CAP TODAY Pathology/Laboratory Medicine/Laboratory Management
We also have coverage and administrative issues. The percentage of denials received on prior authorizations or lack thereof has gone up significantly, though even with a prior authorization there is a chance of denial. For cardiovascular disease, we have seen in the past 24 months an approximately 54.6 percent increase in prior-authorization–related denials. In oncology imaging and diagnostics it’s about 72.8 percent, and in women’s health about 62.1 percent. This doesn’t mean 62.1 percent of everything submitted is denied for prior authorization; it means prior authorization denials have increased by that amount.
At the same time, we see from the data on prior authorizations that 40 percent of all prior authorizations are abandoned because they’re so administratively burdensome. Eighty-five percent of physicians think prior authorization is too burdensome a task for them to perform in their office, and 75 percent of physicians have said they’ve abandoned testing or treatments because of the administrative burden of the prior authorization.
We’re in our second period of data collection for PAMA, which is the first half of this year. It’s becoming even more important for us to collect data accurately and precisely because we can see the impact is fairly significant. And with payers ratcheting down their pricing, it’s becoming even more significant to challenge reimbursement rates and scrutinize the legitimacy of pricing at the procedure code level.It’s important to take away lessons from the pricing strategy payers are implementing and to understand how to do contracting in this environment.
What have labs been doing over the past two years? They reduced their costs. A lot of the cost reductions were in the number of phlebotomy stations and phlebotomists, customer service personnel, and billing personnel. As a result, we have increasing turnaround times in our industry for phlebotomy and for testing, while the amount of uncollectible claims is growing.
Laboratories are also diversifying their test menus and expanding specialty testing. This is probably a good trend because there is a bit more margin in the specialty testing.
Private payer contracting is something that we as an industry have not done well, and while hospital labs are able to leverage their hospital contracts, independent labs have to work a lot harder to obtain equitable fees in their contracts. Simply not attaching a contract to a current Medicare fee schedule is not enough. The contract negotiation has to be much more thoughtful than that.
We have seen people trying to make sure they have the technology, the automation, and the financial discipline in place to collect as much as they can of their current revenue. So where we’ve had five to 20 percent write-offs in the industry, particularly in hospital outreach, we’ve seen a more serious approach to collecting receivables and a more automated approach to doing so. When your margins are being cut, this is one area you can concentrate on.
Aside from decoupling payer-specific fees from the current Medicare clinical lab fee schedule, it’s important to note that even taking a contract that’s attached to the 2018 or 2017 Medicare fee schedule is not appropriate. Most of those prices do not represent market pricing. (See “Payer contract negotiation tips.”)
It’s critical for labs to know what their direct and indirect costs are and to establish a billing fee schedule that is a rational fee schedule based on those underlying costs. Maybe RVUs can be used in some cases to give us guidelines, but essentially a lab needs to understand its cost structure for every test it performs and provide a fee schedule that’s truly market based.
Payers are difficult and usually offer a take-it-or-leave-it scenario. It means you just have to do a rational negotiation. Just as in negotiating anything else, you have to understand what both parties’ needs are. You have to come to the table understanding not only what your cost structure is but also what the payer’s needs are.
Payers have a lot of things they must comply with and do, and one is their quality star designation. That’s how they get reimbursed, and that requires them to improve quality at a lower cost, and these are all things they can do with data and information from the laboratory. The laboratory can provide actionable data to the payer to allow them to manage their business better.
We’re not just talking about value-based pricing, though eventually we will get there. We are talking about disease prevention and how you can assist the payer in understanding what tests are ordered and when and how they need to be ordered—decision support at the point of order. But also decision support at the point that the test result is delivered to the physician. Many times the physician is not optimizing the order or the therapy decision, and these are things labs can look at, train others to do, and understand and explain to the payer so they can be improved.
Payers are interested in making sure beneficiaries have access and that the provider physicians are satisfied with the labs they’re using. They also need to understand that they will get actionable data from you, not a data dump.
When you are presented with a fee schedule, you may not be able to negotiate every CPT code, but if you pick the 20 to 30 top CPT codes, most payers will negotiate those fees with you and that’s the starting point of how to do this. Also make sure that none of the remaining CPT codes are below cost. We can’t afford to make it up on total volume for those tests that are now below cost.
Other provisions in a contract need to be negotiated, such as the timely filing deadlines. One hundred eighty days is most suitable for a lab that doesn’t often see the patients. For the termination notice, you want about 120 days so you have enough time to renegotiate pricing.
In the physician office laboratory, we see more tests being done with miniaturized equipment. Some of the most recent ACO guidelines favor physician-led ACOs over hospital-led ACOs. This is an interesting trend we should pay attention to because physicians, for the past couple of years, have been aligning themselves with hospitals in order to comply with the Medicare Access and CHIP Reauthorization Act of 2015, quality metrics, and population health. Now we have an opportunity as specialty labs dealing with specialty physicians to improve their quality metrics on chronic disease management and allow them the opportunity to collect on their MACRA-impacted Medicare fees and their risk-share ACOs.
Molecular diagnostics and pain management, which were much less affected by PAMA in the first go-round, will likely be affected more in the next go-round because there is some ratcheting down of private pay.
The primary trend we see in hospital outreach is that the growing health systems are now focusing on laboratory efficiencies. The ACOs have taken the easy savings off the top and now they have to concentrate on more difficult things like true improvement of outcomes and quality at lower costs. That means targeting their laboratory for therapy decisions more than anything else, and what we have seen is a systematic concentration on the laboratory as one of the quickest ways to accomplish this. So we see them centralizing and standardizing their labs and in many cases putting in new technology and systems for data and financial management. These are all interesting signs for the lab industry to take note of because the long-held belief is that laboratory outreach did not do business as well as an independent clinical lab. Now they’re getting sophisticated, so they will now compete more and more with the independent lab industry.
In the end, all of this is about deep data analytics, infrastructure—technology infrastructure, connectivity to facilitate clinical integration, scalability, operational efficiency, full automation in every way the lab is run—and financial integrity first and foremost. If PAMA taught us anything, it should have taught us that we do not have our data act together. With a good financial system, PAMA should be a simple exercise, and in fact the difficulty that most labs had with it indicates we are not ready for the new data analytics, machine learning, and artificial intelligence. We need to be much better and very good at understanding data. Not just as a revenue stream but as a point of contact for the patient, consumer, payer, physician, and to produce greater quality at lower cost with better outcomes. We reach that goal through technology and automation.