CEO SUMMARY: Last year, Kailos Genetics stopped collecting third-party payment, dropped its prices sharply, and started marketing its genetic-screening tests directly to consumers and physicians. At the time, 100% of its revenue came from third-party payers. Today, it gets 100% of its revenue from consumers. After eliminating third-party payment, revenue dropped precipitously, but is now rising again. Can this model work for genetic and molecular testing labs struggling with uncertain insurance reimbursement?
FOLLOWING MONTHS OF FRUSTRATING efforts to get health insurers to reimburse for their genetic tests consistently, executives at Kailos Genetics decided to go “cold turkey.” They stopped sending claims to payers and asked patients to pay directly for these tests.
This business strategy reflected the reality of today’s managed care marketplace. It is tough for new genetic testing companies to get payers to reimburse for these lab tests.
It was six years ago when a group of entrepreneurs from the Hudson Alpha Institute formed Kailos Genetics. Their goal was to provide cutting-edge genetic testing to consumers. Following the advice of consultants and other labs, Kailos built its business on getting reimbursement from Medicare and commercial health insurers.
But what Kailos learned will not surprise any clinical laboratory seeking reimbursement for genetic testing. “The insurance payment model left physicians and their patients frustrated and angry,” stated Chief Scientific Officer Troy Moore. “The billing staff at Kailos was unhappy as well.”
So on June 1, 2015, Kailos stopped seeking third-party payment. It dropped its gene test prices sharply, and went direct to consumers.
At the time, Kailos was getting 100% of its revenue from third-party payers. Today, it gets 100% of its revenue from consumers. After adopting the strategy to work directly with consumers and eliminate third-party payment, revenue dropped precipitously over the first few months. It has recently begun to inch back up again as Kailos approaches its one-year anniversary selling genetic tests direct to consumers (DTC), Moore said.
Getting No Satisfaction
“I have never been part of a business where everyone was unhappy,” he commented. “When we started Kailos, our goal was to offer a service that customers wanted, meaning it would satisfy our customers so they would come back to us.
“If physicians and patients are happy with us, then maybe later in their lives, they will come back to us for more gene testing,” he added. “But there was little satisfaction with the third-party reimbursement model. The whole payment side of the healthcare business is upside down.”
Fighting to Get Paid
From the day it was founded in 2010, Kailos operated under the typical lab-test reimbursement model. “But it was extremely frustrating,” noted Moore. “As most genetic testing companies discover: Your claims either don’t get paid or you get paid less than you expected. Either way, your lab must fight for every bit of it. That is why—at the start of last year—we decided: that’s not how we want to do business.”
Last year, from January through May, the 20 employees at Kailos in Huntsville, Alabama, prepared to shift from insurance reimbursement to only billing patients for payment. Moore did not want to do both. “It’s too risky,” he observed. “If you make one mistake, your lab could be open to a charge of fraud.
“We got into this business to introduce advances in genetic testing to physicians and patients and not to fight with insurance companies,” he added.
“To make this change in our billing policies, we had to shift from receiving regular test orders from physician groups to the need to educate patients about our lab test offerings,” explained Moore. “This was a considerable challenge. We found that, when we are successful in getting in front of patients, they definitely respond.
Patients Respond to Prices
“So, while revenue did drop precipitously during the changeover,” he commented, “today we see an exciting growth trend in front of us as each month as more patients take control of their own genetic healthcare information.
“Originally we wanted to do this with whole genome sequencing but we eventually realized it would not be feasible or profitable,” said Moore. “Next, we thought that, by using gene sequencing and our proprietary enrichment technologies, we could drive down costs and we could pass those savings along to customers. But that didn’t work because getting our claims paid by health plans was unpredictable, took too much time, and caused a lot of aggravation for everyone, including patients and their physicians.”
At the time, Kailos priced its tests at around $1,500, a level similar to what other genetic testing companies were asking. “We got advice from many people about how to price our genetic tests and at what amount.
“Consultants told us our lab company would get much less than what is billed,” recalled Moore. “Yes, we learned to expect less and we also learned that it is necessary to give Medicare the best price.”
Strategy for Pricing Tests
Ironically, Kailos would have set a lower price if it had any confidence that it would be paid in full. “If healthcare was like a normal business, there’d be no reason to charge $1,500,” declared Moore. “But healthcare is not a normal business.
“Even if our lab submitted a claim with all the proper information, we never knew what we’d get paid by that insurer,” he continued. “Some test claims got paid, some got paid less, and some got rejected.”
Moore pointed out that the problem with rejected claims is that a laboratory cannot then offer the patient a lower price for that same test. “Anytime an insurer rejected a claim, the patients were responsible to pay the whole amount because of health plan requirements—not to mention the need to comply with anti-kickback laws,” he said. “Plus, labs need to give Medicare the best price, and labs must follow the contracts they have with health insurers. Thus, patients had to pay the full amount.
“The full amount then became a surprise medical bill to the patient,” added Moore. “No one wants this. This is particularly true for patients who may not always understand how health insurance works—or doesn’t work, in many cases.
A Surprise No One Wants
“If a patient’s insurer paid the bill, we never heard from the patient,” observed Moore. “But if the insurer did not pay the lab test claim, our lab had an angry customer. And there’s no way to make a customer happy if he/she gets stuck with a $1,500 bill for a genetic test that their physician assumed the health insurance would cover.
“For all these reasons, Kailos decided it is best to have patients pay directly,” he stated. “That meant establishing prices at consumer-acceptable levels. Today, we have a fair price structure and our lab does not pay a team of people to call insurance companies trying to get pay- ment for our claims.
“We did consider lowering prices and continuing with insurance reimburse- ment, but we are a small organization with limited resources,” noted Moore. “Ultimately, we did not think our change would shift the discussion with payers in a timeframe that would be meaningful for our lab company and our patients.
Patient, Physician Education
“We still deal with each patient’s physician and that’s complicated but we manage it all internally,” explained Moore. “The goal is to make it easy for the patient to order a test because we consult with the doctor on the back end. Primarily we market to patients and to nonprofit organizations that reach out to patients about the value of genetic testing.”
About half of Kailos’ business comes directly from patients ordering genetic tests online. The remaining half comes from other labs referring patients to Kailos as a reference laboratory.
By Selling to Consumers, Kailos Can Discount Tests
THERE IS A BIG ADVANTAGE TO ESTABLISHING a fee schedule for genetic tests that is priced at levels that are friendly for patients and consumers, such as was done by Kailos Genetics last year. This was when the lab company decided to cease submitting claims to health insurers for its tests.
That advantage of selling directly to patients and consumers is that the lab can run sales on its menu of genetic tests and consumers will recognize the value offered by the lower sale prices. Last month, Kailos offered a sale on all but one of its genetic screening tests. That one test, a cancer screening assay, costs a patient $225.
The usual price for most of the tests offered by Kailos is $299. One example is PGX Complete, which identifies how a patient would respond to 80 different medications. In the April sales offer, however, PGX was half off.
“If a patient is interested in how he or she will respond to specific classes of medications, such as antidepressants, then he/she would choose a more-targeted test and those are priced lower,” explained Troy Moore, Chief Science Officer. “Through the end of April, we set prices lower than usual. Those prices will roll back up to $299 and $149 in May.”
Here’s the test list and prices from the Kailos web site on April 22:
- ADHD: $149 (normally $299)
- Antidepressants: $99 (normally $299)
- Pain management: $99 (normally $299)
- Plavix: $99 (normally $299)
- PGX complete: $149 (normally $299)
- Tamoxifen: $99 (normally $299)
- Cancer screening: $225
- Oral contraceptives: $99 (normally $149)
- Stomach acid reducers: $99 (normally $149)
“When patients visit our website, they pick the test they want, pay for it, and tell us who their physician is,” he said. “From there, we reach out to the physicians and let them know that their patient has ordered testing with us. We explain who we are and that the doctor will get a copy of the test result, as will their patient.
“Typically, for our cancer screening test, the physician gets the test result two days before the patient does,” continued Moore. “Also, the physician has access to our genetic counselors or our medical director if they have any questions. Many times, genetic testing is new for physicians. So we educate them and explain how our testing works and how to understand the results of the genetic tests.
Consumer Model Doing Well
“After almost a year, I’d say the consumer model is doing well,” he noted. “This is why we started Kailos in the first place: to bring these techniques and technologies, especially next-generation gene sequencing, to patients and to physicians in clinics.”
Although revenue dropped, layoffs were unnecessary. “Instead of having a lot of people on our staff calling insurance companies, we have the same number of employees. Much more of their focus is on customer support now,” he said.
“With insurance reimbursement, your customer is the patient but you never get to talk to that customer. Instead, at best, you talk to the physician. But under this new model, we get to talk to patients about what they want. And we can provide them with the information they need through educational videos, counseling, and strong customer service,” he concluded.
In one important way, Kailos has returned to its original mission: meeting patients’ needs, something it could not do well when its income depended on third-party payments.
Contact Troy Moore at 256-327-9800 or Troy@KailosGenetics.com.
Counsyl’s Strategy Is To Be Friendly to Patients, Payers
ONE MAJOR HEALTHCARE TREND that tends to be overlooked by many clinical lab executives and pathologists is the growth of the number of people insured by high- deductible health plans. There are now tens of millions of people with HDHPs.
Health Affairs Magazine notes that, “in 2015, 24% of all workers were enrolled in a HDHP with a savings option. This is a dramatic rise since 2009, when just 8% were covered under such plans. The latest survey also suggests that 46% of employees have annual deductibles of over $1,000.”
These statistics relate to individuals with health benefits obtained through their company. To this number must be added the approximately 10 million people who buy health insurance through the Affordable Care Act exchanges. Annual deductibles for these policies range from $5,000 for an individual to $10,000 for a family.
One company that recognizes the opportunity to better serve patients while also meeting the needs of health insurers is Counsyl, Inc., of South San Francisco, California. Last year, THE DARK REPORT profiled its unique lab test pricing tool. This tool allows patients to determine the out-of- pocket cost of their laboratory test before the physician places the lab test order. (See TDR, August 3, 2015.)
Counsyl reported that 50% of its lab test volume is run through this tool. Best of all, it has enjoyed a 63% increase in patient payments while seeing a rise in patient satisfaction scores to 4.9 of a possible 5.0.
Health insurers seem to like Counsyl and its gene test menu. Counsyl executives told THE DARK REPORT last year that its tests were priced at 50% to 90% less than competing labs. At the same time, Counsyl said that it “holds managed care contracts that allow it to be an in-network benefit for approximately 80% of all the commercial lives in the United States.”