Healthcare Reform and Threats to Lab Testing

Laboratory testing industry will face threats from two primary aspects of health reform process

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CEO SUMMARY: Annual healthcare spending now pushes past $2.5 trillion and this summer’s debate about how to best reform healthcare in the United States will be raucous and emotional. For the laboratory testing industry, the stakes are immense. THE DARK REPORT identifies two primary threats to the lab testing profession. One is spending cuts to existing government lab testing programs to free cash for other purposes. The second is the potential for closed provider networks in new health programs.

IT IS THE DECLARED GOAL of the President and his party leaders in Congress that major healthcare reform legislation be passed this summer and a bill be ready for his signature before Labor Day.

This fact alone turns the upcoming lawmaking process into a high stakes game for pathologists, laboratory executives, and all laboratory professionals. That’s because no option will be left unexplored. Congress needs to cut existing health spending programs to free up money it can then apply to its vision of a reformed healthcare system that brings the uninsured and underinsured into some form of health coverage.

Keep this in mind as you follow the law-making process during the remainder of the summer. On an ABC News interview earlier this month, Health and Human Services (HHS) Secretary Kathleen Sebelius stated “I think… he [President Obama] is very serious about having health reform this year and having it paid for.” She later noted that cutting existing healthcare spending would be a source for funding the healthcare reform proposals, noting “…some of that saving [will come] from existing [health] programs that we’ve used to drive quality and expand coverage.”

Lawmakers need to identify funds estimated at between $1 trillion and $1.8 trillion to pay for the basic health reform proposals already outlined in several proposed bills. That means no existing source of Medicare spending will avoid scrutiny, including the Medicare Part B laboratory test fee schedule.

In turn, that means the laboratory testing industry will face threats from two primary sources. First is the need to cut spending on existing Medicare services to re-direct that money to the healthcare reform bill. The second is whether the master healthcare reform bill that eventually passes encourages market-based principles that allow all laboratories to compete vigorously for business—versus a healthcare reform bill that mandates closed provider networks in ways that restrict laboratories from serving any and all physicians and patients.

Cutting Medicare Spending

When it comes to spending cuts, pathologists and lab directors should have no misconceptions. Congress is going to pick through current Medicare spending programs with the proverbial fine-tooth comb. As an example, the early news is not good for radiology. Radical cuts to radiology and imaging services have already been openly proposed.

At some point, it will be the turn of anatomic pathology and clinical laboratory testing. What are the bad ideas that have dogged the lab testing profession since the advent of DRGs (diagnostic related groups) and similar Medicare program changes since 1983? Don’t be surprised as they are trotted out again for consideration.

Will 20% Co-Pay Come Back?

Remember the 20% co-pay for Part B laboratory testing? Some congressperson will bring that up. How about an arbitrary one-time 10% to 30% cut to the entire existing Part B laboratory testing fee schedule? Expect a senator or representative to put forth that option as a way to free up several billions in current spending and divert it to some other new health spending program.

Of course, there is always the threat of competitive bidding for Medicare Part B laboratory testing services. For legislators, there is at least one drawback to this option. It would take several years to implement competitive bidding and begin to deliver the hoped-for savings—if such savings were to actually materialize at the projected level.

These are not off-the-wall speculations about how spending cuts are identified. They are based on long-established political practices within Congress. Most lab managers recall earlier in this decade, when the 20% co-pay was working its way into both Senate and House bills for Medicare funding authorization. That happened because it was believed Senator Charles Grassley (R- Iowa) wanted to increase Medicare funding for rural hospitals. Since any new Medicare spending had to be offset by comparable cuts elsewhere, his staff spotted the idea of a 20% lab test co-pay as one source to fund extra dollars to rural hospitals.

This is how the game is played and 2009 will not be different. Each proposed healthcare reform bill will be scored by government budgeting agencies as to the spending required to implement its health programs. Lawmakers know they will have to cut (rob) Peter in order to pay Paul.

Intense Lobbying Expected

Because health spending in the United States now approaches $2.5 trillion per year, the numbers are huge. That means each proposed spending cut gores the ox of some vested interest. In response, a myriad of economic interests will vigorously lobby senators and representatives. On one hand, these interests want to protect their turf and forestall legislation that would leave them net losers in any healthcare reform bill that passes.

On the other hand, these same interests have equally powerful motives to steer legislation in ways that favor their financial fortunes in the final legislation that passes and becomes law. The laboratory testing industry will be challenged to deliver a message to lawmakers that stands out against the lavishly-funded lobbying campaigns of the pharmaceutical firms, health insurance lobby, and medical device manufacturers.

The second major threat to the laboratory testing industry is whether the final healthcare reform creates or supports forms of closed provider networks that effectively prevent all laboratories from unrestricted access to serving all physicians and patients.

For example, the administration has floated the idea of a government-run health insurance plan that would compete with private health insurance plans. Were such a plan to become reality, would it contract for laboratory testing on an exclusive basis? Or would it follow an “any willing provider” policy that allows any laboratory and pathology group to provide testing services to beneficiaries?

It is highly speculative to discuss such an outcome at this point. The legislative proposals known to the public at this moment are broad in outline and skimpy with details. Further, once specific proposals are made public, each will trigger a lobbying response by the vested healthcare interests that support or oppose specific points. Intense lobbying often results in significant changes to the final legislation which is passed.

Two Serious Threats To Labs

Importantly, whatever the path and whatever the process that is used to craft healthcare reform legislation this summer that passes Congress and is signed into law by the President, the laboratory testing industry will face serious threats to the status quo.

As noted above, one threat is deep funding cuts in the existing Medicare Part B Lab Testing program to steer those funds to other health reform goals. The other threat is that new forms of health coverage or insurance plans are created which rely on closed provider networks— thus excluding many or most of the nation’s local laboratories and pathology groups from access to those patients and physicians.

Expect a boisterous debate this summer as senators and representatives are forced to reveal the details of how their bills cut spending in one area of healthcare and divert that money to the healthcare reform bill. With trillion of dollars involved, achieving successful healthcare reform will be a difficult process.

Massachusetts Health Reform: Is Anyone Paying Attention?

IT WAS BACK IN 2006 when Massachusetts enacted a much-ballyhooed universal health coverage plan. In the three years since then, the results have been mixed.

One admirer of the Massachusetts health reform model is Senator Ted Kennedy (D-MA), who has included elements of the Bay State’s health reform in the Senate bill he is drafting. Others in Obama’s health reform team have praised many aspects of the Massachusetts program.

But it is a reform program where enrollment of the uninsured is below expectations and spending is exceeding projections. “It does not look like the Massachusetts plan has actually been successful at accomplishing what it set out to accomplish according to its proponents, if you want to judge it by their criteria,” stated Michael Tanner, who is a Senior Fellow at the Cato Institute and author of the book, “Health Competition: What’s Holding Back Health Care and How to Free It.”

“The reality is that in 2007, the first year after the plan went into place, insurance premiums rose by 7.4 %,” noted Tanner. “It went up by about 12% in 2008, and they’re expected to rise 9% this year. Overall, that’s an average of 10% to 12% increases in the insurance premiums in Massachusetts… That’s compared to a 6% to 7% increase nationally over the same period.”

Actual spending for the health program has consistently run ahead of state budget projections. In response, the Massachusetts legislature is scrambling to find sources of revenue to cover the cost overruns in the state’s universal health program.

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