Could Health Insurers Be at War with Clinical Labs?

Lab industry buzz interprets payer actions as consistently against smaller regional labs

CEO SUMMARY: It may sound ridiculous to assert that the nation’s largest health insurers are now “waging war” against clinical labs. However, some very smart people in the profession of laboratory medicine are expressing this opinion. To support such a conclusion, they point to payers’ recent drastic price cuts and network contracting strategies. Moreover, these lab observers are concerned that, without a vigorous response by lab industry leaders, many community labs will be forced to close in coming years.

ARE PAYERS AT WAR WITH CLINICAL LABORATORIES? More than a few thoughtful pathologists and lab administrators are asking this question.

It is notable that changes in how payers deal with clinical lab testing are causing some smart people in the lab industry to describe these developments as “payers waging war on labs.”

Of course, it is highly unlikely that the executives at different health insurers have made a conscious decision to “go to war” against clinical labs in the pursuit of cutting the cost of lab testing to their members. Yet the majority of labs are consistently worse off in the wake of payer actions to cut costs.

In conversations with some lab executives, they point out how, over the past 36 months, both government health programs and private payers have taken actions damaging to the financial sustainability of all clinical labs—whether large or small. Moreover, during this time, these damaging actions are more numerous and happening more frequently than has ever been seen previously in this country.

Their evidence to support a payers’ war on clinical labs tends to involve several types of payer actions. For example, payers restrict access to patients by excluding large numbers of regional laboratories from provider networks.

Another tactic is change the design of different health insurance products so that clinical labs not holding favored network contracts with a payer will find it nearly impossible to get paid. Alternatively, the design of these health plans requires the out-of-network lab to collect a substantial deductible or out-of-pocket amount directly from the patient.

Probably the best instance of a payer excluding labs from its networks is Aetna, Inc. During 2011 and 2012, it acknowledged that it was dropping as many as 400 clinical labs from its provider networks throughout the United States.

Also, payers regularly reduce payments to clinical labs. This can be accomplished in several ways. One tactic is simply to impose deep cuts to prices for clinical lab tests.

One example of the strategy of arbitrarily reducing the prices paid for lab testing, comes from how the Medicare program handled the implementation of the 114 new molecular diagnostics CPT codes last year. Decisions by Medicare and its Medicare administrative contractors significantly reduced the prices paid to clinical labs for a substantial number of molecular CPT codes.

Another example of payer chicanery was the policy implemented by the Blue Cross Blue Shield Association that changed the way laboratories would be paid whenever they provided lab testing services to patients using their Blue Card benefits in other states. The policy went into effect on October 12, 2012. (See TDR, July 16, 2012.)

Critics within the lab industry observed that this change by the national BCBSA was in direct violation of the terms of the BCBS members’ policies. Yet regional Blue Cross plans across the nation complied with the new requirement and hundreds of the nation’s community laboratories found it nearly impossible to get paid for the lab tests they provided under the Blue Card program.

These points raise the question: Is there sufficient evidence to support a conclusion that a large proportion of the actions taken by private and public health insurers in recent years represent a war against clinical laboratories?

This is a serious charge to level against the collective health insurance establishment, ranging from the federal Medicare program to the largest private health insurance organizations that typically cover millions of Americans.

Yet, the fact that the charge is serious is precisely one reason why reasonable and experienced lab professionals should ask this question for themselves.

To be fair, payers may believe that rising costs—including the annual increase in the cost of clinical lab testing—are unsustainable and they need to take

steps to control these costs. However, when they do, their efforts are often ham-handed and at least unsophisticated. Also, some payers tend to apply a one-size-fits-all approach, meaning that all labs large and small are affected equally.

Control of Healthcare Costs

It is true that health insurers need to control costs in every aspect of care delivery— whether it’s the cost of primary or specialist care, hospitalizations, or ancillary services. So it’s a bit unfair to paint insurers with a broad brush and suggest that they are waging war against clinical labs.

On the other hand, there is an equally serious reason why every pathologist, lab scientist, administrator, and lab manager should take up this question and give it serious consideration. If it is true that payers have decided to go to war against clinical labs, then at risk is nothing less than the clinical viability and financial sustainability of community-based medical lab testing services.

Contributing to Patient Care

It is a fact that the overwhelming majority of individuals who are trained in laboratory medicine and hold scientific and technical degrees and certifications entered the profession to contribute to patient care. Moreover, the rich diversity of local labs and community hospital laboratory outreach programs are the reason why, every day, physicians and their patients can get speedy and accurate lab test results no matter where they live and work in the United States.

Yet today—for purely financial reasons—government health programs and private health insurers may be, in effect, taking steps that will destroy the diversity of community labs and regional lab organizations that have provided top- quality lab testing services in markets large and small throughout the United States. Moreover, the smaller communities typically are underserved by the two national lab companies, each of which operates regional hub laboratories in about 30 cities.

Another relevant fact recognized by the pathologists, Ph.D.s, and clinical laboratory scientists who work in small labs located in small towns and in rural areas is that their communities are often hundreds of miles away from one of the national labs’ hub testing facilities.

Gaps in Covered Geography

Insurance executives overlook the fact that, while it is easy for them to do a money-saving lab test deal with a national lab, those national labs have gaps in their geographical coverage that only the smaller, regional, family-owned, and specialty labs can fill. Similarly, someone needs to do clinical lab testing in nursing homes and long-term care facilities, an essential sector of the lab test market that was abandoned by the public labs two decades ago because they considered nursing home business to be unprofitable.

These are some reasons why the healthcare system cannot afford the loss of these community-based clinical lab testing providers. Such a loss would be particularly devastating when the number of retirees on Medicare is rising and tens of millions of Americans suffer from one or more chronic diseases.

In this assessment of how the actions of payers are seriously eroding the financial stability of so many smaller laboratories, THE DARK REPORT is pointing out the same primary issues of concern that lab administrators and pathologists discuss privately when they attend conferences and converse among themselves.

Need for a Unified Voice

The contradiction is that professionals throughout laboratory medicine recognize these threats, yet their lab societies and associations have not found a way to speak with a unified voice and bring together all the diverse interests to work effectively to change this situation.

For its part, THE DARK REPORT is interested in hearing from clients and regular readers who would like to contribute, in an ad hoc way, to providing the information needed to tell the story about the harm certain payer contract strategies and actions are having on the quality and survivability of the nation’s smaller clinical labs, hospital labs, and specialty labs. Anyone with such information to share can contact the offices of THE DARK REPORT in complete confidence.

Time is running out for many clinical labs. The list of lab closures and bankrupt- cies is growing. That is why it is time to get out the hidden details of these strategies and actions by payers. These facts should be used to educate the public, the media, and elected officials about why the clinical labs they rely on in their own communities are on a path to extinction.

Have a story about a “payer war” on your lab? Tell us about it.

THE DARK REPORT is investigating the practices health insurers use to cut lab testing costs by excluding community labs, violating existing contracts to force participating labs to accept lower rates, and similar actions that may violate state and federal laws and regulations. All information will be held in strict confidence.   Call our editor at 512-264-7103 or email


If Payers Are Waging War against Clinical Labs, Then Who Are Their Allies and Collaborators?

WHENEVER A NATION GOES TO WAR, it wants allies. Assume, for a moment, that payers in the United States today are waging war against clinical laboratories. In such a case, who are their allies?

The evidence suggests that publicly-traded laboratory companies are natural allies for private health insurance companies. It could be argued that, since the mid-1980s, the economic interests of public lab companies have had more in common with the nation’s largest health insurers than with their smaller regional and community-based lab peers.

The advent of closed-panel gatekeeper model HMOs during the 1990s brought private health insurers and public lab companies into close collaboration. HMOs exchanged exclusive network access to patients for deeply-discounted capitated payment rates in deals where the public lab companies were also at partial or full risk for utilization.

When closed-panel HMOs faded in the late 1990s, the cozy relationships between public lab companies and the nation’s larger health insurers continued. Their evolution followed a pattern of the lab companies offering deeply-discounted prices. In exchange, payers granted the lab companies exclusive or near-exclusive access to the payers’ provider networks. Plus, labs got the payers to exert pressure on physicians to keep their lab test referrals in-network. Both of these aspects of network management favored the contracted national labs over community labs.

Public Labs, Payers Are Cozy

During the past 15 years, these cozy relationships between public lab companies and health insurers matured into more sophisticated contract relationships. On the outside were regional independent labs and the lab outreach programs of community hospitals. With each passing year, these labs lost access to large groups of patients in their communities. They were also getting paid less for the lab testing they provided.

For some state Medicaid programs, a variant of this scenario is in play. Where states adopted a managed care model for Medicaid patients, Medicaid officials found the public lab companies were natural allies. They often exchanged exclusive access to Medicaid patients for deeply-discounted prices from large lab companies. Typically, this strategy excludes community labs in those states from providing lab testing services to Medicare patients.

Medicare’s View of Prices

Because of Medicare’s different economic model, federal officials view public laboratory companies much differently than private payers do. As demonstrated by events in recent years, Medicare officials—aware that the national labs do not offer Medicare the same deeply-discounted lab test prices they give to private insurers—have taken steps to reduce prices paid to all laboratories.

There is irony in this situation. Public lab companies use the fee-for-service prices from Medicare Part B to subsidize the often money-losing prices they give to private payers. Medicare officials—along with some in Congress—have noticed this trend and seem determined to lower Part B lab test prices sharply.

If this is a war against labs on the part of Medicare officials, these actions hurt all labs. But they are particularly devastating to the finances of regional and community labs (which do not have the economies of scale that the national labs enjoy).

The point of these observations is to illustrate how public lab firms have served as allies to private health insurers, some state Medicaid programs, and Medicare Advantage plans. From that perspective, public lab companies are enablers of the conceptual payers’ war against clinical labs happening today.





Leave a Reply


You are reading premium content from The Dark Report, your primary resource for running an efficient and profitable laboratory.

Get Unlimited Access to The Dark Report absolutely FREE!

You have read 0 of 1 of your complimentary articles this month

Privacy Policy: We will never share your personal information.