Any Future for Loss-Leader Lab Pricing?

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OUTSIDE OF CALIFORNIA, few pathologists or laboratory administrators are aware of the unfolding enforcement campaign that was initiated by the state’s Medi-Cal program. At issue is a decades-long practice of offering providers low laboratory test prices—in some cases well below the Medi-Cal fee schedule.

You may say, “what’s the big deal?”, since, for years, you’ve seen public laboratory companies in many other states give similar rock-bottom prices to providers and payers that are also much less than the Medicare Part B lab test fee schedule and/or local Medicaid fees.

Well, in California, the big deal is that the California Department of Health Care Services (DHCS) is now in the midst of enforcing its interpretation of a 40-year-old state law, section 51501(a), that deals with the issue of laboratories passing low prices to providers, but not passing those same lab prices to Medi-Cal, the state’s Medicaid program. I will leave it to you to read this special issue of THE DARK REPORT and make up your own mind as to whether DHCS or the laboratory companies have the strongest legal position.

And this brings me back to my starting point. Once you read about the details of this unexpected enforcement campaign of California state law, I’d like you to ponder this question: If many state Medicaid programs are at the brink of insolvency, and if the federal Medicare program is outspending revenue, then how much longer will deep-discounting lab test price arrangements continue before catching the attention of government health program administrators? Can the lab industry defend a situation where a profitable big laboratory gives a below-cost test price of, say, $2 to a client, then turns around and bills the federal/state health program the full fee-for-service price of $10 or $20, on a patient seen in the same doctor’s office, no less!

I would further observe that the financial times in 2011 are much different than in 2000 and 2005. Government health programs are desperate to find the money needed to fund their mission. With that in mind, allow me to ask you this question: If you were in Las Vegas at the oddsmaker’s desk, would you bet your own money that, in five years, government health plans will still allow labs to give providers discounted prices that are less than Medicare and Medicaid fees, while not also passing those same low prices along to the Medicare and Medicaid programs? If you wouldn’t make that bet, you may be acknowledging that loss- leader pricing for lab tests doesn’t have much of a future.

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