SINCE THE MID-1990S, HOSPITAL OUTREACH LABORATORY PROGRAMS have lost market share steadily to the nation’s biggest public lab companies. In these two decades, public lab companies traded deeply-discounted lab test prices to health insurers in exchange for exclusive network provider status.
Then, about eight years ago, having captured many managed-care contracts across the nation, big lab companies adopted another effective strategy. The big labs began to educate insurers about the higher prices for outreach lab tests that insurers were paying to hospitals. Seeking to cut costs, several large payers began to exclude significant numbers of hospital laboratory outreach programs from their provider networks.
Today, however, the worm may be ready to turn in favor of hospital labs. Several market forces portend a more favorable environment for hospital labs to regain a larger share of lab test referrals from office-based physicians. One market force is the transition to value-based provider payment. A second is the drive to integrated clinical care. The third, surprisingly, may turn out to be the secondary effect of the deep price cuts coming to the Medicare Part B lab test prices.
The first two market forces are intertwined. Medicare and private payers are moving to value-based reimbursement as they seek to reward providers who deliver integrated clinical care that keeps patients healthy and out of hospitals.
From this trend, hospital labs stand to benefit. Because they are part of integrated delivery networks, hospital labs are positioned to support integrated clinical care and precision medicine. By contrast, independent labs seek to maximize profits under fee-for-service payment by funneling a large volume of specimens into regional testing centers to achieve the lowest average cost per test. Therefore, independent lab companies generally struggle to deliver value under value-based payment.
What will the large national labs do if Medicare’s lower Part B fees in 2018 cut so deeply into profits that these lab companies need to seek higher prices from insurers to reimburse them for high-volume routine testing? If insurers do not grant the necessary price concessions to the big labs, would that reopen the door for hospital outreach labs to offer insurers value by further supporting integrated clinical care and keeping patients out of hospitals?