CEO SUMMARY: Throughout the United States, the growing number of high-priced, patent-protected specialty tests is eating into the laboratory budgets of many hospitals. At Hospital Consolidated Laboratories in Southfield, Michigan, this budget-busting threat triggered an innovative response. Now the lab uses ABNs to alert patients that they will be personally responsible to pay for such tests.
HIGH-PRICED, SPECIALTY ESOTERIC TESTS, marketed directly to physicians by niche laboratories, have become a significant problem for many hospital laboratory outreach programs.
“Such esoteric specialty tests and test panels are often expensive, with prices ranging from several hundred dollars to several thousand dollars,” observed Gary Assarian, D.O., FCAP, Medical Director of Laboratories at Hospital Consolidated Laboratories (HCL) in Southfield, Michigan. “Not only are such tests quite expensive, but a significant portion of payers do not recognize these esoteric assays for reimbursement. For those payers that do, reimbursement is often pennies on the dollar.
“Consequently, when physicians order these tests, it puts hospital-based laboratories like ours in a financial black hole,” he noted. “We can’t get adequate reimbursement from the payers, even as the specialty laboratory presents a bill to us for the full amount of their ‘retail’ price for the test.
“What adds to the aggravation is that, because these specialty testing companies often by-pass our pathologists and our laboratory in marketing these tests to physicians in our community, we’ve not had the opportunity to determine what diagnostic technology supports these assays and assess the clinical utility such tests actually offer the referring physician,” he said.
Budget-Busting Lab Tests
“Like other hospital laboratories across the country, we must then deal with the consequences of this marketing approach,” added Assarian. “Physicians detailed in their office about these tests begin to order them, without prior notice or discussion with our pathologists.”
At Hospital Consolidated Laboratories, these specialty test companies were disrupting the laboratory budget—both in the HCL lab outreach program and with inpatient testing. Assarian explained the details. “HCL’s outreach program is part of Joint Venture Hospital Laboratories (JVHL), the regional lab network here in Michigan. JVHL holds contracts with most of the major insurance plans in our region. Many of these plans reimburse under capitated arrangements, and those agreements don’t carve out laboratory tests offered by specialty/niche test companies,” noted Assarian.
The $2,000 Test Panel
“Obviously, when an outreach physician-client orders one of those $2,000 test panels from such a specialty/niche lab company, the added expense greatly exceeds our cap rate budget,” he said. “Simply put, our laboratory loses a big chunk of money.
“For inpatient testing, the financial effect is just as devastating. The physician admits a patient, then orders a test panel costing several thousand dollars. It is likely that most payers won’t reimburse at all for these types of tests,” added Assarian. “If they do, the reimbursement is just a fraction of the niche test company’s charges. So our lab’s budget is blown apart when such inpatient test orders hit the laboratory.
Outreach And Inpatient
“In both the outreach and inpatient segments of our business, these specialty/niche test companies represent a threat to the fiscal solvency of our laboratory,” he declared. “This is independent of whether or not the tests in question provide useful clinical value. There are ongoing debates within the laboratory profession about the clinical utility versus high cost of these patent-protected or proprietary tests and test panels.
“Moreover, the number of these types of companies—and the tests they offer—only increases each year,” he observed. “As sales reps for new companies make the rounds in our community, we begin to see our physician-clients ordering these tests.
“In our laboratory, we believe the phenomenon of the patent-protected or proprietary specialty test is now firmly established in the laboratory services marketplace. This business model is working for those specialty/niche lab test companies. Because it will not go away, we decided to develop strategies to cope with the situation,” stated Assarian.
“The solution we came up with was to remove HCL from the physician–patient–specialty/niche laboratory loop,” he said. “It is a simple strategy. HCL’s physician-clients, whenever they want to order one of these tests, have the patient sign an advance beneficiary notice (ABN) tailored specifically to the tests being ordered.
“In our laboratory, we believe the phenomenon of the patent-protected or proprietary specialty test is now firmly established in the laboratory services marketplace.”
“This makes the patient financially responsible for payment, not our laboratory,” noted Assarian. “Next, our laboratory simply acts as a collection and transportation service to the specialty/niche test company. We deliver the specimen to that company, which has full responsibility to perform the test, report the results, bill for the service, and collect from the payer and/or patient.”
Both the physician and the specialty/niche test company understand that HCL has no other role to play. HCL is paid by the specialty/niche test company for collection and transportation services. “This has made a big difference. Prior to implementing this strategy about 24 months ago, we had monthly bills for these types of tests, which reached as high as $1,000. That has been whittled way down. We are now at zero billings for this book of business for the last fiscal year. Savings from this source are compounded even more because that burden was increasing rapidly. I have heard these types of billings total as much as $4,000 per month at other labs,” stated Assarian.
HCL did need to do some upfront work to implement this new business strategy. “We contacted each of these companies and met with them. We told them that the existing situation was unacceptable,” explained Assarian. “We made our business case. The company would need to cooperate with the ABN procedure, pay us for collection, logistics, and handling expenses, and take responsibility for the laboratory test order. If not, HCL would naturally protect its financial interests and discourage physicians in the community from ordering such tests.
“Many of these specialty/niche testing companies immediately understood our proposal,” continued Assarian. “They cooperated in briefing physicians about the new billing and service arrangements with HCL. They also helped us establish these new protocols.
“As I mentioned, the effect of this strategy was to greatly reduce our lab’s financial exposure to the unreimburseable high costs of such tests. Physicians and patients, once the reasons for this arrangement were explained, have generally been supportive.” he stated.
A Win-Win Arrangement
“I would not be out of order to say that this policy is proving to be win-win for all the involved parties,” he added. “We have a working relationship with the specialty/niche test company and physicians and patients can make their own decisions about the clinical value of the tests, relative to what it will cost the patient.”
THE DARK REPORT believes that Assarian and Hospital Consolidated Laboratories have developed a clever and effective way to convert a threat into a collaborative opportunity. HCL’s unorthodox use of Advance Beneficiary Notices is a deft solution to a financial threat which is growing in laboratories across the nation.
It is noteworthy that, in the time since HCL implemented this policy with several specialty testing lab companies, it has not experienced a significant number of complaints by either patients or physicians. From the physicians’ perspective, it helps forestall complaints by their patients that their insurance did not cover nor adequately reimburse for the test. Further, these are specialty tests which the physician does want to order. The introduction of an ABN into the physician/patient relationship doesn’t seem to be a problem.
Paying More for Healthcare
Looking at the patient acceptance of this arrangement, it may be an early sign that consumers are resigned to the fact that they will be paying more out-of-pocket for their healthcare. As informed customers, they want the benefits of the specialty lab test and are thus amenable to paying for such tests.
It is also worth adding that these same consumers will pay, without question, several hundred or several thousand dollars to the veterinarian when their dog or cat needs treatment. HCL’s use of lab testing ABNs for high-priced tests may be an early market sign that the expectations of consumers are changing. They are accepting the fact that the days when their health insurance benefits plan pays literally everything for every ailment are ending.
For the laboratory industry, HCL’s use of ABNs to address the laboratory’s unlimited financial exposure to growing utilization of high-priced specialty tests is a reminder that there are solutions to such new market developments. It is a noteworthy example of creative management thinking.