CEO SUMMARY: A health insurer’s two-year-old effort to have patients choose low-cost laboratory testing options is causing patients to shift their lab work away from New Hampshire’s hospitals and instead use Quest Diagnostics, LabCorp, and ConVerge (a commercial lab company). This new health insurance program offers a number of important lessons for pathologists and lab directors because it shows that, when hospital labs are willing to negotiate lower rates for lab services, they may be able to retain managed care contracts. If not, health plans are prepared to go elsewhere.
IN NEW HAMPSHIRE, ONE MAJOR HEALTH INSURER is working diligently to lower the cost it must pay for clinical laboratory testing. The payer initiated these efforts in response to the needs of the employers who offer the payer’s health plans to their employees.
Anthem Blue Cross Blue Shield in New Hampshire has developed a value- based benefits strategy for two clinical services: lab testing and ambulatory surgery. For pathologists and lab administrators, Anthem’s implementation of this strategy for laboratory testing services is instructive as to why major health plans are more actively managing compliance with their lab testing networks.
Meeting Employers’ Needs
“Anthem’s value-based benefits strategy is proving to be a big win for its employer customers, and the brokers who sell contracts for health plans to employers,” stated Maria M. Proulx, Senior Legal Counsel for Anthem in New Hampshire.
Anthem BCBS in New Hampshire is owned by Wellpoint, Inc. One of the nation’s largest managed care organizations, Wellpoint serves 34.5 million medical members in 14 states.
For its New Hampshire members, Anthem has three primary laboratory companies in its network: Quest Diagnostics Incorporated, Laboratory Corporation of America, and ConVerge Diagnostic Services, of Peabody, Massachusetts.
This story began two years ago. “In December 2009, we instituted a program we call the ‘site of service option,’” recalled Robert J. Noonan, Vice President, Provider Engagement and Contracting, for Anthem in New Hampshire. “One goal for this site of service program was to develop cost-sharing options for our members.
“When a member chooses a lower cost site for laboratory tests, that member can share in the savings,” explained Noonan. “In fact, patients have zero out-of-pocket costs for laboratory tests if they go to Quest, LabCorp, or ConVerge.
“Further, we negotiated lower prices for laboratory tests with two of the state’s 26 hospitals,” he said. “Our members have zero out-of-pocket costs when the clinical laboratory testing is performed by these two hospitals as well.”
Noonan explained that—when hospitals are willing to lower the cost of their laboratory services—they will be considered lower-cost, site of service locations.
“When we negotiated with those two hospitals, they saw that their rates were higher than the rates we pay to the independent labs and they didn’t want to lose access to Anthem’s members,” he explained. “We are having similar discussions with the other 24 hospitals, but so far, only two have agreed to lower their rates.
“Currently, then, should members want to get their lab testing performed at any of the other 24 hospitals in New Hampshire, they have a co-pay and must meet a deductible,” he added. “Patients can go to all hospitals in New Hampshire to have their specimens collected. But if the patient wants the zero-out-of-pocket option, as of this date, only the two hospitals in our network are considered lower-cost options.”
Can Labs Add Value?
Anthem is looking to encourage laboratories in the state to innovate and add value. “Currently, as we look at medical laboratory testing, it is basically a commodity service,” observed Noonan. “It is not difficult to do a CBC, for example. That’s what Quest, LabCorp, and ConVerge do all day, every day. So, turnaround time, quality, and reporting back to the doctors’ offices for these labs is as good as it is anywhere.
“Before we introduced this site of service option, there was not much competition among the hospitals and there was a small number of free-standing labs in our state,” he continued. “The status quo was that hospital labs generally controlled their local markets. Hospitals were consolidating market share by acquiring physician practices. Each hospital would then strongly encourage its employed physicians to refer their patients to the hospital laboratories.
“Those market dynamics prompted us to introduce these value-based, cost-sharing benefit options,” stated Noonan. “It gives our members a financial incentive to seek clinical services—whether for a laboratory test or ambulatory surgery—from lower-cost providers. When they do, they share in the savings.”
Difference in Lab Test Prices
Noonan said that the difference in the price of lab testing was often substantial. “I don’t have the exact numbers and it varies at each hospital, but it is common for a lab test to cost something like three times as much if it is performed by a hospital laboratory, rather than by Quest, LabCorp, or Converge,” he commented. “That is a big difference. It is one reason why we wanted to change the market dynamics so that there would be a motivation for labs to compete more intensely, and not just on lower price.”
Proulx added that Anthem members still have a choice when it comes to lab testing services. “It is important to note that some hospitals feel that we have built this narrow network in New Hampshire to exclude them,” she noted. “However, that has not been done. All of our members can get their lab testing at any hospital laboratory. It is their choice and the only issue is how much they are willing to pay out of their own pocket.
“Members who pay attention and educate themselves about the cost of care should be rewarded for making smart choices,” she emphasized. “By implementing the site of service program as a cost-sharing option, members have a choice. If a member doesn’t want a lower cost, he or she can go where it is most convenient.”
Premiums Cut by 5% to 15%
Proulx said that members, employers, and insurance brokers have reacted positively to the site of service option. “They like this program because the premiums for our health plans that offer the site of service option can be 5% to 15% lower than the premium for a plan that does not include the site of service cost-sharing option,” she said.
“The brokers are very happy to sell health plans with the site of service option during the slow economy,” Proulx noted. “It’s been a time when employers consider it highly important to save every dime.”
Noonan added, for example, that the cost of insurance for a family of four is over $15,000 in New Hampshire. That is among the highest premium rates in the nation, he said.
From Anthem’s perspective, there is also more competition among labs in the network to add value to the patient experience. “At the 2009 launch of our site of service option, our three contract labs—ConVerge, LabCorp, and Quest Diagnostics— had only 13 patient service centers (PSCs) in New Hampshire. Since then, these lab companies added 17 PSCs in two years. That brings the number of PSCs today to 30 across the state,” explained Noonan.
“We see this as a demonstration of our partnership with these three lab companies,” he stated. “Those 17 new PSCs represent a lot of bricks and mortar.”
Mobile Phlebotomy Van
Another innovation that has appeared since the site of service option was introduced is a mobile phlebotomy van. This raises the competitive bar on patient service among laboratories in the Granite State.
“There is value to patients in a phlebotomy service that comes to their homes to collect lab test specimens,” emphasized Noonan. “In the northern part of the state, which is rural, members in plans with our site of service option need convenient access for blood draws and collection of lab test specimens.
“To serve Anthem members in the three northernmost counties, Quest Diagnostics introduced what it calls ‘Exam One,’ a mobile phlebotomy unit,” concluded Noonan. “This mobile phlebotomy unit will come to your home in Carroll, Coos, and Grafton counties.”
THE DARK REPORT observes that health insurance companies nationwide are narrowing their provider networks and steering their members to low-cost laboratory service providers. Clinical laboratories that are willing to reduce their prices to be competitive with those of the national lab companies may retain more health plan business than those laboratories that refuse to lower their rates.
NH Lawmakers Voted Law for Patient Choice
LEGISLATION IN NEW HAMPSHIRE was recently passed specifically to allow more patient choice. The law was a response to the trend of hospitals buying and operating physician practices.
According to Maria M. Proulx, Senior Legal Counsel for Anthem Blue Cross Blue Shield of New Hampshire, this law played an important role in reshaping the market for healthcare in the state. “About two years ago, the New Hampshire legislature passed the freedom of choice provision,” she stated.
“This provision requires health insurers to put language in their contracts with physicians that says patients can seek healthcare services wherever they want,” said Proulx. “In other words, providers—such as office-based physicians—cannot insist that patients go to the hospitals that employ those physicians.
“The intent of this provision was to allow patients to regain the freedom of choice that they lost when hospitals bought physician groups, then required the physicians to send their patients to the hospitals’ ancillary services, including the clinical laboratory,” she continued. “That law makes it possible for Anthem’s site of service members to go wherever they want for their healthcare, including for their lab work.”
In New Hampshire today, hospitals own approximately 75% of the primary care physicians practicing in the state, she added.