

However, United has maintained that it would apply fines or penalties rarely, if at all. They would apply to physicians who "knowingly and repeatedly" refer to out-of-network labs, United spokesman Tyler Mason said. "We have yet to implement any aspect of the sanction, and we do not expect to in the near future."

United suspended the protocol in New Jersey after the Dept. of Banking and Insurance requested the company do so. That was before the department released its latest filing on the subject. The AMA and other societies supported United's suspending the protocols, and asked that it do so nationwide, which the company has not done.

The department filing gave numerous reasons for the company "appearing" to violate state statutes and regulations. It said the lab sanctions:

  • Did not appear in physician contracts, nor were they negotiated or agreed to by doctors.
  • Do not appear to be predicated upon whether the lab tests are medically necessary.
  • Are not clearly articulated, in terms of any formula, for the calculation of penalties and fee reductions.
  • Are "inconsistent with" state statutes prohibiting health plans from providing "financial incentives or disincentives" to withhold health care access or services that are medically necessary.

In an e-mail to AMNews, Mason did not answer the specific comments in the department's filing.

But he reiterated statements that United's LabCorp contract and out-of-network protocol was the best way to "deliver the best access to affordable lab services for our members and employers," who did not want to pay higher out-of-network rates.

"Our goal is to provide the requested documentation to the New Jersey regulators in a timely manner while we continue our ongoing communications and outreach process in New Jersey," Mason said.

"This process has not impacted our communication efforts to work with physicians to find participating New Jersey labs to meet the needs of our members. We will contact physicians who seem to be using nonparticipating labs to resolve any questions or issues directly before further steps may be considered," he said.

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