Lab Benefit Managers Want to Help Health Plans

Five LBMs expect steady growth as health insurers seek help managing laboratory test costs and quality

CEO SUMMARY: Laboratory benefit management companies that offer a range of services to health insurers are gaining influence over clinical lab testing in important ways. On behalf of health insurers, LBMs will select labs for a payer’s network, then manage that network. They also manage claims and lab-test utilization, often reviewing medical necessity. A primary goal of LBMs is to help payers control the cost of lab testing, which is one reason why two payers operate their own LBMs.

LABORATORY BENEFIT MANAGEMENT (LBM) COMPANIES are growing in influence, complicating the ability of clinical laboratories to get paid for the tests they perform for their client physicians. As health plans take steps to manage outpatient laboratory testing more closely, their growing use of LBMs gives these intermediaries increased influence over such testing.

That influence affects testing in two ways. First, LBMs develop lab networks for health insurers, allowing them to include preferred labs and exclude others. Second, LBMs determine coverage requirements and the payment rates for clinical, genetic, and molecular testing.

Not Much Data about LBMs

Quantifying the effect LBMs have on clinical and genetic lab testing is difficult because there is not much data from independent sources on the reach and scale of LBMs. Therefore, it is too soon to determine if these benefit managers have a positive or a negative effect on outreach testing.

There is little doubt, however, that LBMs’ position between health plans and physicians will continue to grow as the complexity and cost of laboratory testing rises. Health plan executives are seeking to control utilization of outpatient testing, particularly given that the number of expensive and complex tests, such as genetic and molecular assays, has risen sharply in recent years.

Among the companies known to be offering LBM and prior-authorization management (PAM) services are the following:

  • AIM Specialty Health
  • Avalon Healthcare Services
  • BeaconLBS
  • eviCore Lab Management; and
  • Kentmere Healthcare Consulting.

The following example of this new go-between in the lab testing business shows why lab directors and pathology groups should be concerned about LBMs’ and PAMs’ increasing level of influence between physicians and health plans.

In August, Bruce Quinn, MD, PhD, founder of Bruce Quinn Associates and an expert in lab testing and payment policy for Medicare and commercial payers, wrote about how news reports on the growth of LBMs had a dramatic effect on the stock price of Myriad Genetics.

After Myriad’s stock price rose in June and July, it dropped in August following news reports about reduced revenue, Quinn explained on his blog, Discoveries in Health Policy. One reason for the drop was related to FDA action on Myriad’s GeneSight test, and the other was linked to LBMs. “Reduced revenue was attributed in part to the rising activity of lab benefit managers [which increases the denial rate on claims payers receive],” Quinn wrote.

Offering a variety of services to health insurers, LBMs can have a negative effect on lab revenue. In addition to doing utilization, claims, and medical necessity reviews, LBMs also provide education for ordering physicians about which tests are appropriate for each patient case.

Little Evidence LBMs Improve Patient Outcomes

IN A HEALTH POLICY JOURNAL BLOG POST LAST MONTH, researchers reported they could not find evidence showing the effect laboratory benefit managers (LBMs) have on clinical management or patient outcomes.

They reported that LBMs could present barriers to patient care due to mandatory laboratory prior-authorization requirements for all genetic tests and rules requiring ordering physicians to provide documentation of medical necessity that supports prior-authorization.

In addition, there may be conflicts of interest when a lab or payer owns an LBM, resulting in closed networks and monopolistic pricing, they wrote.

The Health Affairs blog post was published on Oct. 23 and titled, “The Emerging Use by Commercial Payers or Third-Party Lab Benefit Managers for Genetic Testing.” The researchers were Kathryn A. Phillips, PhD, a health services researcher in the School of Pharmacy at the University of California, San Francisco, and Patricia A. Deverka, Director, Value Evidence and Outcomes at Geisinger, the health plan in Danville, Pa.

“With the emphasis on reducing inappropriate utilization, it is difficult to assess how LBMs are addressing the potential for underutilization of genetic testing other than through provider education,” they wrote. “The unintended consequence is that genetic testing continues to be viewed as a commodity without the ability to demonstrate the value of testing on provider behavior and patient outcomes.”

LBMs Manage Networks

LBMs also develop and manage networks of preferred labs and grant test-ordering privileges to certain physicians. In addition, LBMs write and implement prior authorization (PA) requirements, conduct PA reviews, and develop test formularies and coverage policies.

The top priority of LBMs is to contain inappropriate lab test ordering and costs. This priority is an obvious goal for all five of the nation’s LBMs, but particularly for the two LBMs that health plans own:

  • AIM Specialty Health, which Anthem acquired in 2007, and
  • eviCore, which Cigna acquired last year when it merged with Express Scripts, a pharmacy benefit manager.

Laboratory Corporation of America owns a third LBM, BeaconLBS. The remaining two LBMs—Avalon and Kentmere—are independent companies. They focus on containing lab testing costs and on forming and managing lab networks for their health plan clients.

Both Avalon and Kentmere state publicly that their services can cut the cost of clinical lab testing. Last month, Avalon announced that when health plans apply its Medical Benefits Management Software to the high-volume, low-cost outpatient laboratory services that represent about 90% of the lab spending, payers can cut costs by 8% to 12%.

Similarly, on its website, Kentmere says health plans get a 20-to-1 return on their investment, meaning that for every dollar spent on Kentmere’s LBM program, insurers can save $20 on lab testing. Last year, when The Health Plan of West Virginia announced that Kentmere would manage its lab benefits, Kentmere said it saves its clients 10% to 20% on clinical laboratory testing costs, “while still delivering the same level of service—or better.” Kentmere also has a contract with Horizon Blue Cross Blue Shield of New Jersey.

One question that health plans may be less interested in asking is whether LBMs deliver any other value beyond cost cutting.

Low Costs, High Quality

Kentmere promises savings on lab spending by forming networks of laboratories that meet its criteria for costs, access, and quality. Kentmere describes itself as more than an LBM and seeks to differentiate itself from companies that manage prior authorization and simply deny lab test requests as a way to manage utilization.

“To us, lab benefit managers are companies that take control of your laboratory network,” stated Charles Cini, CPA, Kentmere’s CFO and Chief Financial Analyst. “In addition to LBMs, there are prior-authorization companies that simply deny claims and say they’re serving in a laboratory benefit manager’s role.

“We are different from those companies, and health plans recognize that distinction because there is a big difference between managing laboratory benefits and simply doing prior-authorization,” Cini explained. The difference between the two types of companies is important, he added, because companies that serve health plans by simply doing prior-authorization review are revising their offerings to add LBM services.

“Companies that process claims have an unsustainable business model because all they do is try to reduce costs,” he said. “But health plans need more than that to deliver quality healthcare. That’s why some companies that do prior authorization have asked us to be a strategic partner with them through our LBM program.

“We would never do that because we have a completely different approach,” Cini explained. “We’re the only company in the LBM business that does more than just aim to reduce costs. Our primary focus is to control utilization, increase lab test quality, and improve service to health plans by redirecting business to in-network labs.”

In most cases, Kentmere and other LBMs form lab networks on behalf of their health plan clients, or add or subtract labs as needed from payers’ existing networks.

“When a health plan contracts with us, we do a complete medical policy review and claims analysis,” Cini said. “In that analysis, we review everything that touches outpatient lab testing for our health plan clients. Then, we make recommendations—including which labs should be in their lab network based on fast turnaround time and quality service.

“For the laboratories that end up in the network, there may be less reimbursement, but they will get more utilization because our goal is to redirect business to them once they’re in the network,” he added. “This supports the goal of our health plan clients to ensure their members have better service, better access, and higher quality testing.”

A Comprehensive Approach

At Avalon, Chief Growth Officer Barry Davis said his company has a similar approach and its first goal is to produce savings for its health plan clients. “For us, it all starts with science and policy development,” he added. “We’ve analyzed data from more than 70 health plans and see 8% to 12% over-utilization of units on the high-volume, low-cost tests versus the science.”

For its health plan clients, Avalon offers lab network management, genetic prior authorization, or its Medical Benefit Management Software (MBMS). It uses this software to apply evidence-based lab policies to high-volume, low-cost tests.

“We can either do it all for a health plan or supplement what that plan already does,” he added. “Avalon has approximately 140 evidence-based lab policies,” he continued. “Each was developed with our independent clinical advisory board. About half of those 140 policies are for genetic testing and the other half are for lower-cost, high-volume testing.

“Genetic testing is about 10% of all lab testing today,” noted Davis. “But it’s growing quickly and those individual tests are high-cost tests. Therefore, most such tests require clinical review and are managed through prior authorization. Even though there’s some automation in how health plans and LBMs manage genetic tests, most of those tests are reviewed one at a time.

“The reason is because about a third of genetic tests ordered today are in error,” Davis commented. “When it comes to genetic testing, physicians don’t know what to order for their patients. That’s why we have a component of our genetic testing management program to educate physicians in a peer-to-peer arrangement. In this way, we help the doctor and lab order the right test for each patient.

“Avalon also wants both the physician and the lab to understand which test the patient needs in a process that includes getting the insurer to approve payment for that test,” he said. “This approach allows us to improve clinical outcomes and eliminate unnecessary testing.”

LBM Companies Are New Lab Marketplace Factor

LABORATORY BENEFIT MANAGEMENT (LBM) COMPANIES serve health plans in ways that are similar to the role provided by pharmacy benefit management (PBM) companies. At least five LBMs are known to be operating today on behalf of health insurers.

One of the first companies to provide lab-test management services was Kentmere Healthcare Consulting, which was formed in 2000. Another was DNA Direct, a company in San Francisco that was founded in 2005. (See TDR, August 18, 2008.) MedCo, a pharmacy benefit manager, acquired DNA Direct.

In 2012, CareCore National acquired DNA Direct. CareCore was then renamed eviCore Health Management and the LBM was rebranded as eviCore Lab Management. In 2017, Cigna acquired eviCore, a utilization and prior-authorization management company that says it has taken on a large role among LBMs.

One significant development for the LBM industry was the launch of Beacon Laboratory Benefit Solutions, a subsidiary of Laboratory Corporation of America (LabCorp). In 2014, UnitedHealthcare (UHC) announced an agreement with Beacon to manage how physicians order lab tests for UnitedHealthcare’s commercial members in Florida. With this program, BeaconLBS combined prior-authorization review and a network of approved laboratories, including many labs that were part of LabCorp. Recently, UHC indicated that it was ending Beacon’s activities in Florida.

Two other LBM programs also have operated in this field. Neither one was a major player among LBMs, but both have a growing influence today. They are AIM Specialty Health, a division of Anthem Blue Cross and Blue Shield, and Kentmere Healthcare Consulting, an independent company in Wilmington, Del., that runs an LBM program.

In 2013, Avalon Health Care Solutions, another independent company, was formed and has had steady growth serving Blues plans and other insurers. In this role, Avalon administers lab networks and promotes broad networks to limit out-of-network leakage. “We’ve seen 15% to 25% out-of-network leakage in narrow networks leading to increased costs for patients and payors overall. The broad network ensures the labs agree to follow the health plans’ lab policies,” stated an Avalon spokesman.

Contact Charles Cini at 302-478-7600; Barry Davis at 813-751-3809 or Barry.Davis@Avalonhcs.com.

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