LabCorp has been sued and is under Federal investigation for Medicaid and Medicare fraud.  In addition, it’s under scrutiny by the U.S. Senate Finance Committee who is investigating Medicare and Medicaid fraud. Laboratory Corporation of America was ordered to hand over its financial records to the U.S. Senate.

A lawsuit was filed on behalf of the Federal government that claims LabCorp operated a “pull-through” scheme to force doctors covered by insurers to use LabCorp for all medical testing. The suit claims LabCorp (NYSE: LH) offered illegal discounts to doctors in exchange for referring all their patients who need laboratory testing to the company.  According to federal anti-kickback laws, it’s illegal for health care companies to directly or indirectly compensate other parties to encourage them to order any service paid for by the federal health care programs.

Under federal law, companies can’t charge or participate in the Medicare or Medicaid program if they violate federal laws. The suit claims LabCorp charged Medicaid and Medicare more than $1 billion, which is about 20% of the companies total income. If LabCorp is found guilty they will not be allowed to conduct lab tests on anyone covered by Medicaid and Medicare, which is a large portion of LabCorps testing income.

On other news, LabCorp secured a new credit line of $1 billion. What a coincidence.

LabCorp (Laboratory Croporation of America) shares of stock fell more than 2% on Tuesday, March 23rd after a Deutsche Bank analyst downgraded the company’s stock (NYSE: LH) from “buy” to “hold.” LabCorp is the second largest US commercial reference lab. One of the key factors cited for this change was lower than expected First Quarter volume. Physician office visits have been below the trend line for the first two months of 2010 and physician offices are responsible for a significant percentage of LabCorp’s test volume. It is estimated that for every 1% increase in the unemployment rate, 2.5 million Americans lose their health care benefits.

 Other factors influencing the recommendation were weather, intensifying competition and possible pricing pressures from public payors. The analysts reported that “Downside risks: competition, Medicare / Medicaid / VA cuts, weak demand. Upside risks: accretive M&A and share buyback, higher volume growth.”