Senators Quiz HMOs, Labs on Referrals-for-Discounts [Orange County Business Journal (CA)]

Medicaid Regulations Ban 'Pull-Through' Practices

HEALTHCARE

Two U.S. senators have asked several health insurance companies and clinical laboratory providers operating in Orange County whether they exchanged referrals for cheaper prices on lab services, including those for Medicaid patients.

Sens. Max Baucus, chairman of the Senate Finance Committee, and Charles Grassley, ranking minority member on the Senate Judiciary Committee, sent query letters to Burlington, N.C.-based Laboratory Corp. of America, which owns US Labs in Irvine and bought Westcliff Medical Laboratories Inc. in Santa Ana last year; and Madison, N.J.-based Quest Diagnostics Inc., owner of San Juan Capistrano-based Quest Diagnostics Nichols Institute. Letters were also sent to UnitedHealth Group Inc., which has more than 3,000 workers in Orange County; Aetna Inc. of Hartford, Conn.; and Philadelphia-based Cigna Corp.

The companies have until Dec. 1 to cooperate.

The senators cited concerns that insurers and laboratory providers "may be engaged in a practice commonly referred to as 'pullthrough,' " Reuters reported.

In pull-through arrangements, a clinical laboratory offers discounted pricing to an msurance company in exchange for the insurer facilitating referrals to the lab for testing. Such practices might run afoul of federal anti-kickback regulations.

Analyst Jason Gurda of Boston-based Leerink Swann LLC, who follows Quest and LabCorp, said in a client note that alleged Medicaid overbilling "is a real concern in a number of states." The senators' investigation could lead to a consolidation of the state cases if the Justice Department gets involved, Gurda said.

Quest recently agreed to pay the state $241 million and LabCorp is expected to pay $49.5 million over allegations the companies overbilled MediCal.

Analysts Debate Edwards

Irvine-based Edwards Lifesciences Corp. has announced conditional approval from the Food and Drug Administration to expand a patient study for its second-generation Sapien XT, a less-invasive replacement heart valve. The Sapien XT, which became available in Europe last year, is designed to be delivered to the heart via a smaller catheter than the original Sapien.

"The success of this trial would support use of the transcatheter therapy in a broader group of patients," said Larry Wood, Edwards' corporate vice president of transcatheter heart valves.

Still, some analysts suggest investors should sell Edwards in the wake of disappointing data reported at the Transcatheter Cardiovascular Therapeutics conference. Edwards' shares are down 13% since the beginning of the year with a recent market value of around $8.1 billion.

The data showed mixed results for Sapien, depending on how it is implanted.

"Despite Edwards' assertions to the contrary, we continue to believe that the approval of transapical delivery is in doubt based on the current data set," wrote Michael Weinstein of JP Morgan.

Weinstein also cited data showing higher mortality and stroke rates from such devices, along with added cost compared to conventional procedures.

But David Roman of Goldman Sachs & Co. continues to recommend Edwards.

Roman said Edwards leads a transcatheter valve race with two Minnesota-based competitors, St. Jude Medical Inc. and Medtronic Inc. The latter 's Medtronic Core Valve was developed in Irvine.

"This is going to end up being a large market," the analyst said. "Patient demand is going to end up being significantly better than people are making it out to be. There's good physician interest and people want it."

Client Pick-Up

Santa Ana-based Grubb & Ellis Co. said Accretive Realty Advisors Inc., an Irvine real estate developer and manager, selected members of Grubb 's healthcare properties group to lease two medical office buildings in Aliso Viejo and Fullerton, as well as the sale of three medical office condominiums in Fullerton.

The assignment includes Providence I Medical Center, an 84,000-square-foot medical office building in Fullerton that was built in 2007 and is now about 75% leased; and three medical office condominiums totaling 8,360 square feet at the nearby Providence II Medical Center.

A 30,000-square-foot medical office building at 24502 Pacific Park Drive in Aliso Viejo is also part of the assignment. That building has 1,500 square feet available on the first floor.

Garth Hogan, senior vice president and co-leader of Grubb's healthcare properties group, and John Scruggs, an associate, are marketing the properties.

Laboratory Carp, of America's US Labs: at 2601 Campus Drive, Irvine

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