It Can’t Happen Here

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Here is another issue of THE DARK REPORT with stories about radical changes to laboratory organizations. When Canada’s Alberta Province whacked almost 40% out of the healthcare budget over two years, laboratories were left with no option but to engineer radical change.

How would laboratories in the United States respond if they were told by Medicare, Medicaid and private carriers that current reimbursement levels would be reduced 40% over the coming two years? I’ll bet that most laboratory executives would expend more effort to encourage legislative intervention by Congress than to re-engineer their laboratories.

In Alberta, laboratory executives were not given that option. In order to survive, they were forced to take action. The only viable solution was massive cooperation between hospital laboratory administrators and independent commercial laboratory executives. Two years later, there are still laboratories in Alberta, but laboratory overcapacity has shrunk closer to actual demand. The numbers of employed pathologists and medical technologists are severely diminished compared to original levels.

I consider the Alberta experience to be a wake-up call to laboratory executives in the United States. For those who say “it can’t happen here,” I have a surprising answer. It already has! When the laboratory industry began bidding managed care contracts for laboratory services using marginal costs, they effectively slashed laboratory reimbursement by as much as 80% from existing fee-for-service levels!

Of course, no one could see that at the time. Managed care was less than 5% of any single regional market. But now that managed healthcare is achieving market share of 40% to 50% in some regions, laboratories in those areas are feeling the full economic impact. With capitated reimbursement levels below the amount needed to recover testing costs, laboratories are bleeding. The experience of California’s publicly traded labs is a precursor to what will soon happen to laboratories in other parts of the country.

When matching the Alberta experience against established trends in the United States, I predict that laboratory executives will get no relief from government-funded health plans nor private insurers. Rather, laboratory reimbursement levels will continue downward. In consequence, I believe we will see the creation of regional laboratory “authorities,” or “networks,” not dissimilar to those in Alberta. Whether under government or private ownership, their structure and function will closely mirror what exists in Alberta.


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