Tougher Financial Times Ahead for Lab Industry

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THE YEARS 2008 THROUGH 2010 WERE TOUGH ECONOMIC TIMES for all healthcare providers, including clinical laboratories and pathology groups. Moreover, although the deepest recession in 30 years was declared over by mid-2009, many hospitals continue to struggle financially and the national unemployment rate still hovers at about 9%, meaning that millions of Americans cannot find work.

It is my belief that the entire healthcare system will face daunting financial challenges in the next few years. For example, hospitals are worried about the potential negative impact of accountable care organizations (ACO) and value-based reimbursement.

For physicians, the Medicare sustainable growth rate (SGR) formula specifies that their fees should be reduced by 29.5% during fiscal 2012. Over the past decade, Congress has overridden the formula and funded an annual increase in the physician fee schedule. But outside forces will make that tougher for Congress to do during the current budget talks. Moreover, as noted earlier in THE DARK REPORT, the Obamacare bill, when scored as revenue neutral by the Congressional Budget Office in 2010, included this 29.5% cut in Medicare physician fees for 2012 and future years.

Now the laboratory testing industry has its own growing list of potential financial hits. For starters, the Accountable Care Act specifies an annual reduction in Medicare Part B lab test fees in coming years. And don’t forget the 2.3% medical device tax, which is expected to include in vitro diagnostics equipment purchased by medical laboratories. This tax takes effect in 2013.

As you may already know, the newest financial threat that can significantly undermine the finances of the laboratory testing industry involves restoration of the 20% Medicare patient co-pay for lab tests. The lab industry faces this threat on two fronts. First, this proposal is part of the federal debt ceiling negotiations. Second, the lab test co-pay is back on the table within Congress as part of the annual budget planning process.

These examples serve as an early warning to lab administrators and pathologists. It won’t be smart to develop strategic plans based on the assumption of “business as usual.” Since the federal government pays more than half of the $2.5 trillion in healthcare costs annually, its budget problems alone are likely to lead to more dramatic declines in reimbursement than have been seen in recent years. The message for lab leaders is simple: “Be ready to do more for less money.”

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