Labs Caught Between Employer Hammer, Payer Anvil

STARTING ON JANUARY 1, 2017, THE CLINICAL LABORATORY INDUSTRY will undergo a new experiment in price-setting (and price-cutting) by the federal Centers for Medicare & Medicaid Services. On that date, certain labs must begin reporting market price data for each test and each payer to CMS. That data will be used to set Part B clinical laboratory test prices for January 1, 2018 under the Protecting Access to Medicare Act of 2014.

However, that is not the only threat to the existing level of clinical lab test prices. In this special, expanded issue of THE DARK REPORT, we report on the early success of a large employer’s use of “reference pricing” to cut the prices it paid for laboratory tests by about one-third in just three years! We also define what reference pricing is and explain why employers—as well as health insurers—can be expected to swiftly incorporate it into their health benefit plans, and how laboratories with higher test prices are at greatest risk of losing volume and revenue.

Simply said, the clinical lab industry is poised for a powerful, comprehensive repricing of laboratory test services. In the pages that follow, THE DARK REPORT lays out its assessment of reference pricing as a tool that employers and payers can deploy to generate a substantial decline in what they and their patients pay for laboratory tests.

Step back for a moment and look at the situation in another way. Medicare Part B is an important source of revenue for most clinical labs. Consider Medicare as the anvil. Meanwhile, employers and their health benefit plans represent another major source of revenue for labs. Picture employers as the hammer.

Stuck between the hammer and the anvil are clinical laboratories and the prices they charge for their lab tests. The shared goal of the Medicare program (through PAMA market price reporting) and a growing number of large employers (by the use of reference pricing) is to pay significantly less for lab tests.

As the hammer and the anvil begin to beat on lab test prices in the coming years, at greatest risk will be labs with the highest prices. In this category are many hospital labs and hospital lab outreach programs. But no lab will escape unscathed. Lab executives and pathologists should absorb the business intelligence and analysis we present in this special issue of THE DARK REPORT and use it to develop a strategy that will help their lab remain financially stable.