At Mid-Year, Labs Struggle to Get Paid for Many Tests

Nationwide, pathology groups report that three trends are reducing revenue during 2014

CEO SUMMARY: At a recent coding and billing conference, pathology and lab clients of one of the nation’s largest revenue management companies agreed that three trends have caused lower revenues since the start of 2014. One trend seen by labs involves higher deductibles and copayments from patients. Another is the exclusion of local labs from health plan networks. The third trend is an increase in the number of claims either denied outright or unpaid for some types of molecular and esoteric tests. Even IHC claims are getting tougher scrutiny.

ONCE AGAIN THIS YEAR, CLINICAL laboratories are struggling to get paid. That was the consensus opinion of labs participating in a recent conference on pathology and laboratory test billing and collections.

The conference was a strategic meeting for the lab and pathology clients of McKesson’s Business Performance Services division. Participants from across the nation identified three significant trends making it difficult for labs to collect money from payers since the start of the year.

Trend number one is the sizeable increase in the deductibles and copays for which a patient is responsible. Trend number two involves payers both narrowing their networks and refusing to pay claims from out-of-network labs. Trend number three is the actions by many payers that make it harder for labs to be paid for certain types of molecular and genetic tests.

“The first trend involves the effect of the sharp increase in the number of health plans that offer patients high-deductibles and high copayments under the Affordable Care Act,” stated Eddie Miller, Vice President of Pathology Operations for McKesson. “The design of these plans makes it difficult for labs to get paid. Moreover, these labs say that the little they do get paid is coming in at a much slower rate than they have ever experienced.”

Narrow Networks

The second trend labs are experiencing is a narrowing of managed care networks. “Many labs and pathology groups report to us that they being denied network contracts with health insurers,” stated Leigh Polk, a reimbursement specialist with McKesson. Being denied network participation was a problem for the largest number of labs that participated in McKesson’s strategic conference.

“It was reported that a growing number of health insurers are closing their networks to most regional, independent, and local labs,” explained Polk. “Instead, these payers are contracting only with the largest national laboratories and a select number of regional laboratories.

“Florida is an example of this trend,” she said. “In that state, payers are taking steps to narrow their networks. A sizeable number of labs report being denied contracts with UnitedHealthcare and other health plans in Florida.

“Similarly, across the nation, all Blues plans are making it harder for labs to get into their networks because of changes to the Blue Card program,” continued Polk. “Independent labs are being denied contracts if they do not currently have a presence in the state. These Blue Cross plans say, ‘our network is closed to out-of-state labs at this time.’ This development is particularly concerning to smaller and startup laboratory organizations.”

Out-of-Network Changes

Polk noted that another new factor in the lab testing market is compounding the negative financial impact of payers’ narrowing their networks. “In past years, there were certain advantages to being out of network with some payers,” she stated. “In particular, if a lab was out of network, it might often be paid more for most lab tests than if it was a network provider operating under a fee schedule with a payer,” said Polk.

“Until recently, this was because out-of-network payments were mostly based on the fact that employer groups did not want their employees and family members to be forced to pay high deductibles and high copayments simply because they used an out-of-network lab,” she explained. “Most employer group policies were structured so that their employees would not to be financially disadvantaged by the use of out-of- network diagnostic services when the patient historically could not control where physicians referred their blood work or specimens.”

“That situation has changed dramatically,” noted Miller. “An increased number of health plans are now narrowing their networks, and—at the same time—requiring higher deductibles, higher coinsurance, and outright denial of benefits for out-of-network services.”

“As a result of these changes by many health insurance plans, it may no longer be an advantage to be out of network anymore,” emphasized Polk. “As noted earlier, in the past, a lab would be paid a higher rate if it were an out-of-network lab. But now, out-of-network labs are telling us that they are not being paid at all.”

Competitive Lab Test Prices

Sandy Laudenslayer, Marketing Director for McKesson’s Business Performance Services, said that client pathology groups and clinical labs concerned about the consequences of payers narrowing their networks may want to reassess their lab test pricing. “If your lab has a contracted fee schedule that is higher than that of your competitors in that market, then that sole fact could lead to payers excluding your lab from their networks,” she said.

“In order for pathology groups and labs to remain competitive from a price perspective and remain financially viable, it is essential for them to continually evaluate their cost structure,” added Laudenslayer. “To reduce their costs, we see more labs using Lean and Six Sigma methods to redesign workflows and to trim costs. This is a response to narrow networks and the need to accept lower prices from government and private payers.”

Payment for Gene Tests

The third trend involves the actions of payers to pay less for certain molecular and genetic tests. “During our conference, labs reported that, since the beginning of the year, it was noticeably more difficult for them to get their claims paid for many types of esoteric, molecular tests,” stated Polk.

“Another new issue centers on the changes recently announced regarding payment for immunohistochemistry work,” she said. “These new requirements are one reason why payers are either denying or not paying these claims.

“One example has been the introduction of HCPCS codes, including the Z codes for molecular tests and G codes for prostate biopsies for IHC stains,” continued Polk. “Laboratories and health plans are only now becoming familiar with how to work with those codes.

“Also, labs are struggling to get paid as a result of inconsistencies in how health plans deal with test payment under the NCCI edits,” she added. “Health plans are inconsistent in how they approve payments because each one has a different method for approving payment. “Plans are following the NCCI edits but they use multiple types of editing software that define test bundling differently,” Polk explained. “This lack of standardization among multiple health plans is a major problem for labs seeking reimbursement.”

More Denials of IHC Claims

To demonstrate this point, McKesson told THE DARK REPORT that, for IHC claims, their client billing data confirms that denials as a percentage of claims have gone up measurably. These denials create a greater level of difficulty when labs and pathology groups initiate the appeals process with payers. Additionally, McKesson noted that, as a result of cuts from Medicare and confusion about payment among insurers, pathology groups have lost an average of 62% of their IHC revenue just since the beginning of the year. This 62% is a national average across the more than 375 clients served by McKesson.

“Not only are labs getting lower reimbursement, but payment of these smaller amounts of money is taking longer based an increased need to appeal denials,” observed Miller. “It used to be that when a lab submitted a bill it got paid. Now labs submit bills and payment is denied. Then, labs must appeal the denial. Eventually they get a smaller payment than they once received.”

Medicare Proposed Rules for 2015 Published by CMS

EARLIER THIS MONTH, the federal Centers for Medicare & Medicaid Services published its proposed rules for the CY 2015 Physician Fee Schedule.

The proposed rules can be found in the July 3, 2014, issue of the Federal Register. For pathologists and lab executives interested in providing comments to CMS about the proposed rules, CMS has announced a deadline of September 2, 2014. It is expected that CMS will announce the final rules in November.

In its comments about the proposed rules for 2015, the College of American Pathologists (CAP) called attention to several proposed changes.

For prostate biopsy pathology services, CMS proposes use of a single code (GO416) for all cases, independent of the number of specimens. Additionally, CMS says it believes this service is potentially misvalued for 2015. It is soliciting public comments on what payment level would be appropriate in 2015.

When it comes to the overall impact on pathology independent laboratories, CAP noted that “CMS estimates that the initiatives included in the 2015 proposed physician fee schedule would increase overall payment to pathologists by 1% due to changes in the practice expense, which impact primarily global and technical component services. Independent laboratories would see a 3% increase in their Medicare physician reimbursement due to these changes.”

In its proposed rules for the 2015 Physician Fee Schedule, CMS does not appear to be targeting clinical laboratory and anatomic pathology services as aggressively as it has in past years. In particular, several rule changes proposed in 2013 by CMS for the 2014 Physician Fee Schedule would have represented significant reductions to payments for lab services had those rules been implemented as proposed.


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