What Future for Deeply-Discounted Lab Prices?

IN THE LABORATORY TESTING INDUSTRY, there is probably no single issue that causes more rancor than the regular use of deeply-discounted pricing of laboratory tests by a certain cohort of laboratory companies.

This fault line in our industry is quite distinct. Those managers and pathologists in lab organizations that refuse to use low cost pricing as a way to win new customers and retain market share have a certain disdain for those lab companies and anatomic pathology companies that do. Because of the corrosive finan- cial effects that such deep price discounting has across the entire laboratory industry, it is a constant and regular sore spot for those laboratories which don’t discount in this manner—but must compete against lab companies that do.

This deep division involving either the willingness or the refusal to use deeply-discounted pricing for lab tests is the emotional dynamite that is associated with the whistleblower lawsuit in California. This lawsuit accuses multiple laboratory companies operating in California of violating a state law that, when a provider gives a lower price to another provider that is less than the Medi-Cal fee for that service, that provider must also give Medi-Cal that same lower price.

Now regulatory agencies in California—after several decades without effective enforcement of the state laws that address “comparable pricing”— are attempting to enforce their interpretations of these laws. The process has not been easy, either for state regulators or the lab companies that have been targeted for enforcement action. It has also been disruptive to the lab testing marketplace across all of California.

Further, it is still unclear if those lab companies which rely on deeply-discounted lab test prices to capture and hold market share will emerge from these court cases and regulatory enforcement actions with some type of competitive advantage intact, due to the specific terms of the settlement agreement they are able to negotiate with government officials in California.

On the other hand, California’s enforcement efforts may cause Medicaid officials in other states to revisit enforcement of their own state’s “comparable pricing” laws. If that happens, it could trigger a regulatory change in attitude toward the use of deep discounted lab test prices. In a perfect world, it might even cause Medicare officials to reassess the “fairness” of labs that often give favored customers lab test prices that are 40% to 60% of Medicare Part B lab test fees, but continue to bill Medicare at full price.