Do Community Labs Have a Future in the U.S.?

It may be timely to ask a provocative question that touches everyone in the profession of laboratory medicine. Is there a future for community laboratories and hospital lab outreach programs in the United States, given the different forces acting upon the clinical laboratory industry today?

In this issue, our editorial team describes the multiple disruptive consequences to be expected from the Protecting Access to Medicare Act (PAMA) and how officials at the Centers for Medicare and Medicaid Services (CMS) are implementing sections of that law.

At the moment, the lab industry is experiencing the second year of 10% price cuts to the Medicare Clinical Laboratory Fee Schedule (CLFS). Maximum cuts of 10%, 15%, 15%, and 15% are expected in the years 2020-2023 respectively. Assume that CMS cuts the maximum amount from the prices of high-volume, highly-automated laboratory tests during the six years of 2018 through 2023.

Assume also that major health insurers enact price cuts of a similar magnitude. Simple economics leads to a conclusion that most community laboratories and many hospital laboratory outreach programs—which all have much smaller volumes of tests and economies of scale than the nation’s largest companies—will cease to operate.

Other disruptive factors will work against the nation’s smaller clinical laboratory organizations. Payers that use narrow networks to exclude these labs, the onerous burden for smaller labs and community hospitals to report PAMA private payer lab test prices, and the need for these labs to have capital to invest in more sophisticated information technology will create additional financial stress for these labs.

So, what fills the void left by these labs as they file bankruptcy, sell, or simply disappear? It is a safe bet that the two national labs will be ready to scoop up the most lucrative clients formerly served by these failed labs, while refusing to pick up lab clients they consider unprofitable or in rural areas that are expensive to service. This is how they have operated for the past 25 years.

If all of this comes to pass, the officials at CMS may find they indeed were able to substantially cut what Medicare pays for lab tests. But in that bargain, they’ll end up with Medicare beneficiaries and physicians in many areas of the United States who don’t have access to quality lab testing services.


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