Lab Director Takes a Stand On Patented Genetic Testing

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THIS LETTER APPEARED in the mailbag after our special intelligence briefing on how genetics will transform healthcare and before our look at how high-priced specialty esoteric testing is causing budget headaches for regional labs. (See TDRs, December 30, 2002 and January 20, 2003, respectively.)

Financial Pinch In Detroit

In Detroit, the 130 hospital laboratories participating in Joint Venture Hospital Laboratories (JVHL) already feel the financial pinch caused by high-priced specialty esoteric testing, regardless of whether the test incorporates genetic-based technology. JVHL Executive Director Jack Shaw had this to say about the growing problem:

Dear DARK REPORT,

While the future benefits of genetic testing for laboratory medicine are to be applauded, we, the local and regional hospital lab providers, are currently caught in a pronounced cost problem with respect to managed care and genetics testing.

A growing number of specialty testing companies charge outrageous (my term) rates for their patented genetics testing. Local laboratories find it nearly impossible to pass along the cost of much of this testing because of several factors. Included in any list of these types of specialty lab testing companies are Athena Diagnostics, LipoScience, Lipomed, Myriad Genetics, and Prometheus Laboratories, among others.

One major issue is billing. Managed care contracts with payers are written to cover CPT-4 ranges. These specialty genetics testing companies fit their “square peg” testing into “round hole” codes. CPT-4 fee schedules were not established to cover specialty tests with list prices of $1,500 or more.

The financial consequences are obvious. Under client bill scenarios, the hospital laboratory recovers only a very small percentage of the cost of such tests. If the hospital laboratory tells the specialty test company to directly bill the insurance plan, either of two unfavorable consequences results.

One, because the specialty test company refuses to par with health insurers, they balance-bill the patient for the amount unreimbursed by the health plan. Frequently, in this situation, some health plans pay charges to avoid a patient-pay situation and, if the lab contract has a risk-sharing provision, the hospital lab eats the cost for this test.

Alternatively, the insurance plan pays their normal fee schedule to the specialty test company. The patient then gets a bill from the specialty testing company for the balance. After hearing a complaint from the patient, the physician pressures the hospital laboratory to pay the difference because the laboratory sent out the test—albeit at the physician’s direction.

Hospital laboratories do not always succumb to this pressure, but often they concede because they don’t want to risk losing their physician-client.

There is another competitive dynamic in dealing with these high-priced specialty tests. In the Detroit metropolitan area, our hospital laboratory network is unwilling to roll over and let a national laboratory, like Quest Diagnostics, fill our market position just because Quest has deeper financial pockets to absorb per-test losses. It may even have an agreement to buy these tests at deep discounts or be involved in a joint venture with the genetic diagnostic companies that developed the patented lab tests.

As THE DARK REPORT is well aware, hospital laboratories do not have capital to invest in these genetic testing companies or buy a joint venture position. In the near term, hospital laboratories can neither buy these tests at a reasonable wholesale price, nor can they duplicate these patented tests in their local market.

I see compelling evidence that the major imbalance between the cost of existing patented genetic tests and cur- rent payer reimbursement will widen. One reason is because these genetic test companies are bypassing our regional laboratories and are marketing their tests directly to physicians and consumers. The marketing model used by Cytyc Corporation to introduce its patent-protected ThinPrep® Pap test is being copied by a growing number of specialty diagnostic companies.

At least Cytyc spent time and money getting appropriate CPT-4 codes for their new lab test. This gave our hospital laboratories the opportunity to work with health insurers to develop a reasonable reimbursement model. I have yet to see any of the emerging specialty genetics testing companies copy this part of the Cytyc marketing model.

How are we coping with the high costs of patent-protected genetic tests at JVHL? Some of our hospital laboratories contact physicians who order these tests. Pathologists discuss with the ordering physician the cost of such tests and review the clinical benefit for the patient.

It is a time-consuming method to manage utilization. Further, it is not a good solution to challenge clients based on the cost of testing. But the options hospital laboratories have now are limited. This is one ugly side to genetic testing. It prevents laboratories from fully embracing the opportunities that some specialty genetic testing can bring to clinicians.

In closing, the special issue of THE DARK REPORT on how genetics will transform medicine was most thought- provoking. However, I want to directly challenge statements in that story that the full impact of genetic lab testing are still a few years away. R. Lewis Dark is incorrect if he thinks that laboratories will be relatively unaffected in the near term. Too late! The high cost of specialty genetic testing is one of the two top issues in Joint Venture Hospital Laboratory Network’s managed care contract agendas for 2003!

Editor’s Response: Jack Shaw describes a host of challenges and problems. Not the least is that the two blood brothers often have preferential pricing agreements with some of these specialty testing companies—financial terms not extended to hospital laboratories. THE DARK REPORT has invited Jack Shaw to moderate a discussion on this issue at the upcoming Executive War College in New Orleans on May 6-7, 2003. Lab directors interested in this topic are encouraged to attend and participate in this discussion.

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