Laboratory News

Managed Care Lab Price Trends Debated in Washington, DC

Last week, your Dark Daily Editor participated in a spirited debate with other lab industry experts about whether recent developments in managed care contracts are causing a downward spiral in lab testing prices. The occasion was Dennis Weissman's 25^th Annual Lab Institute, which took place in Washington, DC last Wednesday through Saturday.

In a one-hour panel discussion moderated by Weissman that included five lab industry publishers and editors, the direction of prices for lab testing was a dominant theme. The primary message was the lack of consensus among these close observers of the laboratory marketplace. All the panelists acknowledged that lower prices had played some role in the decision last fall of UnitedHealth Group, Inc  (NYSE:UNH) to award an exclusive national lab testing contract to Laboratory Corporation of America  (NYSE:LH) and exclude Quest Diagnostics Incorporated  (NYSE:DGX) as a national provider. However, opinions diverged as to whether this contract award is the opening salvo in a trend for managed care companies to earnestly cram down another round of lower prices on laboratories throughout the country.

In alphabetical order, the panelists were: Jon David Klipp, Editor of Laboratory Economics , Robert McGonnagle, Publisher of CAP Today , Robert L. Michel, Editor of The Dark Report , Stephanie Murg, Editor of Laboratory Industry Report , and Nancy Sasavage, Editor of Clinical Laboratory News . Moderator of the panel was Dennis Weissman, Founder and Principal of Dennis Weissman Associates.

Several panelists offered opinions supporting a trend of lower pricing for lab testing services. They predicted that, based on UnitedHealth's new national lab services contract, which took effect on January 1, regional and local health plans were likely to follow UnitedHealth's lead and attempt to negotiate lower reimbursement for lab testing whenever contracts with individual labs come up for renewal. Under this view, what lies ahead for the laboratory industry is a steady decline in the average price paid by managed care for laboratory testing. Discounts from Medicare Part B fees of as much as 75% were predicted.

Your Editor voiced a contrary opinion, stating that UnitedHealth and LabCorp each had different strategic objectives in crafting their ten-year exclusive national agreement. Although a lower price for lab testing was part of the final deal, it was other elements - such as reduced total contract leakage for UnitedHealth and exclusive contract access to major markets like New York and Chicago for LabCorp - that lie at the core of this contract.

The specter of further declines in laboratory prices stirred lots of emotion and comment from the audience. Several audience members commented that their laboratory would face financial disaster if private payers push the average price of lab testing to 50%, 40%, 30%, or less of Medicare Part B. However, when the audience was asked for a show of hands if they knew of any laboratory failures, bankruptcies, or hospital outreach program closures in their region over the past five years, one two hands out of 500 went up. In response to a question about how many in the audience knew of a lab company start-up or the launch of new hospital lab outreach program in their region, about one-third of the audience raised their hand. Your editor's conclusion? Times are much better across the laboratory profession than most lab directors and pathologists will admit.

As it turned out, the future of pricing for lab testing services was a consistent theme that regularly popped up in various sessions and presentations over the several days of the conference. As this Dark Daily e-briefing indicates, there was no consensus about the speed and depth of pricing cuts. However, there was general recognition that reimbursement would continue to shrink, relative to increased costs and growing utilization.

Your Dark Daily Editor,

Robert L. Michel  rmichel@darkdaily.com

 

EDITOR'S NOTE: Dark Daily would be remiss if it did not congratulate Dennis Weissman on reaching the milestone of the 25^th Annual Lab Institute. It was 1979 when he launched the National Intelligence Report. Then, in 1982, he premiered the first annual Lab Institute, which is now a fixture in the national laboratory scene.