New Market Channel For Esoteric Testing

Firms with new esoteric tests bypass laboratories to go direct to physicians

CEO SUMMARY: It’s a new marketing model for specialty esoteric tests that presents both clinical and financial challenges to hospital and health system laboratories. Niche labs offering esoteric tests are sending sales reps directly to physicians and bypassing pathologists and lab directors at local hospital laboratories. These tests come bundled in high-priced panels and often offer only limited clinical utility.

HOSPITAL LABORATORIES FACE a new challenge to their budgets: high-priced esoteric lab tests marketed directly to physicians.

It’s a marketing model that bypasses local hospital laboratories. A small, but growing, number of specialty laboratories send sales reps directly to physicians to offer high-priced esoteric tests that frequently must be ordered in multi-test panels.

The consequences of this marketing model on hospital labs are several. Physicians begin ordering esoteric tests which may have limited clinical value. Pathologists, intentionally left out of the educational loop by the esoteric testing provider, are unable to provide effective support to clinicians ordering such tests. High prices of these tests are budget-breakers to many hospital and health system laboratories.

Not surprisingly, pathologists and laboratory administrators view this developing trend with concern. On one hand, this new marketing model comes between the traditional relationships local laboratories maintain with physicians, both in and out of the hospital. On the other hand, it creates budget-busting bombs for hospital labs when the bills for these high-priced esoteric tests are presented.

Taking Decisive Action

In some health systems, pathologists are instituting policies designed to avoid the unpleasant outcomes of this new lab test marketing strategy. In Detroit, Michigan, the ten-hospital St. John Health System is among the first to take decisive action.

Its laboratory division now maintains extra vigilance on all esoteric reference laboratory testing. “Less than 2% of all lab tests are referred outside the St. John Health System,” stated Bruce A. Jones, M.D., Director of Clinical Pathology at St. John Hospital and Medical Center. “We closely monitor tests with high-ticket prices and low reimbursement that cost the laboratory significant dollars.

“We believe this direct-to-physician marketing trend will only increase, which is why St. John’s decided to take a proactive stance,” he added. “There are aspects of this esoteric test marketing model which should give pathologists and all clinicians pause.”

Niche Lab Marketing Ploys

Dr. Jones explained some of the marketing strategies used by niche esoteric test providers. “In the Detroit marketplace, sales reps from these niche lab companies go directly to specialist physicians and attempt to develop a consultant relationship with them. Among other things, these sales reps suggest and imply there may be some benefit gained from the relationship by involvement in possible clinical trials. At all times, they leave the referring laboratory out of the loop,” he said.

“To physicians, these sales reps portray their esoteric tests as having perceived value, offering cutting-edge technology, and eligible for reimbursement by payers,” added Dr. Jones. “Their tests are available only as ‘disease panels’—no single tests allowed. Frequently we find that only one or two tests in the panel are truly useful for effective treatment of the patient.

Costly To Referring Lab

“In explaining reimbursement, these niche esoteric lab companies provide physicians with appropriate CPT codes, but the sales reps invariably fail to state that reimbursement may be only 10% to 50% of what the testing lab charges for the panel of tests,” Dr. Jones noted. “Consequently the tests are costly for the referring laboratory. Because some of these panels are priced at thousands of dollars, this can be a major problem for small community hospitals.”

Complexities of billing and payment mechanisms within a hospital system create additional challenges for pathologists attempting to maintain budget control. “Within the hospital, all too often there is a disconnect regarding reimbursement for these specialty esoteric tests between laboratory administration, the finance department that issues payment to the esoteric testing lab, and patient accounting,” he said.

“Frequently there is no direct comparison between third party reimbursement for a CPT code and the charge for the test from the niche labs,” he continued. “The reimbursement may be significantly different than the niche lab’s charge for the tests. Unless someone within the hospital devotes careful attention to the detail of these transactions, significant dollars can be lost. Referring hospital labs cannot afford to subsidize niche labs.”

Real-Time Intervention

Within the St. John Health System, pathologists devised a real-time active intervention step. The goal is to better assess true needs of the physician and patient before proceeding with a test send-out. “Whenever a niche laboratory panel test is ordered, our sendout personnel complete a form,” explained Dr. Jones.

“It includes the cost of the panel, individual tests in the panel, CPT codes, and expected reimbursement,” he said. “A pathologist reviews this information, along with the diagnostic usefulness of the tests, then contacts the ordering physician before the test is sent out.”

St. John pathologists have called several physicians to make them aware of the true cost and reimbursement of a panel, possible patient responsibility for the tests’ costs (depending on their insurance), and the diagnostic useful- ness of the tests. “We discuss the panel’s value to the treatment of the patient,” he noted. “All we try to do is make them aware of what they have ordered, before we send the test out. The majority of physicians we’ve contacted with this information have can- celled the panel of tests.”

St. John Health System is not alone in developing a response to this new marketing model for specialty esoteric tests. Across the country, THE DARK REPORT sees a growing number of hospital and health system labs initiating similar protocols for educating clinicians about the complete details of an esoteric test panel’s clinical efficacy, true cost, and actual reimbursement.

Trend To Increase

THE DARK REPORT predicts that direct- to-physician marketing of specialty esoteric testing will continue to increase. Within the biotech communi- ty, there are relatively large numbers of companies working to develop diagnostic assays. Their business plan is to protect these tests with patents, brand them to physicians and con- sumers, then sell them at premium prices. (See TDR, June 24, 2002.)

Because existing laboratory administrators and pathologists are savvy about the clinical benefits and the true costs of these tests, they are resistant to sales efforts to encourage them to embrace such tests and offer them to client-physicians. The specialty esoteric test companies understand this, which is one reason why they take their sales and marketing message directly to physicians.

Among the companies most frequently identified with using these business practices are Athena Diagnostics, Myriad Genetics, and ViraCor Biotechnologies. One of the fascinating unknowns about this unfolding story is whether these types of esoteric testing companies create substantial ill will among established hospital and health system laboratories because of the budget-busting effect this new marketing model has on their finances.

If this happens, it will not be good for labs, for physicians, nor for patients. As Dr. Jones observes “Technology is advancing in the areas of molecular diagnostics, proteomics, and pharmacogenomics. As it does, clinical and anatomic pathology should be at the forefront of educating physicians in areas of detection of genetically-based health risk factors, evaluation of treatment options, and effectiveness and monitoring of patient risk factors. To accomplish these goals, the lab community needs to work in a collaborative fashion with esoteric testing sources.”

Further, general trends in the healthcare system may work against this strategy of high-priced, all-or- nothing specialty test panels. The market strategy may be most profitable for the lab company, but it doesn’t provide the most cost-effective care for individual patients.

Resistance By Payers?

At some point, payers will weigh in. Once utilization becomes a bigger issue, and lab computers and insurance companies get better at monitoring ordering patterns, high-cost testing without adequate clinical justification will be challenged more often.

In the short term, vendors who choose to circumvent the longstanding role of the local laboratory as long-standing gatekeeper for tests ordered within the hospital or health system risk alienating laboratory professionals. In the long term, the healthcare system may accept the direct-to-physician market channel for introducing specialty esoteric tests—but only if the tests deliver recognizable clinical value at a reasonable price.

New Management Issues For Clinical Paths As Test Vendors Adopt Drug Sales Model

TAKING A PAGE from the pharmaceutical industry, diagnostic test vendors and specialty esoteric testing lab companies are changing the way new laboratory assays are marketed to the clinical community.

One consequence is the potential overuse of high-priced multi-test panels that offer limited clinical value and even less reimbursement. The referring laboratory is stuck paying “list price” to the testing lab, an amount which is frequently several thousand dollars. Frequently the patient may have to pay as many as 20 or more deductibles, or—depending on their insurance—bear the entire cost of these specialty esoteric tests.

Test Utilization Controls

This is a portent of the future as laboratory medicine branches more into the realms of genomics, proteomics and pharmacogenomics. Already pathologists, and laboratory specialists recognize that they need to develop better controls over utilization of esoteric tests. To do nothing means that a growing portion of the lab testing budget is absorbed by specialty esoteric testing.

The laboratory industry went down this same road with point-of-care testing (POCT). The solution turned out to be proactively working with physicians on education, utilization review, outcomes assessment, and disease diagnosis. In such activities, the pathologist plays a key role controlling these new healthcare costs.

“More than ten years ago, companies were marketing POCT directly to physicians and hospital administrators,” stated Bruce A. Jones, M.D., Director of Clinical Pathology at St John Hospital and Medical Center in Detroit, Michigan. “We recognized that, if we weren’t careful, it would become a significant lab budget issue and the laboratory would have little control over both the type of tests and the location where these tests were to be performed.

“Within our health system, the laboratory and clinicians worked together to consider issues such as turnaround time, processing the patient more quickly in ER, using POCT to help ICU patients transfer more rapidly to an area with a lower level of care, quality control, proficiency tests, knowledge of staff performing the test, drawing blood, and the like,” said Dr. Jones.

“We’ve come a long way in ten years, and our education to the nursing staff and physicians has paid off,” declared Dr. Jones. “We have a multidisciplinary committee that looks at the whole picture. Our nurses are now more knowledgeable and very sophisticated about POCT.

“Seldom do we see an unreasonable request for a new POCT,” he added. “The process is simple. They complete a form, the committee reviews the request, they plead their case to the committee, and all parties are usually satisfied with the outcome because they recognize all interested parties played a part in providing the appropriate level of patient care.”

Collaboration With Labs

In many hospitals and health systems, point-of-care testing has become an accepted part of the laboratory test menu. Generally this has been accomplished because POCT vendors collaborated with laboratory professionals in their marketing efforts to introduce such tests into clinical use.

But the direct-to-physician marketing tactics employed by some specialty esoteric test vendors cuts laboratory professionals “out-of-the-loop.” The marketing model which worked for pharmaceutical companies may not translate successfully for esoteric testing. Early indications are that pathologists and laboratory administrators will be forced to develop management controls over physician ordering of specialty esoteric lab tests in their hospitals or health systems.

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