The need for understandable and transparent pricing of medical services in the US has grown in urgency as out-of-pocket health care costs continue to rise.
Americans are delaying health care because they are unsure of the cost or cannot afford it. Recent Willis Tower Watson (WTW) research of 9,600 U.S. workers shows that 4 in 10 have delayed health care in the past year, with 28% delaying or canceling a medical procedure and 17% not filling a prescription.
Recent federal mandates accelerate price transparency to improve care while reducing waste and managing costs. With laboratory values as a basis for 70 percent of medical decisions, transparency of laboratory tests for cost and appropriate use is essential to reduce patient costs.
But price transparency goes beyond cost reduction. It will reshape how laboratories, providers and payers work together to order, approve and pay for the right care, bringing us closer to the Triple Aim of improving the patient experience, improving population health and reducing costs.
You cannot turn a transparency switch
Unfortunately, the lab testing industry cannot flip the switch and make transparency universal.
With health care affordability a big issue, Americans are becoming more involved in managing their care, and that includes switching health insurance plans to provide the best benefits and reduce out-of-pocket costs. Recent federal regulations have been enacted to support these consumer decisions.
- The No Surprises Act stipulates that out-of-network facilities, including the clinical labs that serve them, cannot bill patients for the remainder of their charges, known as “balance billing,” which is now illegal. The No Surprises Act went into effect earlier this year, but 1 in 5 Americans polled by Morning Consult say they’ve received surprise medical bills since January 1, 2022. In fact, 32% said the unexpected bill originated from lab work collected at an in-network facility but sent out-of-network for analysis.
- The Coverage Transparency Rule requires health insurers and employers that pay directly for workers’ medical care to release data about what they pay hospitals, doctors and other providers. For now, this mandate will be a data dump that won’t make it easier for patients to gather pricing information.
Even after the government stepped in to improve access to price data and reduce windfall costs, we are still far from universal lab testing transparency. Achieving full transparency will require: 1) coordinated training, 2) easier access to data, and 3) strategic implementation of payment integrity programs to eliminate unnecessary laboratory tests while identifying underutilized tests that improve patient care and outcomes.
Location, location, location
Education about the impact of laboratory test location on costs should move “upstream” in the care process. Today, this often happens after the lab test is done. Patients and their doctors need to understand and discuss which laboratory testing sites have the greatest value and inform the best care.
The location of laboratory tests can lead to increased costs, over-testing and unnecessary tests.
Hospital labs tend to pay more than independent labs. Laboratory tests performed in hospital laboratories are usually 2.5 to 4.5 times the cost of an independent laboratory. Avalon’s analysis of paid claims shows that hospital outpatient laboratories are paid an average of 300%-400% of Medicare’s independent diagnostic fee schedule. Hospitals often argue that they need to charge more to support innovation and development of their specialty tests. However, this does not apply to routine tests. For example, some hospitals will be reimbursed $100 for a routine test, while an independent or outpatient lab will be reimbursed an average of $20 for the same test performed on the same machine.
Laboratory tests at the doctor’s office are more expensive and more frequent. When offices have their own laboratory equipment, our analysis of paid claims shows that offices are reimbursed an average of 120% to 130% of the Medicare independent diagnostic fee schedule for these tests. In addition, the frequency of laboratory tests is increased when laboratory tests are performed in the physician’s office. When the time between tests is less than the time it takes for the body to produce new chemicals in the body (as measured by the chemical’s half-life), this is not a clinically useful testing frequency.
Our analysis of paid claims shows that independent laboratories conduct the most clinically useless test units. The laboratory industry develops test order menus from which physicians order laboratories. While developing panels that represent useful tests that are usually ordered together, laboratories will add additional tests that are not useful in the physician’s diagnostic evaluation. This is known as panel filling in the industry. Panel stuffing is a wasteful practice that adds unnecessary tests (those that do not meet the health insurance plan’s published policies) within routine laboratory panels and increases testing costs for patients.
Note that several laboratories add an experimental vitamin D subcomponent assay to the vitamin D panel menu. Also note that many laboratories include seven unique tests in the thyroid evaluation menu when two are important for the most common clinical script. This raises the cost of a routine thyroid test from about $30 to about $137.
Laboratory tests that do not have a clinical indication can lead to unnecessary patient sampling, as well as a higher risk of false positives and unnecessary costs. We found that, on average, there was approximately $2 per member/month in apparent losses in processed claims. This represents the total amount allowed for testing. Patients pay, on average, 1/3 of the cost at the point of care, and payers pay the remaining 2/3 of that cost. Another way to look at this same data is that for every 1 million members with health benefits, approximately $24 million is reimbursed for useless tests per year, with patients paying $8 million out of pocket.
Getting lab tests in the right place—both for cost and care—can be harder than it sounds. Physicians who are part of health systems may be pressured and/or incentivized to refer patients to affiliated hospital laboratories. Additionally, payers are often hesitant to educate their members about lower-cost laboratory testing options due to various provisions in their contracts with hospitals.
Sharing the facts about lab testing locations will require a national education campaign—similar to the campaign conducted for $0 copay generic drugs—to motivate patients to insist that lab testing be performed at lower-cost locations and pay only for tests that benefit patient care.
Right test, right time, right care
Patients, providers and payers all want the right care. Appropriate laboratory testing is a critical driver behind this. Demand for laboratory testing is increasing as more providers recognize the importance of laboratory results in confirming diagnosis, monitoring patient responses to treatment, and monitoring diseases of public health significance (eg, Covid-19). The high prevalence of chronic and acute diseases, an aging population and advances in genetic testing are also fueling this growth. It is expected 10% compound annual growth rate until 2029
Getting the right care should be as simple as getting the right lab test at the right time (in the right place). However, the current healthcare ecosystem includes trends that undermine the path to this valuable goal. Upon careful examination of 13+ billion lab tests performed annually in the United States, 30% of laboratory tests are unnecessary30% of patients do not receive the tests they need and 1 of 3 genetic tests were ordered in error.
When you consider that laboratory tests are the gateway to the diagnosis and treatment of many conditions, they transform any test from a passive event into a critical data point for the success of proactive, value-based care. Against this background, a payment integrity program that includes laboratory benefit management can serve as a strategic lever to limit these negative trends in testing and advance the Triple Aim.
With solid science at its core, payment integrity programs provide input from policies developed by independent clinical councils on what types of tests are not evidence-based and emphasize appropriate units for routine and genetic testing. This process flags nonadherent tests (both from panel overcrowding and inappropriate genetic test orders) and underutilized tests that can inform patient care, particularly in cancer care. The ultimate impact is that patients get the right tests at the right time to better inform diagnoses and care plans, reduce wasted time and treatments that don’t help patients, and achieve cost reconciliation that leads to the right outcomes .
As the US health care industry continues to advance value-based care and population health, laboratory testing for price transparency and payment integrity programs must be a priority.
Photo: champc, Getty Images