Top 10 2014 Biggest News Stories

Story no.1
SGR Fix by Congress Spawns PAMA; Lab Industry Wary of Law’s Impact

ON APRIL 1, PRESIDENT BARACK OBAMA signed into law the Protecting Access to Medicare Act of 2014 (PAMA). As written, it has the potential to be the most impactful federal legislation on the clinical lab industry since passage of the CLIA 1988 bill.

Congress used the law not only to extend the Medicare Sustainable Growth Rate funding for an additional 12 months, but also to address a number of healthcare issues. Included in the bill were at least six specific items that directly affect the clinical laboratory industry. (See TDR, April 7, 2014.)

Several of these lab industry fixes are viewed as positive. They define how the Centers for Medicare & Medicaid Services is to establish coverage guidelines and reimbursement for certain types of new lab tests, for example. This is expected to benefit labs that perform complex or esoteric single-source tests.

What concerns the lab industry are sections of the new law that direct CMS to gather market data on lab test prices starting in 2016 from “applicable labs.” CMS is to use this market data to establish lab test prices starting in 2017. The language of PAMA allows CMS to cut the price of a single lab test by no more than 10% in 2017, 2018, and 2019 and by no more than 15% in 2020, 2021, and 2022 (a potential cumulative price reduction of as much as 75% during those six years).

CMS is expected to use this authority to cut the prices of high volume clinical laboratory tests aggressively during those years.

Story no. 2.
FDA Issues Proposed LDT Regulations, Creating Plenty of Lab Industry Angst

IT’S BEEN YEARS IN THE MAKING and now regulation of laboratory-developed tests (LDTs) by the Food and Drug Administration is imminent.

After notifying Congress of its intent to regulate on July 31, the FDA issued draft guidance for LDTs on October 30. This started a 120-day public comment period which ends on February 2, 2015. (See TDR, November 3, 2014.)

The FDA says that it will stratify LDTs into the categories of Class III-highest risk; Class II-medium risk; and, Class I-lowest risk. All laboratories will need to self-report their LDTs to the FDA, then report adverse events associated with clinical use of these LDTs.

This development is meeting with widespread resistance by the clinical lab industry. For example, the Association for Molecular Pathology has stated that it considers FDA regulation of LDTs to be potentially “overly burdensome” and it points out that labs in the United States are already regulated by CLIA, as well as the “rigorous state, federal, and professional standards.” (See TDR, August 11, 2014.)

One sign of the coming fight over this issue emerged on November 14. That is when the American Clinical Lab Association announced its retention of noted attorneys Paul D. Clement (a former Solicitor General) and Laurence H. Tribe (Professor of Constitutional Law at Harvard University) to advise it in its opposition to the FDA’s proposed LDT guidance.

Story no. 3
Theranos Ramps Up Clinical Testing, Has Many Skeptics in Lab Industry

MANY PATHOLOGISTS and clinical lab executives consider Theranos—the clinical lab testing company based in Palo Alto, California—to be the proverbial “riddle wrapped in an enigma.”

Little is known about the diagnostic technology the company claims to have developed. Yet Theranos says it can deliver accurate lab test results in four hours, using a finger stick collection, just 3,000 to 5,000 microliters of specimen, and do all of this at a price that is 50% of Medicare Part B clinical lab test fees.

During the fall of 2013 and the winter of 2014, Theranos has worked with Walgreens, the national phar- macy chain, to put collection centers into Walgreens stores in Palo Alto, California and Phoenix, Arizona. (See TDR, August 11, 2014.)

In a carefully orchestrated public relations campaign, Theranos has achieved a high profile in the business press and captured the attention of pathologists and laboratory professionals everywhere. However, to date, it is believed that no individual formally trained in pathology and laboratory science and employed by Theranos has spoken publicly about the technology the company uses to perform its testing in support of clinical care.

At the end of 2014, it can be said that Theranos is viewed skeptically by a large number of experienced lab professionals. Thus, one challenge facing Theranos is to win over these skeptics.

Story no. 4
Health Insurers Take Big Bites from Clinical Lab & Pathology Revenue

CHALK UP 2014 AS THE YEAR that both government and private payers stepped up their efforts to reduce the amount of money they pay for clinical lab testing and anatomic pathology services.

Across the nation, labs are experiencing both a decline in the amount of money they are paid for lab tests, as well as increased delays in these payments. Companies that provide coding, billing, and collection services to labs tell THE DARK REPORT that reductions in the prices paid for lab tests are a primary reason why labs are seeing a reduction in their average revenue per requisition. (See TDR, September 2, 2014.)

Within the Medicare program, the Medicare Administrative Contractors (MACs) remain stingy in the amounts they will pay for many molecular tests, particularly those coded with the 114 new molecular CPT codes that took effect in 2013. Another source of reduced revenue is attributed to the new bundling rules under the hospital out-patient prospective payment system.

Private payers are showing much more creativity in the approaches they use to reduce the amount of money they pay for lab tests. In some cases, they arbitrarily cut the fees for lab tests. In other cases, payers are crafting health insurance policies that require patients to pay hefty deductibles (or even the entire cost of the test) if the test is performed by an out-of-network laboratory.

Story no. 5
Big Labs Exclude Competing Labs from Managed Care Contracts

IN THEIR RESPECTIVE STRUGGLES TO GAIN bigger market share of the office-based physicians market for clinical laboratory testing, the nation’s two biggest lab companies increasingly seek to exclude competing labs from health insurers’ provider networks.

What is significant about this development is that, compared to recent years, 2014 saw more examples of the national labs not just working to exclude each other from a managed care contract, but also insisting that the health insurer exclude other local labs from the network as one term in the contract.

Across the nation, a number of independent labs and hospital lab outreach programs report that they are being excluded from payer contracts.

With growing frequency, these network exclusions are coming at the time when one of the national lab companies is renewing its contract with the health insurer. (See TDR, September 2, 2014.)

One example involves the changes made in recent years to the Blue Card policies of the Blue Cross Blue Shield Association that exclude nearly all smaller labs as providers. This is widely considered to be due to the contracting strategies of the national labs.

This year, in Florida, a national health insurer implemented a program that effectively excludes one of the two national labs and nearly all clinical labs and pathology groups that provide testing services in the Sunshine State. (See next Top Ten Story Six.)
 

Story no. 6
UnitedHealth Launches BeaconLBS Florida Doctors and Labs Unhappy

LAUNCHED IN FLORIDA THIS FALL, the laboratory benefit management program of  UnitedHealthcare is stirring up a hornet’s nest of unhappiness among physician in the Sunshine State.

Under the rather benign name of the UnitedHealthcare laboratory benefit management program, the national insurer has directed Florida physicians to use a lab test ordering system created and managed by BeaconLBS, a business division of LaboratoryCorporation of America.

Physicians must use the BeaconLBS system to obtain pre-notification or preapproval for a list of 82 laboratory tests. As of January 1, 2015, failure to comply with these requirements means that the physician or the clinical laboratory that performs the lab tests will not be paid by UnitedHealthcare. (See TDRs, July 21September 2, October 13, and November 3, 2014.)

UnitedHealthcare and its partner in this effort —LabCorp — are playing a high stakes game with this scheme. If they can successfully engage physicians to participate in the use of BeaconLBS for lab test ordering, they intend to introduce this program in other regions of the United States.

For LabCorp, the goal is even bigger. If it can get Florida physicians to use the BeaconLBS system for their UnitedHealthcare patients, they hope to persuade other major health insurers to use the BeaconLBS system as a way to control how physicians order lab tests.

Story no. 7
Clinical Labs Scramble to Cut Costs, Control Utilization, Deliver Value

DURING 2014, THE HEALTHCARE SYSTEMS TRANSITION away from reactive care and toward integrated, proactive care motivated a larger number of labs to incorporate three common elements into their business strategies.

These three elements involve cutting costs within the lab, working with clinicians to improve the utilization of lab tests, and developing ways to deliver more value. Of these three strategies, the one most visible in the greatest number of labs is aggressive management of costs. Without exception, clinical labs and pathology groups are under sustained pressure to reduce costs in order to offset declines in revenue.

It is a similar story with efforts to manage lab test utilization, particularly for labs serving accountable care organizations and patient-centered medical homes. Administrators of these provider organizations need both the cost savings that come from reducing unnecessary test orders along with the benefits of improved patient outcomes that result from physicians doing a better job of ordering the right test at the right time. (See TDR, March 17, 2014.)

Meanwhile, these same providers are being evaluated on the patient outcomes they deliver. Thus, ACOs and PCMHs are motivated to engage their lab providers in ways that deliver more value from lab testing and help improve patient outcomes while reducing the cost per healthcare encounter.

Story no. 8
Tougher Market Translates into Fewer Anatomic Pathology Groups

ARE SMALL PRIVATE PATHOLOGY GROUP PRACTICES an endangered species in the United States? Over the course of 2014, it is believed that more private practice groups quietly ceased to exist as independent practices than in any year in the past two decades.

This is a response to changes in healthcare and the lab testing marketplace. First, payers are cutting the prices they pay for many anatomic pathology testing services. Second, payers are excluding community hospital-based pathology groups from managed care contracts. (See TDR, March 17, 2014.)

Third, rapid improvements in diagnostic technology and informatics mean that pathology groups must invest capital to acquire and deploy these essential tools in their laboratories. These capital demands often outstrip the funding capabilities of smaller groups.

Fourth, smaller pathology groups are caught in the generational wedge. Baby boomer partners are retiring while younger Gen X and Gen Y pathologists are reluctant to accept positions in smaller communities or where they may need to work long hours compared to pathology labs that are located in major cities, offer fixed hours, and access to ample cases in their subspecialty.

As a consequence of these trends, acquisitions, mergers, and even the dissolution of pathology groups as the pathologists are converted to employee contracts with hospitals continued into 2014.

Story no. 9
Lab Whistleblowers Re-Emerge in Several High-Profile Lab Cases

EVENTS INVOLVING LAB WHISTLEBLOWERS during 2014 indicate that another wave of such qui tam actions may be working their way through the courts.

For example, this fall, Bostwick Laboratories agreed to pay $6.05 million to resolve a federal whistle- blower lawsuit originally filed by the CEO of a competing anatomic pathology lab company.

Similarly, on September 8, The Wall Street Journal published a front page story about a federal investigation into the alleged illegal marketing practices of Health Diagnostic Laboratory, Atherotech Diagnostics Inc., Berkeley HeartLab Inc., Boston Heart Diagnostics Corp., and Singulex Inc. that is believed to have originated by a whistleblower action. (See TDR, September 22, 2014.) Such publications as Forbes gave wide coverage to the news of the federal investigation. It published a series of stories describing in detail the alleged methods used by the labs under federal investigation to induce lab test referrals.

Such investigations are ominous portents for the nation’s largest lab companies. That is because employees on the inside of these labs are first to spot violations of the law and they have access to the documents needed to prove their cases in court. Motivated by the sizeable dollars to be recovered, they will file these qui tam cases under seal and it often takes years before these cases are unsealed and become public knowledge.

Story no. 10
CMS Grants CLIA Deeming Authority to A2LA, the First in Several Decades

USING A NOTICE PUBLISHED in the Federal Register on March 25, the Centers for Medicare & Medicaid Services announced that it had granted deeming authority to the American Association for Laboratory Accreditation (A2LA) to accredit labs to the requirements of CLIA.

This is the first organization in several decades to get deeming authority under CLIA for medical laboratories. At the time of the announcement, THE DARK REPORT noted that, along with providing CLIA accreditation services, A2LA will also offer labs the option of obtaining accreditation to ISO 15189: Medical Laboratories at the same time for a single price. (See TDR, April 7, 2014.)

With this action, CMS officials are recognizing the value that the ISO 9001 and ISO 15189 quality management systems can bring to hospitals and medical labs in the United States. CMS took a similar step in 2008 when it granted deeming authority to Det Norske Veritas (DNV) to provide accreditation services to hospitals to help them meet Medicare’s Conditions of Participation. DNV offers a hospital the option of certifying to ISO 9001 at the same time it earns its Medicare accreditation.

This development is another sign that ISO 15189 accreditation is a useful step for innovative labs and pathology groups seeking recognition as leaders in lab test quality and service.

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