Is the Issue with Lab Outsourcing an Insurance Contract Issue, Fraud or What? (Glen Rose Medical Center)Somervell County Salon-Glen Rose, Rainbow, Nemo, Glass....Texas


Is the Issue with Lab Outsourcing an Insurance Contract Issue, Fraud or What? (Glen Rose Medical Center)

19 May 2019 at 12:31:31 PM

Recently wrote querying why it was that Somervell County Hospital District dba Glen Rose Medical Center stopped getting paid from labs that were coming from outside of the hospital district to be processed by Glen Rose Medical Center.

  • Are people charged more for the labs if they come from another place (let's say a physician or another hospital routes the labs via Medical Management Professionals to venues that have a contact with MMP)? In other words, is there an issue with Glen Rose Medical Center acting as a for-profit hospital by processing lab samples within this district?
  • Is there anything inherently wrong with processing labs from outside the district and if so, what are those issues? Could it be, for example, that it is harder for an insurance company to determine if original referrals are unnecessary, padded or fraudulent? 
  • There are specific for-profit lab companies that exist. Why doesn't a company like MMP contract with them instead of going out to rural hospitals to do the labs? Or why doesn't the originating physician or hospital contract with a for-profit company to do this, do they have issues with companies such as LabCorp? 
  • Does an insurance company such as Blue Cross Blue Shield Texas care if a hospital starts processing these types of labs and billing BCBSTX? Is this a contractual issue, where BCBSTX (for example) expects the hospital to bill for patients that come to them or are territorially based and they didn't expect to contractually pay for labs being sent from outside the area, AS IF the hospital is a profit center? 

I understand the premise that this affords rural hospitals the chance to make some money and, assuming that the contract with MMP also pays them some soft of fee, pads their pocket too. And it might even be that the originating doctor or hospital gets a percentage back of the money for the lab, besides MMP, I have not seen the contract. If you know about this for sure, please comment or send a message to

I have seen one instance, on the completely illegal end of this, where the CEO, Harris Brooks, of Palo Pinto General Hospital , Palo Pinto County, Mineral Wells, Texas was flat out making up labs, ie, fraudulently created billings based on non-existent lab work.  He did this to swindle money out of 3 different insurance companies, and pled guilty. The term for the scheme used by Brooks is "pass through billing" 

According to his plea papers, Palo Pinto General Hospital CEO Harris Brooks, along with his co-conspirators, used PPGH’s in-network contracts with large health insurance companies to engage in pass-through billing for laboratory services, a scheme that lasted from September 2017 through June 2018. 

Using PPGH’s national provider identification number, Mr. Brooks and his co-conspirators submitted claims to insurance companies for allergy and genetic testing purportedly performed at PPGH, Harris admits.  In reality however, PPGH did not have the equipment on-site to perform the tests for which it submitted claims, and the patients for whom claims were submitted were receiving treatment  at various spas and clinics throughout Texas and elsewhere, not PPGH. The patients did not know about the pass-through charges using PPGH’s insurance contracts. 

Over the nine-month period, Brooks and his co-conspirators submitted claims to health insurance providers for laboratory services totaling more than $55 million, the vast majority of which were fraudulent.  As a result of these claims, the insurance companies paid PPGH more than $9 million.

The purpose of the scheme was to receive higher rates of reimbursement from the insurance companies, Harris said. 

Jacksboro Herald-Gazette 

In November 2017, Jack County residents with Blue Cross Blue Shield of Texas health coverage received a letter stating Faith Community Hospital was no longer in the insurer’s network.

At the time, FCH released a statement that the termination of the relationship between the hospital and BCBS appeared to be in retaliation against FCH over a billing dispute involving covered laboratory services provided to Blue Cross’ subscribers.

According to a press release from the hospital, FCH’s causes of action against BCBSTX for breach of contract for the unpaid and underpaid claims for covered outreach laboratory services, breach of contract for retaliation, tortious interference and injunctive relief, is continuing in arbitration before the American Arbitration Association. 

“The hospital is seeking actual, compensatory and economic damages against Blue Cross, including reasonable and necessary attorney’s fees, after Blue Cross refused to pay – or fully pay – for covered laboratory services under the hospital’s contracts with Blue Cross, and after Blue Cross terminated its contracts with the hospital without cause,” said FCH General Counsel David Spiller. “The hospital intends to continue to pursue the claims vigorously.”

August 24 2018- from Winston-Salem Journal regarding Blue Cross Blue Shield of NC counterclaim agasint a North Carolina hospitals in Stokes County where the hospital sued BCBS for not reimbursing lab payments. 

Blue Cross accuses LifeBrite of “engaging in a fraudulent scheme to enrich itself at Blue Cross NC’s expense by billing for laboratory services that were not payable, were fraudulent” and in violation of the contract LifeBrite inherited from Pioneer.

The insurer’s claims include fraudulent misrepresentation, negligent misrepresentation, breach of contract, breach of contract accompanied by a fraudulent act and unfair and deceptive trade practices.

Blue Cross’ response comes in a counterclaim of a lawsuit filed April 13 by LifeBrite in which the Georgia-based group is pursuing reimbursements cut off by Blue Cross. LifeBrite accuses Blue Cross of breaching their contract and requests at least $15.5 million in reimbursement for submitted claims.

HFPP-Examining Clinical Labratory Services

Improper Laboratory Relationships

Improper laboratory relationships refers to illicit referral, billing, or ownership arrangements between multiple laboratories or between laboratories and physicians. These arrangements can either be established with the intent to defraud or represent the corruption of a formerly legitimate laboratory or organization. Specific potential schemes of concern to HFPP Partners are listed below. • Pass-through Billing: Pass-through billing schemes occur when a provider, such as a physician or hospital, pays a laboratory to perform their tests and then files the claims as though they had performed the tests themselves. This activity occurs outside the appropriate practices for reference-laboratory billing between laboratories, and is often done to work around the lack of contractual relationships between a laboratory and payer organizations, to avoid scrutiny of the laboratory in question, or to allow the provider to recoup some of the financial benefits of in-office testing without requiring them to operate a laboratory themselves. This may result in double billing to payer organizations if both the laboratory and the provider submit claims for payment. Pass-through billing can undermine the intent and purpose in point-of-care testing. Of note, this scheme can also occur when such referral and billing arrangements are made between laboratories. • Rural Health Pass-through Billing: Rural health pass-through billing, a variation of the pass-through billing scenario described above, represents another serious scheme of high concern to HFPP Partners. Some rural providers and suppliers are reimbursed at a higher rate to create incentives for the provision of services in traditionally underserved areas. Rural health pass-through billing schemes specifically target rural facilities to take advantage of these higher reimbursements.

In some schemes, an individual claiming to represent a private consulting company will approach a rural facility and offer to set up a laboratory or use the facility’s existing laboratory to provide the testing services. The plan is often described as a legitimate method to process laboratory tests, and the rural facility - often fnancially strapped - is offered inducements to participate either in the form of partial ownership of the laboratory or by collecting direct kickbacks from the consulting company. The company then send samples collected in non-rural communities to the laboratory for processing at the higher reimbursement rate. In other instances, the samples are processed in non-rural laboratories but billed to payers as though they were conducted in the rural facility laboratory. In still other instances, laboratory samples are never tested at all and are only billed as though they were conducted in the rural facility. 

One HFPP Partner described an episode in which hundreds of laboratory orders from urban Philadelphia were billed as having been processed in a laboratory in rural Kansas. Situations like this may result in lower quality healthcare if essential and time sensitive laboratory results are delayed or samples are contaminated because they are being transported for processing in rural areas. In addition to having a fnancial impact on the payer, hospitals that participate in the scheme can go bankrupt or incur severe fnancial penalties. In either case, patients may suffer harm as rural providers either close or limit their available services to save costs

Tex-Med- Pass Through Billing Generally Not Permitted.

Pass-through billing occurs when an ordering physician requests a service and bills insurance for it but does not perform the service, nor do those under the physician’s direct employ. Insurance companies generally forbid this practice.

Say, for example, you draw blood and send the specimen for testing to an outside lab that sends you the results. The lab bills you for its work, then you bill the patient’s insurance plan for that expense, or you bill the patient separately for the lab expense, in addition to filing a claim with the patient’s insurance plan for the other components of your service. That is pass-through billing. The lab, not the physician, should bill the payer for its work.


Blue Cross and Blue Shield of Texas (BCBSTX) does not permit pass-through billing. …The performing physician … should bill for these services unless otherwise approved by BCBSTX. BCBSTX does not consider the following scenarios to be pass-through billing: 

  • The service of the performing physician … is performed at the place of service of the ordering provider and is billed by the ordering physician or professional provider.
  • The service is provided by an employee of a physician … (physician assistant, surgical assistant, advanced nurse practitioner, clinical nurse specialist, certified nurse midwife or registered first assistant who is under the direct supervision of the ordering physician or professional provider) and the service is billed by the ordering physician or professional provider. 

Further, BCBSTX’s Blue Review, says the supervising physicians should use the correct modifiers when billing for services rendered by these midlevel practitioners: 

  • AS modifier for PAs, APNs, or certified registered nurse first assistants (CRNFAs) when they are acting as an assistant during surgery. 
  • SA modifier for PAs, APNs or CRNFAs for nonsurgical services.  

In the case of Glen Rose Medical Center, the labs are not done at the place of service of the ordering provider. So perhaps the "unless otherwise approved by BCBSTX" is the issue. 

So why would a management company want to especially contract with a rural hospital in the first place? Probably this, that insurance companies reimburse rural hospitals at higher rates.

Insurance companies reimburse rural hospitals at higher rates to help keep critical healthcare in those communities. Those higher rates have made rural hospitals attractive targets for schemes that have generated nearly half a billion dollars in allegedly fraudulent billing.

In 2016, Missouri state auditor Nicole Galloway began examining the finances of several rural hospitals in her state. One was Putnam County Memorial, a 15-bed hospital in Unionville, Missouri, struggling to keep its doors open.

"We were shocked….When we started to look at the financial records and notice that tens of millions of dollars were coming through, I remember sitting down at the table with my audit staff and, you know, I just said we gotta dig deeper on this," Galloway told CBS News' Jim Axelrod. 

Her team discovered a management company called Hospital Partners had swooped in weeks before Putnam was about to close, promising to turn it around. They made deals with labs around the country to funnel billing for blood tests and drug screens through Putnam, which collects higher reimbursement rates as a rural hospital. Putnam kept about 15 percent; most of the money was wired back to the labs and the management company. 

"Essentially the hospital appeared to act as a shell company for these questionable lab billings," Galloway explained. "In a six-month period, the hospital funneled through about $92 million in revenues. To put that in perspective, the previous year their total revenues were $7.5 million."

The key takeaways from this seem to be that there is a difference, of course, between labs that deliberately create false invoices (such as the Palo Pinto hospital), and labs that bill themselves. In the latter instance, the management company arranges to have lab samples sent to Glen Rose Medical Center (in one of the Somervell County Hospital District meetings, Michael Honea said one of the samples have some from a police organization in Dallas-doubt that the police knew that Glen Rose Medical Center was doing the work nor did they probably care). But if there is, in the insurance contracts, something that says they will reimburse rural hospitals for lab work at a higher rate, but it's not local residents or those who come directly to the hospital for care, that seems a little shady to bill for inflated costs for people that live elsewhere in Texas where the originator would not be entitled to bill the higher amount. 

Sonoma West Times

The pass-through billing scam is a trend where hospital management companies seek agreements with hospitals and health systems so that the management companies’ associated physicians can refer lab tests to these facilities and as a result, the hospitals and health systems can bill payers as in-network providers for lab testing, such as toxicology. The hospitals then will split the revenue with the management companies.

Researchers have found the billing scam involves some commonalities; these include deceiving private health insurers and sending inflated bills to patients to increase lab revenue.

In some cases, patients give specimens for lab tests that are not needed or have little or no clinical utility. The patients are sometimes billed several hundreds to thousands of dollars for these tests.

If the holdup on paying back Glen Rose Medical Centers lab outsource costs hinges on this type of thing, would a contract that explicitly allows this type of lab process fix it?  If it was a contract issue, does this mean GRMC will not get back the money they previously did with lab outsourcing? (See the Feb 28 2019 Somervell County Hospital District board meeting, CEO's report, that seems to confirm that it's a BCBSTX contract issue, with SCHD working to have the contract explicitly pay back for lab outsourcing.) 



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