Healthcare Cost Solutions Will Continue to Pinch Lab Industry Revenues in 2015

Clinical laboratory news will focus on FDA regulation of LDTs and PAMA’s market price reporting requirements

CEO SUMMARY: Will 2015 turn out to be a watershed year for the clinical laboratory industry? With healthcare cost solutions continuing to squeeze laboratory profits, two federal agencies are pushing forward with initiatives that will touch nearly every medical lab in the United States in the next 12 months. Other equally powerful trends continue to negatively influence the prices labs are paid for their testing services. All these factors make it essential for lab administrators and pathologist business leaders to work proactively to maintain their lab’s financial stability.

Even before the arrival of 2015, astute pathologists and lab administrators recognized that this new year will confront the profession of laboratory medicine with multiple and serious challenges.

Topping the list are two issues related to healthcare cost solutions with the potential to have broad impact on clinical labs both large and small across the nation. One issue is the FDA’s proposed guidance to regulate laboratory-developed tests (LDTs).

The second issue is implementation of sections addressing clinical laboratory testing in the Protecting Access to Medicare Act (PAMA) enacted into law last winter. This will be the responsibility of the federal Centers for Medicare & Medicare Services. Much attention will be given to the market price reporting requirements that CMS creates under PAMA and publishes this year.

Starting in 2016, designated clinical labs must report market price data for each test and for each payer. Under PAMA as currently written, CMS is to use this market price data to establish prices for the Part B Clinical Laboratory Test Fee Schedule beginning in 2017.

Each of these two issues has the potential to be transformational in how it reshapes the existing clinical lab test offerings and the revenue collected by labs of all sizes and types.

For this reason, throughout 2015, lab administrators and pathologists will be encouraged by their respective associations and specialty colleges to support efforts to lobby Congress and educate federal regulators about the positives and negatives of regulating these lab activities, among all healthcare cost solutions that the government continues to consider.

In addition to the LDT and PAMA issues, most clinical labs and pathology groups will need to deal with several other strong forces during 2015. Just as it has in recent years, predictions are that, during the coming year, government and private payers will continue to forcefully implement restrictive coverage guidelines for lab tests while also reducing the prices they pay labs for many types of lab tests.

Histology Lab Finances

Such actions have already undermined the financial stability of many anatomic pathology group practices. In particular, healthcare cost solutions involving strong price cuts for certain high-volume technical component CPT codes have made it uneconomical for most smaller pathology groups to operate a histology laboratory.

This is one reason why some smaller pathology groups have commenced negotiations to find an acquirer, seek merger with a stronger pathology group in the region, or even to approach hospital administrators to explore the option of becoming employees of the hospital.

It is a similar story for clinical laboratories. Along with healthcare cost solutions such as reductions to lab test fee schedules, private health insurers are establishing narrow networks as a way to exclude higher-cost labs. Consequently, in many communities across the United States, local laboratories and hospital lab outreach programs are losing their managed care con- tracts and thus have less access to patients.

Three Market Forces

This trend will continue throughout 2015, fueled by three market forces related to healthcare cost solutions. First, health plans organized under the health exchanges of the Affordable Care Act will continue to narrow their networks as a way to keep premiums as low as possible.


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