"Lab Industry Update"

Lab Contracts Priced Below Cost May be Defined as Inducement

PROBABLY THE MOST SERIOUS problem in the lab industry is one of its own making. “Below cost” contracting is a practice where clinical laboratories offer the managed care company a price which is less than its cost to provide the testing.

With laboratory overcapacity still abundant in many cities, “below cost” contract pricing remains common. Labs with unused capacity have an economic motive to bid for additional specimen volume using a marginal cost pricing formula.

Stop Destructive Lab Pricing

All laboratories recognize the self-destructive impact of this pricing phenomenon. How to stop it has been the quandry. Here’s where the New York State Clinical Laboratory Association (NYSCLA) has a unique approach.

“Our members are very concerned about the effects of below cost pricing by managed care plans and laboratory providers,” said Thomas Rafalsky, President of NYSCLA. “We recognize that if these types of pricing schemes continue, it will threaten the financial stability of the clinical laboratory industry. That is not good for patients, physicians, and healthcare in general.”

NYSCLA has taken an unusual step to resolve the below cost pricing dilemma. “In New York, there is a state statute which requires all providers to set healthcare fees at fair market value,” noted Rafalsky. “Where such fees are not, it can be considered an inducement.

“We have written to the New York State Department of Health,” he continued. “We are requesting it to provide an opinion as to whether the practice of offering laboratory fees which are below the actual cost of providing laboratory services represents an inducement.”

This is a significant action by NYSCLA. Were the Department of Health to render an opinion that it is an inducement to offer prices for lab testing that are less than the full cost of testing, it could trigger major changes to contracting for laboratory testing in that state.

Even if the Department of Health were to issue such an opinion, there are a variety of economic and political interests which would try to intercede. They would use the courts and the legislature to soften the impact of such an opinion.

Below Cost Contracting

However, it must be acknowledged that NYSCLA’s use of existing laws in New York state to address the problem of below cost contracting for laboratory services certainly has merit.

Whereas the vast body of law and regulations generally get used against clinical laboratories and pathologists, here is an instance where a trade association is attempting to use those same laws and regulations to the benefit of the lab industry.

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