>CEO SUMMARY: Under a new policy UnitedHealthcare will start in May, hospital laboratories will no longer be allowed to bill for reference testing for members who are not hospital patients. The policy is likely to affect clinical lab testing for patients whose testing goes through a hospital’s outreach program. UnitedHealthcare would prefer that all outreach lab testing be sent to its preferred network laboratories where payment rates are lower.
One of the  nation’s largest health insurers is taking decisive action to clamp down on hospital laboratories that submit lab test claims for outpatients and outreach patients using their hospitals’ inpatient fee schedule. Starting May 1, UnitedHealthcare (UHC) implements a new policy designed to stop those billing arrangements.
Many hospital and health system laboratories have engaged in this practice for decades. After performing tests for outpatients and outreach patients, they submit claims using their hospital’s high-priced inpatient price schedule—prices that are often double, triple, or more of what independent labs are paid by health insurers. Payers reimbursed for those claims at the inpatient prices.
Now UnitedHealthcare is taking steps to curb that long-standing practice. To address this issue, in its February network bulletin, it published the new policy, as follows:
For claims paid on or after May 1, 2020, hospitals acting as a Reference Laboratory or conducting diagnostic testing for non-patients cannot bill for such non-patient diagnostic laboratory tests under that hospital’s Facility Participation Agreement. Hospitals wishing to participate in UnitedHealthcare’s commercial network as a Reference Laboratory may apply with UnitedHealthcare to be credentialed and contracted as a Reference Laboratory.
The new policy was a surprise to many clinical laboratory administrators and managers whose hospitals and health networks serve UHC beneficiaries. The policy is likely to affect clinical lab testing for patients in hospital outreach programs and for any testing done in physician office labs, lab consultants said. “Essentially, this is about leakage,” observed Mick Raich, CEO of Vachette Pathology, consultants in Sylvania, Ohio. “Any test performed for an outpatient or an outreach patient that is billed at hospital inpatient prices represents leakage out of UHC’s reference laboratory network.”
Responding to a request for comment from The Dark Report, a UHC spokes-person said, “The information in our network bulletin reiterates that hospitals processing [lab] tests for non-patients need to be contracted with UnitedHealthcare as a reference laboratory.” Patients whose physicians send their blood work and specimens to a hospital reference lab through the hospital’s out-reach program will be the UHC members that are affected, Raich explained.
“Over the past several years, UHC has cut back on the clinical laboratory tests they cover,” he added. “With this rule, they will exclude the highest-priced hospital labs from doing outreach testing on behalf of UHC beneficiaries.
Big Effect on Outreach
“UnitedHealthcare expects testing for these outreach patients will shift to the labs in its reference laboratory network,” continued Raich. “These in-network labs do this outreach work for UHC for very low test prices and UHC doesn’t want any lab doing this testing for more than that. In effect, via this new policy, UHC is shifting this type of lab work down to the lowest possible rate it can get.”
The biggest national labs that are in-network with UHC are Laboratory Corporation of America and Quest Diagnostics. If a lab test comes from a hospital in a health system to the core lab in that same system, UHC would pay for that test because it involves a specimen from a patient who’s registered within that health system, Raich added. “But if a patient’s specimen is coming from outside that health system, then that patient’s test would not be covered.
“Let’s say that patient specimen comes from an ambulatory surgery center or a doctor’s office that’s outside the hospital reference lab’s health system. Then that would be outreach testing and would not be covered,” he said. “Under its contracts, UHC wants that work to go to LabCorp or Quest or one of its network labs so that UHC can get a lower rate on that testing.”
Adding Reference Tests
In recent years, many hospital labs have tried to boost revenue by increasing the number of reference tests they run, and much of that testing is done for consumers who are not hospital patients, said Ann Lambrix, Vice President of Client Services for Vachette Pathology in Sylvania, Ohio. Such testing gets paid at a higher rate than it would generate otherwise simply because it is done in a hospital reference lab and billed using the hospital’s inpatient price schedule, she added.
“These labs bill under their hospital contract, so they can get paid a favorable rate for that testing to offset the decrease in reimbursement that labs are experiencing throughout the industry,” Lambrix explained. “UHC is saying it will not allow such billing starting in May. “Instead, any hospital that wants to bill for reference testing will need to get a separate contract with UnitedHealthcare specifically as a reference lab,” she advised. “Then, those rates will most likely be lower than what they currently bill.
Preventing Leakage
“In addition, UHC will probably not make it easy for hospitals to get those contracts because UHC would prefer to steer that testing to LabCorp and Quest,” added Lambrix. “Clearly, UnitedHealthcare wants to drive lab test volume to its preferred network labs by preventing leakage out of its contracts with the large lab companies.”
The new UHC policy may create an additional level of complexity for any health system that operates multiple hospitals and moves some inpatient testing from one hospital to another for testing, according to a healthcare lawyer who consults with clinical labs. Some states have laws preventing hospitals from holding two CLIA lab licenses for the same lab space and same instruments, he said.
That means a health system in those states could not establish a lab to do outreach work as a reference lab, while being a network provider that uses the same lab space that it uses for inpatient testing and bills under its facility participation agreement, he explained.
The UHC policy instructs any hospital that wants to continue as a network lab to contact a UHC network representative to begin the steps required to be credentialed and to contract with UHC as a reference lab. In its comments about the new policy, UnitedHealthcare said that, if the lab does not have such a contract, claims submitted for non-patient diagnostic laboratory tests, or claims for which a hospital is acting as a reference laboratory, will be denied for failure to comply with the new policy if the hospital submits bills under its facility participation agreement.
A Short History of Hospital Laboratory Outreach and the Two Most Common Pricing Strategies
Hospitals and health systems began to see opportunity in outreach laboratory testing during the second half of the 1990s. Two trends encouraged this business strategy. The first trend was the consolidation of hospital ownership. Between 1994 and the end of 1997, almost 2,000 hospital acquisitions were completed and the number of multi-hospital health systems increased by 50%, from about 400 to more than 600.
With between two and 10 hospitals now under single ownership, a logical step was for the health system to create a core lab and concentrate as much testing as possible in that facility. The second trend involved hospitals purchasing physician practices during the 1990s. With these physicians now employees of the hospital or health system, it was an easy step for hospital administrators to want to capture their lab test referrals. The added benefit was now a single lab was doing all the inpatient, outpatient, and outreach testing for patients treated in these clinics.
Here is where the story gets interesting. Each time a hospital or health system decided to build its outreach business, a decision needed to be made: Should the outreach lab bill payers under the hospital’s inpatient contract with payers, or should the outreach lab bill payers using the lower competitive prices offered by commercial lab companies? Outreach Lab Strategies Hospital lab outreach programs succeeded with either strategy.
Some outreach programs, such as at PAML in Spokane, Wash., and Consolidated Medical Laboratories of Lake Forest, Ill., flourished while billing with lower, competitive prices. Similarly, most hospital outreach labs that chose the path of billing with inpatient pricing did fine for decades because their claims were paid. But since 2010, payers began pressuring these programs to move to competitive pricing. That financial pressure was a factor in some hospitals selling their outreach programs. It is also one reason for UnitedHealthcare’s new policy.
Contact Ann Lambrix at alambrix@vachette-pathology.com.
