Local Labs Have Opportunities To Increase MC Patient Access

Managed Care Pricing Trends and New Strategies

CEO SUMMARY: Although the nation’s two largest laboratory companies have achieved a dominant managed care position, opportunities remain for regional labs to do more business with managed care plans. Two experts provide an update of managed care pricing trends for laboratory testing services. For independent labs and hospital lab outreach programs seeking to expand access to managed care patients, they also offer several simple, but effective, simple business strategies.

DESPITE THE DECLINING ECONOMY, local laboratories and hospital lab outreach programs continue to have opportunities to improve the business they do with managed care plans. That’s the opinion of experts actively working with labs and pathology groups on contracting issues with managed care plans.

“Since the start of this decade, many local laboratories have accepted the payer contracting status quo in their communities,” observed Michael Snyder, President of Laboratory Management Services, in Happauge, New York. “However, things are changing. These same labs will be surprised to learn that health insurers are receptive to adding new laboratories to their networks at this time. With focused effort, it is possible for regional labs to gain access to managed care patients and earn acceptable reimbursement.”

Snyder was speaking at THE DARK REPORT’S recent audio conference, titled “Managed Care Lab Contracting: How To Negotiate The Best Pricing And Terms For Your Lab.” His co-presenter was attorney Jane Pine Wood of McDonald Hopkins, the law firm based in Cleveland, Ohio.

Laboratories are always keenly interested in managed care pricing trends and Snyder had plenty of insights to share with audio conference participants on this important subject. In his view, three factors are shaping managed care prices for lab testing services during 2009.

“The first factor, and it is a primary influence, is that the current trend for pricing was established two years ago,” stated Snyder. “Prices were basically set in January 2007, when UnitedHealth’s exclusive national contract with Laboratory Corporation of America became effective. Several experts estimate that the contract between UnitedHealth and LabCorp is priced in the range of a 45% to 50% discount relative to what Medicare pays for lab services. I think that estimate is reasonably close to the real figure.

“However, that is just part of the story,” he continued. “Regional labs need to understand that, in this exclusive national contract, I believe there are pricing tiers for certain work. Typically, the high volumes of routine testing are priced at the lowest rates. I believe more generous prices are paid for esoteric and other types of complex testing.

“Local labs often overlook the fact that payers do carve out more complex reference and esoteric tests and reimburse for these at a higher rate than routine testing,” continued Snyder. “The point is that independent labs should not be misled by the idea that one price fits all. Armed with this insight, they should prepare to negotiate with payers to obtain favorable pricing for higher value assays.

“The second factor related to pricing is this year’s increase to the Medicare Part B laboratory test fee schedule,” noted Snyder. “This is good news. Some of the increase is due to embedded fee escalators. That, in itself, is an important opportunity for labs during contract negotiations: Always make sure your lab gets those consumer price increase escalators built into its contract with payers. And don’t forget, many contracts with private health insurance plans are keyed to the current Medicare fee schedule. Thus, increases to the Medicare lab fee schedule should be mirrored in your lab’s contract pricing with private payers.

“Now to the third factor which shapes managed care pricing for laboratory testing during 2009,” noted Snyder. “This third trend is the negative side of current managed care contracting trends, and it is familiar to most lab managers.

Preferred Provider Rates

“The third lab pricing factor may be called the ‘preferred provider lowest price’ stratagem,” said Snyder. “Take the UnitedHealth contract with Labcorp as an example. In some ways, UnitedHealth now uses its pricing formula with LabCorp as a sort of de facto lab test fee schedule. Several laboratories across the U.S. have reported that UnitedHealth tells labs ‘Here is the pricing we offer you. If your lab wants to be competitive with LabCorp, then these are the rates your lab must accept.’

“Therefore, while the UnitedHealth contract with LabCorp is not truly exclusive—because UnitedHealth continues to be willing to contract with regional labs— it views the contract and pricing terms it has with LabCorp as its standard contract for laboratory services. In that context, it wants local labs to accept these terms to become a contract provider in its lab testing network.

Lowest Cost Lab Provider

“In the same vein, we see growing numbers of health insurance plans attempting to steer laboratory business to the lowest cost lab provider,” he explained. “That also means that many health plans continue to push for price declines even during the contract period. In recent months, we have consistently heard this from laboratories involved in contract negotiations with private payers.”

“Finally, my third recommended strategy is to stop fighting over health plan requirements,” Snyder continued. “If your lab can exceed the plan’s requirements, then it can make the case for better reimbursement. ”

Having identified several fundamental trends that are shaping lab testing prices during 2009, Snyder then switched gears. He recommended three interesting strategies that independent laboratories and hospital lab outreach programs can use to alter the managed care contract status quo in their communities.

Three Simple Strategies

“Each is a simple strategy,” he stated. “One, serve the underserved. Two, increase your lab’s competitive reach by joining networks of labs. Three, stop fighting payers over their lab requirements. Instead, meet their requirements, thus allowing your lab to have contracts with these health plans.

“It is a fact that national health insurers don’t automatically get full and desired network coverage in every community where they have beneficiaries, even though they have a national agreement with one or both of the two blood brothers,” stated Snyder. “Local laboratories need to recognize that considerable numbers of patients are often under-served in their region and leverage that knowledge to their benefit.

“For example, I am frequently asked by health plans to help them find labs to join their network in specific communities,” he continued. “This is particularly true in gaining coverage for lab work that originates in nursing homes, behavioral health settings and from home health services. These payers ask me to find laboratories in the underserved regions that can provide the needed types of lab testing services.

“This is an important point,” stated Snyder. “Even the large national health plans have an ongoing need for local labs to fill in access and coverage gaps that exist because the large national lab companies are unwilling or unable to adequately fill them.

Adding Regional Labs

“This dynamic is clearly visible at UnitedHealth,” added Snyder. “Even now, UnitedHealth is recruiting and adding regional laboratories to its provider network. This creates a significant opportunity for any local lab willing to contract with UnitedHealth.

“The same thing is unfolding at Aetna,” he stated. “Although Aetna has an exclusive national contract with Quest Diagnostics Incorporated as its preferred laboratory, like UnitedHealth, Aetna is making significant use of regional laboratory providers to fill gaps in its network.

“This is equally true at other payers, including Cigna, Humana, and Wellpoint,” said Snyder. “Not only do each of these national health insurers use both LabCorp and Quest Diagnostics, but these health insurers also maintain contracts with the numerous regional labs needed to maintain proper lab coverage for all their beneficiaries.

“As to pricing, lab directors with regional contracts in these situations tell me that pricing is surprisingly reasonable,” he commented. “With the exception of UnitedHealth, these lab directors indicate that the national insurers tend to pay in the range of 60% to 65% of the Medicare Part B lab test fee schedule.

Seeing Value in Networks

“My second managed care contracting strategy for labs is related to the first strategy,” explained Snyder. “An independent lab or a hospital lab outreach program should consider joining networks of labs that contract collectively with payers,” Snyder added. “Networks increase your lab’s competitive access and allow you to expand your service offerings. If your lab wants to gain access to more patients and expand its market share, then networking is an effective option.

“Finally, my third recommended strategy is to stop fighting over health plan requirements,” Snyder continued. “If your lab can exceed the plan’s requirements, then it can make the case for better reimbursement.

“Any laboratory that resists the payer’s requirements is excluded from participation,” he stated. “Whereas, by meeting the requirements of health plans, that same laboratory can gain access to patients, become more visible to the health plan, and be positioned to win new business and expand its market share in its service region.

“In my view, fighting over health plan requirements is a strategic misstep,” he added. “Some labs refuse to meet a health plan’s requirements simply because those requirements can be difficult or costly to meet.

“Labs should set that attitude aside and be ready to have conversations with the different payers in their community,” continued Snyder. “It is good business to respond to every invitation to bid on a contract, for example. Your lab may eventually decide not to sign a contact with that payer, but it will at least be in the game and be maintaining its relationships with the payer’s staff.

“On the positive side, participating in every invitation to bid on a managed care contract keeps the regional laboratory informed as to the needs of the payer,” he noted. “The combination of staying informed as to the payer’s needs and having a relationship with key staff members is one way that a local laboratory can position itself to be a solution whenever the payer has needs that can’t be met by its existing panel of laboratory providers.”

Many of Snyder’s views on opportunities for clinical laboratories to expand their managed care contracts have parallels for anatomic pathology laboratories and group practices. In the sidebar on page 13, attorney Jane Pine Wood of McDonald Hopkins offers her insights on current trends in managed care contracting for anatomic pathology services.

Both experts share the opinion that regional laboratories and hospital-based pathology group practices have the potential to expand the number and quality of their managed care contracts. Pathologists and lab administrators should remember the adage that “all healthcare is local.” Emphasizing their lab’s commitment to the community and its ability to provide a wide menu of lab testing services locally is a powerful argument with payers—who themselves must keep their physicians and beneficiaries happy.

Healthcare Lawyer Outlines Managed Care Trends Affecting Anatomic Pathology Labs

IN HER REMARKS DURING THE DARK REPORT’S managed care audio conference, attorney Jane Pine Wood of McDonald Hopkins outlined pricing and contracting trends that affect anatomic pathology (AP) groups.

“One trend that I see is different pricing for hospital-based pathology services versus non-hospitable outreach services,” Wood explained. “For those payers which make the distinction between these two lines of business, pricing for the hospital work may be 130% or 150% or higher than Medicare. Yet the same work performed by the same anatomical pathology provider in the outreach non-hospital setting may be paid at only 70% to 80% of Medicare.

“This new pricing situation is a direct consequence of pricing by the large national laboratories,” she said. “National labs have signed contracts for AP services at these lower rates. Thus, the lower AP rates become part of their contractual agreement with the payers—and these contracts often include a requirement that the payers not pay other laboratories more for the same services.

“The economic effect of this trend on AP groups is compounded by the fact that many anatomic pathology laboratories have a difficult time gaining provider status,” she stated. “The exclusive contracts between the two national lab companies and payers shut out local and regional AP groups. Accordingly, when an AP group can get into a payer’s network, it finds that reimbursement for its most important anatomic pathology services can be at 70% or 80% of Medicare fees. That makes it financially problematic for these pathology groups.

“When your AP lab or practice finds itself in this situation, my advice is to look for an opportunity to have a frank discussion about the benefits your practice or laboratory brings to the community,” suggested Wood. “Emphasize the responsiveness and the quality of service that your practice delivers, particularly for AP services that the major lab company is not likely to do, such as frozen section work. Some payers will agree to raise compensation in return for these types of AP services.

“Between the trends of lower AP pricing for outreach services and excluding local pathology groups from provider panels, the more disturbing trend is the inability of local and regional AP labs to be part of payer networks,” observed Wood. “A growing number of my anatomic pathology clients are finding themselves excluded from payer plans.

Excluding Local AP Labs

“Both of the two national laboratories are actively negotiating contracts which make them the exclusive provider of anatomic pathology services,” she added. “When a local AP practice or lab finds itself facing this situation, it’s important to remember that there are ways to contract with these payers, despite the fact that an exclusive contract may exist.

“Payers almost always have ways to accommodate individual situations,” Wood explained. “First, determine what AP services the payer is contracting for on an exclusive basis. Typically, it’s for non-hospital outreach work in anatomical pathology, and not the hospital-based AP work. If so, then your AP practice or lab can determine where there are gaps in the contracted lab’s service offerings. This advice is similar to Michael Snyder’s strategy of  ‘serving the underserved.’

“In many of these exclusive contracts, I often find that the national lab—with its exclusive AP contract—may not have the capabilities to do certain services,” she said. “For example, frozen sections require the on-site presence of a pathologist, which, in many communities, the national laboratories are not able to provide. So, your pathology practice or lab may be able to use that angle as leverage to get into a full contract for anatomic pathology services. In situations where the payer is unwilling to contract with your lab for every AP service, you may succeed in carving out specific services, such as frozen sections or some molecular esoteric testing.”

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