New Company Targets Lab Benefit Management

Avalon Healthcare Solutions gears up with contract to serve BCBS of South Carolina

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CEO SUMMARY: Soon, the nation’s newest laboratory benefit management company will begin working for Blue Cross Blue Shield of South Carolina. Avalon Healthcare Solutions committed to BCBSSC that it can save money off what the health plan has been spending on clinical lab testing. It will do so with algorithms supported by evidence-based medicine, good science, and transparency, the company said. Avalon also says it has a plan to help labs collect the copays and deductibles due from patients.

AS A CONCEPT, CLINICAL LABORATORY test benefit management is often discussed, but seldom implemented. That may soon change, due, in part, to the explosive growth in the number of expensive molecular and genetic tests physicians order.

One of the newest companies in this nascent field is Avalon Healthcare Solutions, Inc., in Tampa. In July, Avalon announced its first contract when it agreed to develop a lab network for Blue Cross Blue Shield of South Carolina.

For BCBSSC, Avalon will manage laboratory benefits by applying evidence-based medicine and algorithms to manage the appropriate use of more than 4,000 lab tests.

The BCBSSC contract goes into effect this quarter. As part of this agreement, Avalon has promised to save the health plan a mutually agreed-upon amount over the contract term. What is of interest to clinical labs is how Avalon plans to achieve that goal in a manner that it says will be positive for the payer, physicians, patients, and the labs that provide testing.

To understand how this arrangement will affect labs serving BCBSSC members, THE DARK REPORT interviewed Avalon CEO Bill Kerr, MD. As Avalon begins contracting with health plans and establishing clinical laboratory networks, Kerr explained the challenges Avalon faces.

Promoting Transparency

“It’s my opinion that the best way to achieve these goals is to be transparent,” commented Kerr. “That is the first priority. Let me explain how we plan to achieve transparency.

“As a physician, I understand what frustrates most providers—whether it be physicians, hospital labs, or independent labs—is to perform services and not get reimbursed,” he said. “The challenge comes because all clinical labs invest substantial sums in staff, equipment and overhead to run every test ordered by a physician, yet payment for these tests comes from the health plan and from the member.

“Thus, when divergent needs exist, such as where the payer wants to lower costs and the lab test provider is concerned about the effect lower costs will have on lab operations, it is essential that every aspect of the system be transparent,” noted Kerr. “That means publishing the plan’s medical policies and providing tools to make everyone aware of exactly how claims will be reimbursed.

Good Science Required

“Equally important is that medical policies be based upon good science and medicine,” he continued. “As a lab benefit manager, Avalon is working to make good science the basis for all of its decisions. As that happens, the lab management program is likely to be more acceptable to all parties,” said Kerr, a pediatrician who no longer sees patients.

“I started my clinical career with cancer research because my plan was to go into pediatrics and specialize in pediatric oncology,” he explained. “To me, the science is very important to every decision any physician makes. And in labs today, there’s an explosion in how science can measure what is happening in the human body.”

Avalon was formed to help physicians do a better job of selecting the right lab tests so that patients get the best possible care. The additional benefit is that the cost of care is better managed.

“This emphasis on science is why we have a clinical advisory board that includes some of the best-known experts working in large academic labs,” stated Kerr. “The process is to summarize the lit- erature, including newly-published clinical studies. The board then adds its input and guidance.

“Medical policies are developed from this process,” he added. “Those policies guide our decisions. The next step is to convert those medical policies into reimbursement policies. Then, this system will interpret our policies and apply them to each lab test claim.

“An important part of this process is to share those medical policies with both contracted labs in our network and with our health plan customers,” said Kerr. “In addition, these policies will be accessible on the health plan’s website so every referring physician can see the relevant medical policy, the supporting scientific literature, and how much the health plan will pay.

“This describes how Avalon will use good science and make it transparent,” noted Kerr. “In this business, no provider wants a ‘black box’ that makes it tough to understand a health insurer’s coverage and payment guidelines.

“I say that because, in addition to my work in pediatrics and oncology, I have worked for managed care plans for a number of years,” he said. “This experience is relevant because managed care plans are Avalon’s customers. On a list of benefits for a health plan, some lab tests may not be covered in certain situations. It is our role to help clarify those situations because we work on behalf of the plan that pays the bill.

Managing Test Panels

“At the same time, if the medical policy is based on good science, then we anticipate that most providers will have fewer quesntions about what is covered and what is not,” emphasized Kerr.

Initially, one of the most active areas of lab benefit management will be routine testing, where some labs pack panels with unnecessary tests. While the vast majority of the program’s medical policies involve working with rendering labs in adopting evidence-based payment policies, certain policies involving genetic testing will require prior authorization.

“There are some genetic tests that may be covered for one clinical condition, but not be covered for others,” Kerr stated. “That is why it is essential to use the science to develop the policy, then apply that science and the policies in every situation so Avalon supports what is most appropriate for each patient.

“Another area that will be closely monitored involves high-cost tests, meaning genetic tests,” he continued. “If we could find a way to create a simple and automated process to make coverage determinations of high-cost genetic tests, we would do that.

“The problem for physicians and payers is that the clinical scenarios are complex,” noted Kerr. “An aggravating factor is that coding lags behind the rapid advances in clinical test technology.”

Kerr then described what he called Avalon’s “secret sauce” to make lab test benefit management go smoothly in everyday clinical use. “As pathologists know, clinical laboratories are in a very high transactional business and no one wants a lot of manual touches during any phase of the process, and that includes physicians, payers, and labs,” he said. “Avalon’s solution is to develop and incorporate algorithms that interpret the medical policies and support auto adjudication of lab claims on behalf of payers.

Use of Algorithms

“One advantage of using good science and algorithms in our systems is that it keeps Avalon out of the exam room at the moment when the physician is with the patient,” stated Kerr. “By design, Avalon will be transparent and invisible at that level. Our emphasis will be in helping labs simplify how their client physicians order lab tests while helping to ensure that, if the test is appropriate, the labs get paid.

“Our business approach has another important benefit for clinical labs,” he continued. “As the number of payers working with Avalon expands, all the labs in our network will enjoy a consistent workflow across multiple payers and consistent payment policies from one payer to the next. That consistency alone should simplify a lot of processes for clinical labs and for referring physicians.”

Avalon plans another service that will be welcome to those labs participating in its network.

“In addition to all the transparent policies and the real-time auto-adjudication of lab claims, Avalon will support labs in collecting copayments and deductibles from patients,” emphasized Kerr. “As mentioned earlier, no provider wants to work and not get paid.

“Typically, clinical labs are required to collect copayments or deductibles,” he explained. “They have to make a good faith effort to collect from each and every patient. That’s a problem for labs, and Avalon can help labs solve that problem.”

On November 3, Avalon Healthcare Solutions announced that it had inaugurated “the initial phase of its innovative, comprehensive lab management program. The company has launched its national network of independent specialty laboratory providers offering physicians and their patients’ access to high quality, specialized laboratory testing services.”

Contact Bill Kerr, MD, at 813-751-3805 or


How Avalon Healthcare Solutions Plans to Identify High-Quality Labs for its Network

CREATING A NETWORK OF CLINICAL LABORATORY PROVIDERS that can meet expectations for service, patient access, quality, and price presents Avalon Healthcare Solutions with some unique challenges.

“This process will start with an evaluation of each lab’s past performance,” stated Avalon CEO Bill Kerr, MD. “The first step is to review claims data and the past billing practices of a lab. We want to identify those labs with the least variation in lab performance. Everyone is familiar with the variation in healthcare and in provider performance.

Recruiting Top-Quality Labs

“It is presupposed that all labs want to be high-quality, high-value labs,” noted Kerr. “In truth, not all labs deliver high-quality results consistently. As a network manager, Avalon can treat all labs equally.

“However Avalon’s goal is to recruit into its network only laboratories that meet the highest clinical standards and also deliver high value,” he said. “The best of these labs already recognizes the need to move away from high volume and may already be helping client physicians improve how they utilize lab tests.”

Clinical laboratories that join Avalon’s provider network will enjoy increased lab test volume. “Every lab’s performance and adherence to policies will be monitored over time,” continued Kerr. “Labs that don’t meet those standards will be dropped from the network while the best performers will see increased test volume.”

Overutilization of lab tests is a recognized problem and clinical laboratories are in a position to contribute to improvement in this area. In its discussion with payers, Avalon is learning that health insurers want to manage utilization more actively. Kerr provided the example of test bundling.

“One metric that Avalon will monitor is how labs bundle services together into panels and how they bill for those services,” he said. “Today, as we review claims data across multiple payers, we see physicians monitoring lipid levels.

“Depending on which clinical lab a physician is using, the lipid monitoring panel may contain six or seven analytes or it may have as many as 45 analytes!” observed Kerr. “Which panel is appropriate? Do we need all of those tests if we are monitoring lipid levels? Here is where medical policies based on sound science can help physicians deliver better care to patients.

“At the same time, Avalon and health insurers will not support reimbursement for those unneeded analytes,” he emphasized. “As we see how certain labs bundle tests together, we will manage those panels carefully.

“As a consequence, Avalon is almost required to do some up-front clinical review to give an accurate determination to the physician and the laboratory as to whether these lab tests will be covered, given the patient’s clinical presentation and whether the genetic test will contribute clinical value,” explained Kerr.

“Thus, Avalon will be working with physicians and labs to make sure only appropriate genetic tests are ordered,” he concluded. “Doing that up front is expected to eliminate much of the difficulties labs have with payers today.”


Avalon’s Executive Team Comes from Insurers

WITH SUCH A LARGE NUMBER of expensive molecular and genetic tests now available for clinical care, it is not surprising that Avalon Healthcare Solutions was founded by executives from the health insurance industry.

CEO Bill Kerr, MD, was formerly the Chief Medical Officer at WellCare Health Plans and Blue Cross Blue Shield of Florida. Earlier he served with several other health plans.

President Jonathan B. Gavras was the Senior Vice President, Delivery System, and Chief Medical Officer of Florida Blue, Florida’s Blue Cross and Blue Shield company. Previously, he had been a National Medical Director for UnitedHealth Group and also held positions at Prudential Healthcare.

COO Gordon Sween worked at UnitedHealth Group as the Senior Vice President of Optum Retiree Exchange Solutions.

CFO Greg Haddad was formerly the Vice President, Corporate Development, for WellCare Health Plans.

General Counsel Steve Morgan was the Vice President and Associate General Counsel for Express Scripts, one of the larger pharmacy benefit management companies.


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