Delivering Added Value = More Lab Reimbursement

WILL HISTORY LOOK BACK ON 2013 AND DECLARE IT to have been a watershed year for the clinical laboratory testing industry? I ask that question because many of you are telling us here at THE DARK REPORT that you expect rapid and unprecedented changes in the lab testing marketplace in your community or region.

In my 18 years as Publisher Emeritus of THE DARK REPORT, I have never heard so many veteran pathology business leaders and lab administrators paint such a gloomy picture of their lab organization’s short-term prospects. Why just last week, a pathologist who owns a major independent pathology company called to ask for advice.

At his lab, CPT 88305 makes up 40% of his volume and the deep cuts in Medicare reimbursement for CPT 88305-TC that took effect on January 1, 2013, will immediately bury his lab in red ink. This pathologist—a very savvy businessman—was at a loss as to how his lab company can respond in the short term and stay in business

That’s just one example. For the sizeable number of small, independent clinical laboratory companies that do lots of nursing home business, the 4% cuts in Medicare Part B Clinical Laboratory Test Fees (2% per Accountable Care Act and 2% from last February’s SGR temporary fix) that took effect at the first of the year will immediately tip these enterprising businesses into red ink. That’s because many of these small lab firms currently have profit margins of 4% or less.

So what’s a pathologist business leader or lab administrator to do? Federal and state governments don’t have enough money to fund the current demand for health services, so additional fee cuts should be expected. On the other hand, 320 million Americans continue to need laboratory tests.

To me, this is opportunity that all clinical labs and pathology groups must put on their radar screen. In the face of shrinking budgets, the healthcare system will pay for lab testing services that add value: meaning, lab testing services that improve patient outcomes and at the same time reduce the overall cost per healthcare encounter. That is the sweet spot that labs must serve to survive financially. In articles here and here, you will read about a Midwest health system that is engaging its laboratory to deliver added value in ways that measurably contributes to improved outcomes and a lower cost of care. Going forward, I consider this to be one essential strategy that will help nimble labs sustain themselves financially.