"Managed Care Update"

Aetna To Lower Lab Test Prices, New Fees Are Effective on July 1

Move is insurer’s latest strategy to reduce what it spends on laboratory testing services

IN RECENT MONTHS, labs are reporting the receipt of letters from Aetna, Inc., announcing that it will pay dramatically less than Medicare prices for many key lab tests. Aetna said that these lower prices will take effect on July 1, 2013.

Three examples illustrate the deep fee cuts that Aetna is attempting to push onto laboratories providing medical tests for Aetna patients. In the clinical laboratory, Aetna says it will pay just $6.54 for CPT 80053-Comprehensive Metabolic Panel and $4.00 for CPT 85027-Complete CBC Automated. In the anatomic pathology laboratory, Aetna intends to pay only $35.05 for CPT 88305-Level IV Surgical Pathology, Gross and Microscopic.

Lower Lab Test Prices

Such cuts are causing concern at laboratories that provide testing to Aetna beneficiaries. Not only are most of the prices Aetna listed in its letter deeply-discounted below Medicare Part B clinical lab test fees, but these rock-bottom prices are significantly below a laboratory’s fully-loaded cost of performing these tests.

For these reasons, Aetna may face stiff resistance in its latest attempt to slash what it pays labs for testing. Aetna has already shot itself in the foot with earlier attempts to exclude many local labs as network providers, consultants said. More on that failed strategy in a moment.

Labs must not view Aetna’s pricing in isolation. If labs accept the Aetna pricing, other health insurers, such as WellPoint, CIGNA, UnitedHealthcare, and Humana, will want to follow Aetna’s lead and ask labs for further price concessions.

Anatomic pathology laboratories can be expected to vigorously fight the lower fees announced by Aetna. “As of July 1, Aetna will pay $35.05 for an 88305,” said Joe Plandowski, co-founder of In-Office Pathology, LLC, in Lake Forest, Illinois. “To put that in perspective, last year, CMS paid a national fee of $105 for 88305. But then, as of January 1, CMS cut that fee by a third, to roughly $70. And Aetna says it will now cut that fee even more, to $35.05, which is about 50% of Medicare’s price.

“If Medicare and every other insurer starts paying only $35 for 88305, pathology labs will be unable to continue operating,” he said. “They will be doing the 88305 test at a loss.

“Look at it this way: Last year, pathologists were getting $105 for the global fee for 88305,” explained Plandowski. “Out of that global fee, pathologists got $35 for the professional component (PC) alone. But at $35 for the global fee, did Aetna completely forget about what pathologists do?

“Typically, the professional component represents about 35% of the global fee. But, in 2013, the PC for 88305 represents about 50%,” he added. “Aetna’s fee of $35.05 leaves just $17 for the pathologist.

“Moreover, the remaining $17 must cover lab costs: to pay the courier to deliver the specimen, to pay staff to prepare the tissue (the technical component), to pay overhead to operate the lab, and to pay for sales and marketing as well,” stated Plandowski. “At this price level, a pathologist would have to shut down the lab and close the doors.”

In a letter sent to labs, Richard J. Gentleman, Aetna’s Regional Network Operations Head, said Aetna was adjusting its standard fee schedule, called the Aetna National Contract Default, for all of its health plans. The fee schedule is based on the 2012 Resource-Based Relative Value Scale and CMS’ Outpatient Prospective Payment System, Physician Fee Schedule, and Clinical Laboratory Fee Schedule. The letter lists prices Aetna will pay for some tests. (See table in sidebar below.)

Aetna Provides a Statement

Aetna spokesman Ethan Slavin explained the company’s position. “We have a national fee schedule for our nationally- contracted labs that takes into account the rates paid by Medicare, among other factors,” he stated. “Aetna’s national fee schedule has been below the Medicare rate for many years. Aetna has negotiated with many of our contracted labs for years. Aetna continuously monitors coding changes with Medicare/Medicaid fee schedule changes and we will adjust our national fee schedule as appropriate.

“Recently, CMS reduced rates on the Medicare fee schedule for surgical pathology fees so we made a corresponding adjustment to the base national fee schedule,” continued Slavin. “On the network question: We routinely assess our network adequacy and costs by locale or region and adjust as necessary. Our job is to negotiate affordable rates for our members.”

The story of Aetna’s efforts to lower lab test costs starts a few years ago, when Wall Street financial analysts published research that identified Aetna as paying the most money for lab tests of any major health insurance company. Aetna’s CEO, Mark Bertolini, reacted to this public disclosure by declaring that Aetna would move swiftly and aggressively to change this situation.

What motivates this most recent move by Aetna to greatly reduce the prices it will pay labs for testing is its corporate goal to shrink the total dollars it spends on clinical laboratory testing and anatomic pathology services. That goal is itself a relevant story that will help lab professionals and pathologists understand why Aetna’s actions seem to be a “declaration of war” against the medical laboratory testing profession.

Since 2007, Aetna has had an exclusive national contract with Quest Diagnostics Incorporated. Terms of this contract (and pricing discounts) meant that Aetna could not contract with Laboratory Corporation of America as one approach to lowering what it spends on lab tests.

That left Aetna with few options, so it apparently decided to pay all other labs much less money per test. Aetna’s first idea was to boot hundreds of local lab out of its networks. Those exclusions took effect over the past 18 months.

One tactic Aetna used to exclude labs from its networks was to announce that it would pay only those labs currently accredited by the College of American Pathologists (CAP). That turned out to be another poor management decision, since large numbers of respected laboratory organizations hold Medicare accreditation through other deeming authorities.

“One reason that Aetna issued its deep fee cuts to lab test pricing that take effect this summer is because of that earlier mis-step with excluding labs from its provider networks since 2012,” noted Plandowski. “Aetna had declared that, that by December 2012, it would pay only those labs that are accredited by the College of American Pathologists.

“CAP has accredited about 4,000 labs, and to meet Aetna’s declaration, it would have to double that number,” he continued. “Thus, Aetna put CAP into a bind, because CAP couldn’t double the number of labs it accredits in less than a year.

“Aetna’s next move was to declare that it would pay only labs accredited by CAP or The Joint Commission,” he con- tinued. “Aetna also moved the accreditation-required date forward to April, 2013, saying labs should be accredited or scheduled for accreditation.”

Unpleasant Consequences

Even as Aetna was reacting to the issues caused by its attempt to make CAP accreditation a requirement before it would reimburse a lab’s test claims, it found itself facing an unpleasant consequence from its tactic of excluding many local labs from its provider networks.

At the Executive War College in New Orleans earlier this month, attorneys and managed care experts discussed the problems that Aetna had created for itself. “Since January of this year, after terminating many labs that the insurer previously had considered to be in-network, Aetna got an unpleasant financial surprise,” stated one lab industry consultant, who preferred to be unidentified for this story.

“Having terminated the provider contracts for many regional and local laboratories, these labs continued to provide testing for Aetna beneficiaries,” explained the consultant. “All of these claims were submitted as ‘out-of-network’ claims and were thus reimbursed at a rate that was higher than the contracted rate Aetna formerly had with these same labs!

Strategy Backfires

“In this regard, Aetna’s network strategy backfired,” noted the consultant. “We believe that Aetna has seen a sharp increase in its out-of-network lab testing costs.

“Some may see this as poetic justice,” the consultant concluded. “Aetna took a dictatorial approach. It chose to not engage local clinical laboratories to find common ground. Instead, it tried to cram its own solution down on them, in spite of years—even decades—of successful interaction with these same local laboratories. Now it reaps what it sowed.”

There is more irony for Aetna in this situation. “Having booted many labs out of its network, Aetna now wants to entice labs to join its network at less than the rates that it currently pays Quest Diagnostics!” observed an attorney who represents pathology groups.

Plandowski had his own personal take on these developments. “The requirements instituted by Aetna will force labs to make the case about the value they offer,” he said. “Meanwhile, the very low rates from Aetna (and possibly other private health insurers) will be a lingering problem for the entire lab industry.

“With all the price cuts labs face from Aetna and the Medicare program, it would not surprise me if a number of small labs close,” mused Plandowski. “That will make the nation’s largest lab companies happy because it will eliminate competition. But if we end up with only two labs operating in this country, then our healthcare system will have a problem.”

New Lab Test Fee Schedule Slashes Rates Aetna Will Pay

RATES SET TO GO INTO EFFECT on July 1, 2013, will be much lower than Aetna has paid in the past, according to consultants. Here is a sample of some of the new rates that were announced by Aetna:

80048 Metabolic panel total ca $5.23

80050 General health panel $22.65

80053 Comprehensive metabolic panel $6.54

82306 Vitamin D 25 hydroxy $18.32

85025 Complete CBC w/auto diff wbc $4.81

85027 Complete CBC automated $4.00

88185 Flow cytometry $27.05

88304 Level III surgical pathology, gross and microscopic $22.29

88305 Level IV surgical pathology, gross and microscopic $35.05

88307 Level V surgical pathology, gross and microscopic $148.68

88313 Special stains $30.47

88342 Immunohistochemistry, each antibody $57.67

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