Locked Out of Payer Network, NH Hospital Opens Lab Company

Strategy Allows Community Hospital to Compete in Outreach Market

CEO SUMMARY: Since Anthem launched its site of service program in New Hampshire in 2010, labs in the state’s hospitals have mostly been excluded from its network and have lost market share. Recently one community hospital developed an unusual strategy to win back those patients. Last year, Frisbie Memorial Hospital in Rochester, opened a stand-alone independent lab company that became a provider in the Anthem network. To date, the independent lab has been gaining patients steadily, hospital officials say.

ACROSS THE NATION, managed care plans are using narrow networks to exclude most clinical laboratories and pathology groups as providers. However, one community hospital in New Hampshire pursued a strategy that allowed it to get its lab back into the network of one the state’s largest health insurers.

Administrators at 88-bed Frisbie Memorial Hospital, located in the small community of Rochester, created a standalone laboratory company called Granite State Lab, LLC. Rochester is a town of 30,000 residents in the southeastern corner of the state.

The new lab company negotiated competitive outreach lab test prices with Anthem Blue Cross and Blue Shield in New Hampshire and was added to the payer’s lab network, despite the fact that the hospital itself remains outside the Anthem network. Long-time clients of THE DARK REPORT know that, in New Hampshire in 2010, Anthem introduced a “site of service” change to its health plan. Seeking to steer members to low-cost clinical labs (and ambulatory surgery centers), Anthem BCBS in New Hampshire eliminated co-payments and deductibles for members who use innetwork labs.

This motivated patients to use only the labs shown on Anthem’s web site. Listed prominently are Quest Diagnostics Incorporated, Laboratory Corporation of America, and NorDx.

When members use any of these and other in-network labs for clinical lab testing, the members pay nothing out of pocket. “That means no deductible or coinsurance,” Anthem says on its site.

Anthem also lists other in-network independent labs and in-network hospital labs. Out-of-network facilities are not listed. After Anthem launched this site of service program in New Hampshire, out-of-net work clinical laboratories, including those operated by hospitals, lost market share. One example was Speare Memorial Hospital, a 25-bed critical access hospital in Plymouth, New Hampshire.

Not only did Speare lose patients who had regularly used its hospital lab outreach program, but it experienced another problem. In 2012, Michelle McEwen, FACHE, President and CEO of Speare Memorial Hospital, told THE DARK REPORT that her hospital was dealing with a spike in the number of patients who were requesting that the hospital collect their blood and other laboratory specimens, but then were telling the hospital to send those specimens to the independent lab companies in Anthem’s network for testing. She further stated that, “While Anthem’s new product is pulling the lucrative outpatient services—such as lab and ambulatory surgery—away from hospitals, Anthem still expects us to provide important urgent, emergent, and inpatient services to their patients.”

Anthem’s site of service requirement had a similar effect on the lab test volume at Frisbie Memorial Hospital. Its administrators, however, recognized the need to maximize the volume of specimens coming into the hospital’s laboratory. Increased volume allows labs to run an expanded on-site menu of tests, thus cutting turnaround time and contributing to improved patient care. The increased specimen volume also contributes to a lower average cost-per-test for inpatient and outpatient services.

Rising Monthly Volume

Frisbie’s new clinical lab company helps the hospital to meet both of those goals. “Last year the hospital established Granite State Lab (GSL),” stated Brenda Niland MT(ASCP), Director, Laboratory Services. “The lab opened a drawing station here in Rochester on Route 202 at Exit 13 off Route 16.”

“This patient service center is staffed with one phlebotomist five days a week,” she said.“In its first month of operation, it served 74 patients. Since opening, patient volume has increased every month. In January, the center had about 500 lab tests from 188 patient visits.

“GSL refers these specimens to the Frisbie hospital laboratory so that the hospital lab benefits from the volume,” noted Niland. “Frisbie continues to own and operate three additional patient service centers that are not affiliated with GSL.”

Workable Strategy?

Pathologists and lab directors at community hospitals in other markets may want to consider whether this strategy would be an effective way to retain or regain status as in-network providers. Since so many insurers are developing narrow and limited networks, this method of contracting may be one way for community hospitals to retain lab test volume and attract cashpaying patients who have high deductible health plans and so want to pay lower prices.

Another important question for lab directors and pathologists to consider is whether Anthem Blue Cross Blue Shield will introduce this site of service benefit design in any of the other 13 states in which it operates. Those states are California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New York, Ohio, Virginia, and Wisconsin. If Anthem does introduce site of service plans in these states, many hospitals and their labs would probably be excluded from the network due to high lab test prices.

Outreach Lab Strategy

Frisbie Hospital President and CEO John Marzinzik supports the strategy to operate an independent outreach lab company.

“As a business model, the independent Granite State Lab is working for us, even though it’s not making any money yet,” he noted. “But the overhead is modest and lower than the overhead we have in the hospital lab. So any test volume we generate from the GSL patient service center goes into the hospital lab because Granite State Lab contracts with our hospital lab to do that testing.” Niland explained that the Granite State Lab has only one phlebotomist working from 6:30 a.m. to 3:00 p.m., five days a week. “Once patients find out about this new drawing station, they love it because—if they are self-pay or have high deductibles—they are looking for low prices,” she said.

“Further, because the Granite State Lab prices are low compared with the prices in our own hospital lab, some of our physicians now direct their patients to GSL,” added Niland. “These physicians know that patients are concerned about getting the lowest price.

Hospital Lab Runs Tests

“Equally important is the fact that Anthem patients can go to GSL, with no out-of-pocket expense and our hospital lab still runs those lab tests,” emphasized Niland. “If Frisbie did not have GSL, it would lose that volume entirely because the hospital itself is not on the state’s insurance exchange (that covers New Hampshire) for Anthem.

“Last year, Anthem was the only health insurer operating on the state exchange,” noted Niland. “As of January 1, four other insurers began operating on the New Hampshire exchange, and Frisbie is in those networks.

“Frisbie can’t take patients who enroll in Anthem on the state insurance exchange because, of the 26 hospitals in New Hampshire, Anthem left 10 hospitals out of its network and Frisbie was one of them,” explained Niland.

“As a consequence, each time we had a patient who previously came to us for doctor visits and lab work, we had to send that patient to another hospital,” she said. “We were losing those patients.

How Frisbie Memorial Hospital Created a Growing Independent Lab Company

SOME ENLIGHTENED HOSPITAL ADMINISTRATORS at community hospitals are recognizing the importance of a dynamic laboratory outreach program—even if it means lowering the prices of lab tests to be competitive in their region.

Last year, administrators and the finance staff at Frisbie Memorial Hospital in Rochester, New Hampshire, put in motion a plan to develop a freestanding independent clinical laboratory with its own patient service center (PSC). They formed a limited liability corporation under the name Granite State Lab, LLC, and rented space for the PSC in a new mixed-use office building located at the intersection of two major highways. The PSC opened in July.

Brenda Niland MT(ASCP), the hospital’s Director, Laboratory Services, worked with the materials director to get the chairs, desks, and all equipment needed for the patient service center. A phlebotomist was hired and Granite State Lab contracted with RCM, a private billing company, to process claims.

“The director of finance set up the pricing for lab tests based on reimbursement from insurers,” stated Niland. “In an effort to appeal to price-conscious patients, GSL set its lab test prices lower than those offered at the hospital. Doing so allowed GSL to contract to be a network provider with all five of New Hampshire’s health insurers.

“At first, we did a lot of advertising on radio, on billboards on Route 16, in newspapers, and on the patient vans that deliver patients to doctors’ offices,” she said. “In those ads, we didn’t mention that GSL was associated with Frisbie in any way. We just said that GSL had lower prices. “What we learned was that many of our patients were loyal to Frisbie and didn’t want to go elsewhere,” continued Niland. “So we began to educate them to the fact that— while GSL is a separate company— all the clinical laboratory testing is done here in the hospital.

“Administrators at Frisbie Memorial Hospital recognize the importance of growing the volume of lab specimens through Granite State Lab,” she concluded, “Volume lowers our average cost-per-test for inpatient, outpatient, and outreach testing. The good news is that GSL is experiencing an increase in test volumes each month because the word of mouth from our patients is positive.”

“No lab wants to lose volume,” continued Niland.“Our hospital lab has a staff of about 50 who cover three shifts, seven days a week, and we perform about 450,000 billable tests per year. So, we want to find ways to boost volume and retain the specimen volume we have.

Growing Volume in New PSC

“The volume in the new standalone drawing station is not high compared with that of our other drawing stations,” she stated. “At one of our PSCs, we draw more than 100 patients a day, and we might have 80 people before 9 a.m. This PSC is open until 5 p.m. on Monday and Tuesday and until 3 p.m. on Wednesday, Thursday, and Friday. It is staffed with four phlebotomists.”

For Marzinzik, the freestanding facility not only generates volume for the hospital lab, but it provides benefits to local patients that other independent labs cannot. “Granite State Lab delivers cost-effective, high-quality care and gives us a venue to serve a niche in the community and the region we serve,” he said.

“We wanted to create a private label lab that could negotiate with insurance companies,” he explained. “That is why we established the outreach lab as an LLC that was separate from the hospital, but yet subcontracted back to the hospital. “This arrangement allows Granite State Lab to have the hospital do the work in a CAP-certified laboratory and this lab testing is done very close to the hospital’s cost,” added Marzinzik.

“The Granite State Lab has different contracts with health insurers than the hospital has,” he said. “Because the freestanding lab has lower overhead, it can charge less. We were willing to accept the insurers’ fee schedule and the hospital lab would still get the volume. The only difference is that GSL does not get the same price forlab tests that the hospital would get.

“We wanted to do something because Anthem and other commercial insurers were directing patients to private labs, such as LabCorp and Quest Diagnostics,” observed Marzinzik. “They were literally steering patients away from the hospital based purely on price. While these insurers were doing what’s best for them, we were losing business, which is not good. “Also, this arrangement disrupted the ability to get those test results back into the patients’ charts,” he added. “For that reason, we created GSL as a way to contribute to improved patient care.

Fee Schedule Accepted

“Our analysis of the Granite State Lab business model showed that GSL could accept the retail laboratory fee schedule for reimbursement,” he continued. “Additionally, GSL has the capability to assure that all lab test results would go back into the physicians’ electronic health record charts electronically.

“Most independent labs send their results back on paper, usually by fax,” stated Marzinzik. “That fax gets scanned into the chart in the EHR. The problem is that the physician then has only an image of the results in the EHR.

“This is not discrete data physicians can use easily if they want to extract results to show trends over time, for example,” he continued. “GSL’s ability to transmit lab test results in the EHRs is a benefit and contributes to improved patient care.”

It is important to emphasize that low prices for lab testing is a significant benefit for the growing number of patients who are self-pay or have high-deductible health plans.“The fact that GSL can do lab testing inexpensively is important, particularly for those patients who have no coverage and pay out of pocket,” he said.

Goal Is Quality Care

“It’s too soon to tell if GSL is going to make money, but we may know that in another six or seven months,” predicted Marzinzik. “The proforma says it will make some money but that’s not our first goal.

“Our first goal is to provide good quality care to patients who may have no health insurance or have an incentive to go to a private label lab and pay less than they would elsewhere,” he emphasized. Marzinzik did not know how many hospital patients were affected when Anthem excluded Frisbie Memorial from its exchange network and didn’t know how much the exclusion affected the hospital financially.

“Where it hurt was among those patients who had long-standing relationships with doctors they had seen for 25 years,” observed Marzinzik. “Suddenly those patients needed new doctors and those doctors were not affiliated with Frisbie Memorial.”

With the creation of Granite State Lab, LLC, the hospital has addressed that problem for patients. At the same time, it is now increasing its lab outreach test volume while meeting the needs of patients with no coverage or high-deductible health plans.

In New Hampshire, Hospital Lab Administrator Sees More Price Competition for Laboratory Testing

IN NEW HAMPSHIRE, COMPETITION for medical laboratory tests has increased in recent years, say several lab directors working in the Granite State. They point to the numerous radio, newspaper, and billboard advertisements that tout the low prices that hospital labs and freestanding labs offer as they compete for patients.

Anthem Blue Cross and Blue Shield in New Hampshire has fostered competition by eliminating copayments and deductibles for members who use low-cost labs listed in Anthem’s Provider Finder. In its marketing literature, Anthem calls these in-network sites “zero-cost labs.” Under their Anthem health plan, patients are free to use any medical laboratory. But if they use a lab that’s not listed in the Provider Finder on Anthem’s web site, the patient’s out-of-pocket cost may be higher.

Anthem is using a strategy in which an in-network health benefit costs nothing to the patient. (See TDR, April 2, 2012.) In recent years, this strategy has forced hospital labs in New Hampshire to compete on price, but not all are doing so. One lab administrator who asked not to be named said both commercial labs and hospital labs have been competing fiercely since the Affordable Care Act went into effect last year.

Patients Are Price-Shopping

“In the last year or so, we’ve seen a lot of interest among patients to shop for low-price lab tests,” he stated. “A high proportion of patients now have high deductible plans and so naturally they want low-cost lab testing. “At our hospital, the options for our lab are limited,” continued the lab administrator. “Advertising a price too low would put our contracts in jeopardy and our lab cannot discount below the New Hampshire Medicaid fee schedule.

“Our lab team has recommended opening a free-standing patient service center as Frisbie Memorial Hospital has done, but the administration here is reluctant to do so,” he explained. “In the meantime, we are watching our outpatient lab test business erode. We’d like to mitigate that erosion. However, our lab team does not feel it can compete on price with the labs advertising low prices.” This lab administrator further pointed out that several lab firms in New Hampshire do not require a physician’s order and these lab companies use the patient service centers and lab testing facilities of the two national labs. One such site is Health Testing Centers (at www.healthtestingcenters.com).

Its web site states, “You do not need an order or a prescription from your doctor. All our tests include everything you need to have the test performed. After ordering, simply bring the requisition form to a LabCorp or Quest Diagnostics location close to you. Present that form and they will collect the proper specimen for your tests. There is no additional payment to LabCorp or Quest. We receive the results and send them directly to you (usually in 1-2 days).”

PersonaLabs (at www.personalabs.com) appears to offer a similar service, saying, “Let PersonaLabs be your Online Resource. Get the same professional tests you’d get through a doctor, at a fraction of the price. No need to go into debt, just find out what you need to know. Take charge of your healthcare with PersonaLabs: Convenient, Confidential, Affordable Lab Tests & More.” All suggested locations on the PersonaLab web site in New Hampshire are LabCorp sites.

One problem hospital labs face when patients use an independent lab such as Quest Diagnostics or LabCorp is that the patients’ test results usually are not transmitted to the patient’s electronic medical record, said the lab administrator. “To us here at the hospital, that’s a patient safety issue,” he stated. “But I’m not sure patients even care about that because they’re looking for a low price.

Contact Brenda Niland at 603-335-8451 or B.Niland@FMHospital.com.

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