Shifting trends test labs’ financial mettle

When APS starts helping a new client, “You have to close the loop on that unpaid testing a lot of times,” Scheanwald says. “There has to be education and training for those referring physician offices or providers who order tests.” APS creates customized reporting that allows clinical labs to evaluate the volume of denied tests, Zaborski says.

“We will query all of those CO50 denial codes, stating that a test does not meet medical necessity, and get the volume broken out by CPT code and primary diagnosis so that we can point our labs in the direction of the physicians ordering the most vitamin D testing or comprehensive metabolic panels without a payable or allowable reason.”

The extent of variation in payer policies is hard to keep straight, Scheanwald and Zaborski note. Though Medicare payment rates may be modest, at least its rules for allowable tests are fairly transparent and acceptable, Zaborski says. “A lot of your private payers, if you call and ask, ‘Hey, why am I not getting paid for this?’ or ‘If we did this diagnostic, would we get paid?’ their standard answer is, ‘We can’t tell you how to bill.’”

“So you end up surfing 20 pages of their website to find the payer rules, if they are even published. A lot of times they are published internally but not externally.” This is a source of frustration that APS deals with daily. “We know we have to work harder to drill into their policies.” Although APS helps labs get signed on with payers, payers are increasingly limiting the number of lab providers they will allow in network, he says.

APS’ hospital-based pathology providers are being battered by the out-of-network billing laws. “We follow those laws on behalf of our clients,” Scheanwald says, “and there is a lot of variation from state to state in particulars. The legislation is often structured to leave hospital groups with no alternative but to accept a less-than-adequate reimbursement. It may take away all their ability to negotiate a better fee.”

California’s law is an exception. In setting payments for providers out of network, the state required payers to pay the group directly if they (rather than the patient) are going to make a payment, and set a floor for reimbursement at 125 percent of Medicare for any allowed services. “That safety net actually gave pathology groups more leverage because they had been paid less in some cases,” Zaborski says.

Anthem, one of the largest payers pursuing the rate alignment strategy, has slashed payment for groups in Indiana and other states. In Ohio, providers were told almost all rates would be cut to 40 or 50 percent of Medicare, leading many groups to terminate their contracts. Anthem said in a letter in late August that the new Ohio rates will go into effect Dec. 1.

Even worse cuts were made in Indiana, where every code got caught, says Chris Condon, manager of practice management for APS. “So we are seeing a price realignment by Anthem across the country. We expect the other payers are sitting back and watching.” In the process, Zaborski says, “they are moving the main bulk of those contracts from their provider professionals to their supplier contracting folks, which almost makes it look, in some ways, like they are starting to commoditize anatomic pathology as tangible goods.”

Higher deductibles in insurance plans are creating a different trend: collection of copays from patients throughout the year. At one time, Zaborski says, deductible season was pretty much over by March. Now that the percentage of people enrolled in high-deductible health plans has increased sharply (from 17.4 percent in 2007 to 46.5 percent in 2018, according to the Employee Benefit Research Institute), some clients are collecting deductibles from patients all year.

“Patients may say, ‘Since the ACA went into effect, I have yet to meet my deductible in one year.’ We are seeing that across the country. And it takes so much longer to collect those patient payments.” Some practices are even strategizing a hold on claims that would normally be submitted at the first of the year, on the theory that they might have a better chance of collecting later.

Data analytics are an APS priority. “We use a Microsoft reporting services platform for a slew of end-of-month as well as real-time reporting on charges, payments, adjustments, and A/R, and tracking special things like professional clinical charges that we can and can’t bill. We are also developing a business intelligence platform using Microsoft Power BI to allow insights on service data that various clients can access that will let them drill down into productivity, client success, payment percentages by payer, and so on.” They have about 600 to 650 reports that can be “turned on with the flip of a switch” for any client, Zaborski says, and that library grows weekly.

The business intelligence portion of analytics was a blip on the radar 10 years ago, says Scheanwald. “Now many of your bigger organizations are demanding it.”

is particularly wary of where reimbursement might be headed and has a warning: “Medicare has always been a baseline for reimbursement, and Anthem has now made a second move to undercut its fee schedule below Medicare. It will be difficult for any AP independent lab to keep the lights on at the level Anthem is trying to reimburse them for. So that is definitely something each and every doctor needs to keep their eyes open to if they are getting letters from payers making cuts like this.”

Technology advancements in test development—with the industry generating 75 new genetic tests a day—have helped speed changes to test reimbursement and coverage much more than in the past, says Lâle White, CEO of laboratory revenue cycle management company Xifin. Her goal in launching the company in 2002 was to create a technology infrastructure that allowed real-time connectivity between all the constituents of laboratory billing processes.

“Change, continual reimbursement scrutiny, and price compression have been constant in this industry,” she says. But now, “We are seeing very quick changes in the way claims are adjudicated and paid and covered. Preauthorization, a more rigid appeals process, and limited coverage criteria are increasingly being used by Medicare and the private sector as well.”

The PAMA cuts helped accelerate the trend toward consolidation that was already taking place in the laboratory industry, she says. “A lot of the smaller laboratories are basically shutting down. We have seen a lot of labs close down over the last couple of years, some in specialty sectors like pain management but others in rural areas that have less than a 10 percent margin and couldn’t sustain the PAMA cuts. Labs that have tried to have a robust menu across the board are now limiting the tests they do, and smaller labs that are really not able to get to a profitable level are consolidating.” (For White’s report on PAMA and more, presented at this year’s Executive War College, click here.)

For Xifin, which has larger complex labs as its primary customers, consolidation has increased business. “At the same time, we see hospital labs beginning to be very concerned about losing profitability and doing more centralizing. Very complex labs and big health systems have begun to recognize that the lab is probably the most important, if not the easiest, way to control costs across the board,” she says.

Strategic, real-time management of diagnostics has thus become essential, White says. “In the long run, when we are talking about a value-based pricing exercise, financial and clinical data become even more critical for establishing value-based pricing agreements with payers and a more prominent part of how things will be priced and negotiated in the future.”

The out-of-network billing issue arose, White says, because under the Affordable Care Act, payers couldn’t spend more than 15 percent of their revenue on administration, causing them to narrow their networks—specifically, in many cases, removing labs from their networks. Once states started passing laws restricting surprise billing, some payers started to re­broaden those networks a little.

“But the lab industry has also introduced strong financial assistance programs for out-of-network billing with patients. They have tried to make it easier for patients to pay, offered payment plans, offered discounts at time of service, implemented technology to make it easier to communicate with the lab in real time, etc. Essentially labs are trying to handle this by having a pricing transparency that the consumer can understand and see up front. A lot of labs are working on that.”

At the same time, with the increase in high-deductible plans, “there is a lot more patient billing than there used to be,” she notes. More labs are focusing on patient collections and not having to write off bad debts. She says bad debt rates on patient balance billing have been dropping. “It can be in some labs as low as 30 percent now.” However, even though recessions do not hit the health care industry the same way they do the rest of the economy, she says, if one occurred it would likely increase consumer-based collection problems.

Over the long term, as several of these billing industry leaders suggest, current billing and payment trends are creating pressures that could lead to a restructuring of the laboratory industry. Unlike earlier reimbursement and policy shifts, the current squeeze is shrinking laboratory margins to the point that it may leave only a few big players standing. For the time being, however, the logistics of coexisting remain a priority. As Raich says, “We spend a lot of time talking to groups about mergers and joint ventures. Our health system is merging together. How can we all play in the same sandbox without hurting each other?”

Anne Paxton is a writer and attorney in Seattle.