Health Insurers See Big Increase in Lab Utilization

Spending on clinical lab testing growing at twice the rate of spending on all other care

CEO SUMMARY: In a recent public workshop, managed care executives revealed that the annual cost of outpatient laboratory testing is increasing at twice the rate of all other medical services. One big driver in the increased spending on lab testing is increased utilization of lab tests by physicians—particularly expensive molecular diagnostic assays and genetic tests. This trend is one reason why private health insurers are taking steps to control the year-over-year increase in the cost of lab testing.

IN THE STRUGGLE TO CONTROL the year- over-year increase in spending on clinical laboratory testing, both government and private payers have recently become quite aggressive at instituting ways to drive down laboratory testing costs.

This trend was the topic of a special two-hour workshop at the Executive War College in New Orleans earlier this month. A panel of four experts in different aspects of managed care contracting for laboratory testing services participated and offered observations and recommendations about this important subject.

 Understanding Payers’ Views

The views of two panelists are presented in this intelligence briefing. One panelist was Linda Stewart, the Vice-President, National Lab Program at UnitedHealthcare. She gave attendees a macro-view of how the nation’s largest private health insurance company views the most important trends in both healthcare and laboratory testing.

The second panelist was Trisha Brown, MS, LCGC, a genetic counselor and founder of Shama Consulting. She was formerly Vice President of Clinical Operations for DNA Direct. Brown discussed why government and private payers are taking steps to institute pre-authorization for expensive molecular assays and genetic tests.

Both of these speakers provided perspectives from the health insurer’s side of the table. These are insights not commonly made public and are useful in helping lab executives and pathologists better understand the financial and clinical issues confronting health insurers on the subject of clinical laboratory testing and molecular diagnostics.

In her remarks, Stewart gave attendees a highly useful perspective on how a major national insurance company views the healthcare marketplace. She noted that at UnitedHealthcare, laboratory testing costs are rising at a faster rate than overall medical costs are rising.

Other panelists during this session confirmed that the year-over-year increase in lab testing costs are also a concern at both Aetna, Inc., and WellPoint, Inc. Each of these companies is taking a different approach to control the cost of lab testing.

Stewart provided context for lab testing at UnitedHealthcare. “Our national lab program serves about 40 million members,” stated Stewart. “Most concerning to us is the fact that spending for outpatient lab services is rising at a faster rate than our spending for overall medical care is rising.

“In an attempt to understand what is driving that increase in spending, we looked closely at the numbers,” she continued. “We determined that unit costs [average cost per test] were not the driving factor. Instead, most of the increase in what is spent on laboratory testing comes from increases in utilization.

More Molecular Testing

“For example, molecular diagnostic testing and drug testing—including therapeutic drug monitoring—are areas where utilization is rising most rapidly,” noted Stewart. “The utilization growth for drug testing resulted in significant spending increases over the most recent three-year period.

“UnitedHealthcare is responsible to its customers and consumers for how it manages their healthcare dollars,” noted Stewart. “When utilization rises quickly like that for any type of clinical service, then we ask our network providers to do what they can to control this rising utilization.

“One way UnitedHealthcare manages utilization is by sharing risk or savings with providers, such as in accountable care organizations (ACOs),” she explained. “In the past, we had fee-for-service contracts with providers. Today, we are collaborating with physicians and hospitals on performance-based contracts.”

This is a notable development. It is consistent with THE DARK REPORT’S analysis that clinical laboratories and pathology groups will begin to see less pure fee-for-service contracts in favor of contracts with payers that include value-based reimbursement arrangements.

“In these contracts, UnitedHealthcare works with physicians to agree on performance metrics,” said Stewart. “Certain of these metrics relate to the use of lab tests. We ask our physicians to use network labs. Then we measure their performance against that standard.”

Following Stewart’s comments in the panel discussion, Trisha Brown addressed the reasons why payers are implementing procedures to ensure that physicians order the appropriate assays for patients seeking genetic testing. Brown explained that physicians often order inappropriate genetic tests for their patients.

DNA Direct is a division of Medco Health Solutions, a benefit manager for large employers. Brown worked with Medco’s employer and hospital clients.

“Utilization of genetic tests for inherited cancers illustrates the challenge in helping physicians utilize these tests appropriately,” stated Brown. “For example, our studies showed that, when a physician was ordering a test based on a prior indication of cancer in a patient’s family history, the genetic testing was inappropriate about 60% of the time!

“It was inappropriate because the physician didn’t get the full family history or didn’t understand it,” she explained. “If the physician saw any history of breast cancer in a patient’s family, the doctor would order the BRCA1 or BRCA2 tests.

Ordering Inappropriate Tests

“But about 40% of the time, the family history showed that the patient was not at risk for the BRCA syndrome,” Brown noted. “Instead, these patients were at risk for different syndromes—meaning that another test would have been more appropriate.

“This issue about BRCA1 and BRCA2 testing is of particular concern because genetic counselors are not recognized as healthcare providers,” noted Brown. “As a consequence, this means physicians and nurses often serve as genetic counselors, despite their lack of appropriate training in this field.

“The problem for labs is that they may be asked to provide tests that are inappropriate for certain patients and not all health plans will reimburse for inappropriate testing,” she said. “Another problem for labs is that in general, insurers do not cover genetic screening tests. They cover only molecular and genetic tests when the patient shows symptoms of disease.”

WellPoint Launches Value-based Reimbursement, Wants Physicians to Utilize Lab Tests Appropriately

IN RESPONSE TO ONGOING HEALTHCARE REFORMS, WellPoint, Inc., one of the nation’s largest private health insurers, is changing the way it contracts with its affiliated physicians, said Jill Hummel, WellPoint’s Vice President of Payment Innovation.

“As is happening with most health plans, WellPoint is shifting away from fee-for-service reimbursement to value-based payment,” Hummel said in an interview with THE DARK REPORT. “Under value-based payment models, WellPoint rewards providers when they improve quality while also reducing cost trends.”

Wellpoint wants to engage laboratories to support these goals. “This year, WellPoint introduced physician-shared savings programs for physicians,” noted Hummel. “When the medical costs for a defined population of patients is less than projected and physicians meet or exceed quality metrics, they can share in the savings.

“Physicians must meet a quality threshold to earn any savings,” she said. “The better they perform on those quality metrics, the greater the percentage of savings they are entitled to share. In this way, quality benchmarks serve as both a gate and a ladder.

“Our goals are to reduce avoidable ER visits and hospital admissions by better managing patient health,” Hummel explained. “We also want to reduce avoidable costs such as the cost of duplicate or unnecessary services. Laboratory testing is an important part of that equation.

“Whether it is ordering the right tests for the diagnosis, making price-sensitive referral decisions, or ensuring that patients follow through with ordered lab work, labs can play a big role in improving cost and quality.

“Wellpoint is asking its lab partners to help educate physicians about the tests they order for their patients and also help them ensure patient compliance,” she said. “As physicians move to value-based payment arrangements, we want our lab partners competing for market share—not only on the basis of price—but also on the basis of the added-value services they offer to ordering physicians that will allow physicians to improve the health of their patients and thrive in this new payment environment.

“Doing so includes offering more consultative and other services, such as notifying the physician when a patient doesn’t show up for a standing lab order, which will help the physicians to improve quality and reduce overall costs, not just lab costs,” she added.

“We recognize that labs want to add market share and we believe our new physician payment models present an opportunity for our lab partners,” concluded Hummel. “Labs in our network are learning that— under these new reimbursement models— the best way to grow market share is to offer market leading solutions that help physicians better manage the health of their patients while taking unnecessary costs out of the system. That’s a win for our lab partners, for our physician partners, and, most importantly, for our members.”



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