"Medi-Cal, which is supposed to be paying the lowest cost, is actually paying a much higher cost," said AG Jerry Brown. "And that difference is what the rip-off is."
Attorney General Brown says a blood test, for example, is $1.43 for one customer, and $8.59 for Medi-Cal. That's 500 percent more. And the prices were higher for dozens of other tests.
Brown clams the lower prices were for preferred clients. And in exchange those clients were expected to refer all their patients to the lab. Those are illegal kickbacks.
"We've looked at a possible recovery of hundreds of millions of dollars," said Brown. "It's an example to the kind of waste that is in state government."
This allegedly went on for 15 years.
Chris Reidel, of /*Hunter Laboratories*/, says his company couldn't compete with the discounts, so he became a whistle-blower, going to the state to report what was happening.
"These laboratories were charging deeply discounted prices to their private-pay clients, and overcharging the Medi-Cal program to make up for the losses on the discounts," said Riedel.
The companies named in the lawsuit include /*Seacliff Diagnostics Medical Group*/ in Monterey Park, /*Physicians Immunodiagnostics Laboratory*/ in Burbank, and one of the biggest, /*Quest Diagnostics*/, based in Madison, New Jersey.
Quest issued a statement: "We believe that our services were priced appropriately. We intend to vigorously defend ourselves in the case."
AG Brown was asked why this went on for so long; why didn't the state figure it out sooner?
"Well that's a very good question," said Brown. "And this case calls out for a review of exactly what the state government is doing."
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