September 2012
Feature Story

Laboratory tests are not commodities, and the notion that they are threatens laboratories everywhere, says Marc Grodman, MD, chairman and CEO of Bio-Reference Laboratories, Elmwood Park, NJ. He spoke in May at The Dark Report’s Executive War College. Here, in shortened and edited form, is what he told the room of people before him about a change that Blue Cross and Blue Shield Association is rolling out now, and more.

There is wonderment and great value in our business, but right now we have to fight to preserve that which we have created. We have to be more knowledgeable and more activist than we ever were before because we face real threats.

Providers are going to change. Whether they’re going to be accountable care organizations or integrated delivery networks, which were hot a few years ago, or specialty group practices that organize in order to be able to contract, or large physician groups in multispecialty practices, care is changing. All providers, whatever their shape, will need services so they can do what they need to do to compete and contract. Providers of these services need to work in a seamless fashion with other entities to maximize value for the ACOs, IDNs, large physician groups, whenever the new shapes are in place.

Diagnostics is a critical element, but clinical laboratories are not simple. We’re not just bricks and mortar and providers of tests for a handful of local physicians. For the most part, we’re varied and different. We’re made up of a good number of specialized component parts. We are able to adopt new technologies quickly. We have connectivity with clients. Laboratories have direct access to providers. The key to our future and the critical element of our importance in the future is not our existence as a laboratory facility, but how the components that make up our current laboratory facilities fit into this larger scheme of providers. Those emerging providers will be taking on risk, and we as laboratories are critical to their capacity to assume that risk.

Those providers, those entities of whatever shape and wherever they are, will all need to move in some way to provide fully integrated services. Those components that make our laboratories special will be essential components.

That is the challenge of the next few years. Among the payers, among those who are going to take risks—not all at once but gradually over the next few decades, those who are able to realign services and care in a directed format, using the assets of all these entities, are the ones who will be able to provide the greatest value.

That’s the game, that’s the enterprise, in which we all want to be engaged. That is the evolution, if you will, in which we all want to take part.

But let me go back to my jigsaw puzzle. Laboratories are more than just bricks and mortar; we’re more than a chemistry analyzer; we’re made up of certain component parts. I talked about our connectivity and our new technologies. Think about personalized therapeutics, which is beginning to find a way into clinical practice. We are the ones who use primarily different platforms—we are platform-agnostic—to provide those new diagnostic solutions.

What defines all of us in this room? Sometimes it’s access to certain physicians. Sometimes it’s strength in a region. Remember, health care is local, and some of us have a strong local presence. Others do work in specialty areas for which we have a national audience. Whatever it is that defines us, we are not selling a commodity. We are selling a service. It is not so simple as to say that it could be transferred from one group to another.

I do not know of a personalized medicine test right now that is not a laboratory-developed test. This is going to scare the people in this room; there are people here whose tests or innovations have changed the way medicine is practiced. These are lab-developed tests. This is our area because we don’t run labs; we practice laboratory medicine. We do a great deal of work in genetics; that’s our area and we need to preserve it.

These are the tools that allow us to compete and to survive.

There is a threat, and, in my view, it’s the most difficult threat we face—far more challenging than the changes in health care that will occur. It is commoditization. It’s the concept of saying that those who work hard to provide service in a region or do work for a specialty physician, who come up with an innovative new test and an ability to do something different and better, do not matter because all labs are the same. It is the greatest threat we face because it limits all the things that make us special as an industry.

I was chairman of the American Clinical Laboratory Association when we and many others took on most of the battles fighting competitive bidding. I served before that on the technical expert panel that the Centers for Medicare and Medicaid Services assembled to structure the RFP. It was hard because you couldn’t go in and compare clinical laboratory services the way you could durable medical equipment. Laboratories weren’t selling a product. We had to sit around a room and talk about, ‘Well, what tests are included? What kinds of physicians are going to be included? What are the service levels?’ How do you grade all those out?

We as an industry worked hard to unite, in essence, with one voice, and present ourselves politically, and eventually in the courts, as not all the same; we had to establish that we are all different and that clinical laboratory work is by no means a commodity. We had to demonstrate that we cannot easily be replaced by each other.

We cannot turn around in different circumstances and say that all lab tests are the same regardless of which laboratory does the testing because actually running the test is not what makes the laboratory valuable; it is all the services and support and enhancements we bring to our particular market that distinguish one laboratory from another. To diminish this distinction hurts the industry; it hurts the business. It hurts everyone in this room.

No one in this room is going to say to a payer, when given the opportunity, ‘OK, I’ll take your price. I’ll do the work. I’ll comply with any of your requirements, but I’m only going to do so if you let everyone else in.’ On the other hand, I have a strong suspicion that there is a small handful of laboratories out there who, if given the chance, would say: ‘OK, but I’ll tell you what I’ll do. I’ll give you a lower price, but make sure you keep everyone else out.’ The underlying impact of this statement is that all laboratories are the same.

(As an aside, when was the last time any of you negotiated a price? We take what we get. We take what we’re offered in order to compete if given the chance to compete.)

The practice has dangerous ramifications, and we’re starting to see those ramifications. What it does is the same thing that we fought so hard in Washington not to do: to say that everything we do, everything you wake up in the morning and feel proud you’ve created, is a commodity. It’s all the same. We can all be replaced.

Am I the only one who sees the irony in the fact that we fight as an industry to kill competitive bidding on a national scale and then we turn commoditization into a practice in the commercial markets?

Something else is occurring now that could be very difficult for some of us in independent laboratories. Blue Cross is in this country probably more ubiquitous than Medicare. Many of you—especially those who do work across state lines—have lived and relied on BlueCard. It’s a national program that seamlessly enables members of one BCBS plan to obtain health care services while traveling or living in another BCBS plan service area.

BlueCard is being phased out and is supposed to terminate entirely in November of this year. In the past, a specimen was governed by where it was run, not by where it was drawn. That’s being changed now—the place where the specimen is drawn will take precedence over the place of service. That means that if you have an independent laboratory in Indiana that has a contract with Indiana Blue and for whatever reason you do work in Ohio, you will have to submit your bill for service to Blue Cross in that local Ohio market—except that you don’t have a contract with them. If you do the work and you get paid for it, you will now be paid as an out-of-network laboratory. Yes, you may receive less money, but there may be co-pays and deductibles due. Now the patient gets a bill, and what does the doctor say to you?

Think about being a new innovative company today, coming up with a new test and not being able to bill for that test unless you go out-of-network or have a relationship with most of the Blues in the country. The Blues are one of the hardest groups with which to contract. There are probably only two laboratories in the U.S. that are in all the Blues.

It’s not cost-effective because the laboratory is forced to submit paper claims (instead of billing electronically) to an out-of-network Blue, which may or may not pay the laboratory based on that network’s benefits.

You have clients you bill through BlueCard. Overnight you go from being an in-network laboratory, with no co-pays and deductibles, to an out-of-network laboratory with co-pays and deductibles.

A patient who could have been using your laboratory through a physician for three or four years now overnight changes in status. The easier access that BlueCard afforded the patient will be gone.

We fight for laboratory-developed tests because LDTs are so much a part of who we are, but think of it this way: The Blues will be able to do what the FDA could not do to stop innovation and new testing because you simply will have no ability, no way, no mechanism to bill, except to have the patient pay for it out of his or her own pocket.

For those of you who don’t agree with me politically, I apologize in advance, but I characterize these as Hezbollah tactics: The patient is put in harm’s way, not unlike the rocket launchers placed in the center of a child’s playground.

You do the patient’s laboratory work for two years and now you become out of network and, depending on local state laws, you will have to make sure that co-pays and deductibles are paid. The patient suffers.

Or the Blues might pay the patient for the work. How many times have you encountered that? The patient receives a check, and he or she doesn’t know what it’s for; the patient deposits the check and now the laboratory has to chase the patient. The patient has been put in harm’s way. This is practiced by many Blues plans across the country.

Laboratory-developed tests are what define our industry. I don’t know of a child today who doesn’t speak by the age of two or three who’s not sent for an array. We’ve gone from it being a new test to being standard of care—done, signed out, MD, pathologist, geneticist. Done with great success, great innovation, and all done as laboratory-developed tests.

We sequence genes, and we do more of it than we ever did before. We’re using new applications. It’s been a privilege to work with many of the people we have in this area and it is truly changing the way care is provided. We can’t do that without it being a laboratory-developed test. You can’t do it without innovation. It defines us.

Things are not hopeless. If they were, none of us would be here today. I remember in 2002 that Empire, the New York Blue, was the first payer that went to, in essence, an exclusive contract for a preferred provider organization. The CEO said this to me through an intermediary: ‘Tell Grodman he’s finished; he’s done. The business is over; he’ll never survive.’ That was 10 years ago. They’re still saying it, and they’re saying it to a lot of us. There are things we can do. One is that we have to devise novel contracting solutions. Payers will say: ‘I don’t want to deal with a lot of small labs. I don’t want to deal with the accreditation and validation of them.’

We have to find a way to work together, where no one goes in on the basis of saying, ‘He can’t be in.’ If we are efficient, if we have the accreditation we need, if we’re able to accept the payment that is offered, we can go in, do it, and be paid.

We need to be aware of regulatory and legal remedies. Ultimately, competitive bidding, for all the political work that was done, was won in a court of law. Many in the laboratory community were responsible, helped fund it, and had the foresight to be able to do it. That has to be explored.

I was at an innovation summit recently in Washington, DC, where members of Congress visited the various booths of innovation providers; we showed them some of the new LDTs we have introduced. One congressman who visited our booth told me he had a melanoma. I told him how an FDA-approved companion diagnostic looks for a mutation called BRAF to see whether a patient is a candidate for a drug.

That test will look at only one mutation. People in this room do tests that look for six mutations for less money than the cost of the companion diagnostic. And there are scores of clinical trials underway now for those other mutations.

I said to him, ‘It’s great, it’s wonderful, the cancer is probably gone. But if it comes back, by the time that happens, if it ever happens, do you want to know? If you can find out at a cost-effective price, do you want to know the complete mutational status of your melanoma?’ That’s the promise of what people in this room are doing with laboratory-developed tests. We have to make that clear.

Finally, we have to understand the problem. We can compete in the changing landscape. We can do it by what we do well because we are an integral part of it. If we’re shut out of the game before that change evolves, then we won’t be able to compete. We have to have a voice, we have to be active, we have to know our opposition and preserve the ability to compete. In any way you can, be a pain. Make your differences clear and push them.

We need to compete in order to survive. But the battle is to survive in order to compete.