Deep-Discount Lab Prices to Haunt All California Labs

Deep-Discount Lab Prices to Haunt All California Labs

FOR MORE THAN 20 YEARS, THE CLINICAL LAB INDUSTRY been marked by a fundamental schism. On one side of the schism are the public lab companies that have aggressively used deeply-discounted loss-leader pricing practices when negotiating managed care contracts to capture market share.

On the other side of the schism are the majority of lab organizations, ranging from independent labs and hospital lab outreach programs to private pathology group practices. These are the labs that understood the long-term financial harm to the laboratory medicine profession as payers wanted to extract the same deeply discounted lab test prices from all the clinical labs in their service regions.

Now all labs in California are about to reap the consequences from the public lab companies’ liberal use of such deeply-discounted lab test prices in their managed care contracting practices. As a consequence of the whistleblower lawsuit initiated in California in 2005 and settled in 2011, the California state legislature has enacted laws that will result in a 25% to 30% cut in Medi-Cal clinical lab test fees, according to the executive director of the California Clinical Laboratory Association. These reduced fees will take effect on July 1, 2015. (See pages 6-8.)

This situation came about because of the price information disclosed in the whistleblower lawsuit. Once state healthcare officials saw the rock-bottom prices the two blood brothers were giving to managed care plans, IPAs, and other preferred customers in California, they took steps to ensure that the Medi-Cal program got those same deeply-discounted prices.

But that is just the story in one state. Congress and Medicare officials are embarked on a comparable effort to lower Medicare Part B clinical lab test fees to the similar levels that the two blood brothers give to their preferred customers, including UnitedHealthcare, Aetna, and the state Blues, for example.

Recall that it was in 2011 when Senators Baucus and Grassley issued subpoenas to the two national labs and three health insurers for documents associated with their lab services contracts. Not coincidentally, this followed the public disclosure of the settlements in the California whistleblower case.

Thus, the lab test market pricing requirement in the PAMA legislation can be considered an action by the federal government to ensure that the Medicare program gets the same deeply-discounted lab test prices that the national lab companies provide to health insurance companies.

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