Scrutinizing the Cost of Lab Testing

Scrutinizing the Cost of Lab Testing

IT SEEMS LIKE THE COST OF LABORATORY TESTING continues to be a high-profile issue. On the pages that follow, you will read two different stories about how the cost of lab testing is undergoing intense scrutiny. This is not an accident. Rather, it shows how healthcare’s evolution is already undermining the traditional payment methods common in the clinical lab industry.

First is a story about a physician-operated ACO in New England. Risk-related managed care contracts already represent 70% of the organization’s revenue. That has motivated the 1,000 physicians of Atrius Health to implement programs to improve utilization of high-cost clinical services.

No surprise was the fact that inappropriate hospital admissions and imaging studies were the first clinical services to undergo review. But you will be fascinated to learn that lab testing was quickly targeted for improved utilization. Why? Because the high volumes of lab tests ordered daily by physicians quickly add up to big numbers. Atrius Health believes that its first three programs to improve utilization of lab testing will save it more than $1 million per year. Of course, this means fewer lab test referrals (and less revenue) to its lab providers.

Second is the interesting development in the federal lawsuit involving three California lab companies that sued Quest Diagnostics Incorporated and several insurance companies in 2012. In response to motions and hearings, last month the judge tossed out six charges made by the plaintiff labs.

But the judge ruled that the case could move forward on the seventh charge which claims that the national lab company engaged in predatory pricing in violation of state and federal laws by charging some customers less than cost for lab tests. Of course, Quest Diagnostics is unhappy about this development and states that it has not violated laws or regulations associated with these activities. On the other hand, there are many pathologists and lab executives who would welcome having a federal court scrutinize the lab test pricing practices of any lab company that uses below-cost pricing to increase market share.

Both stories illustrate how the healthcare system is beginning to question both the price of lab testing services and whether clinicians are ordering lab tests appropriately. This is fair warning to all labs to be prepared when payers and their clients undertake similar initiatives.

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