Laboratory News

Predicting the Future of Private Lab Providers in Single-Payer Health Systems

How British Columbia's Health Authority shaved reimbursement for both clinical lab testing and anatomic pathology services

In recent years, the provincial health authority in British Columbia took deliberate steps to cut reimbursement for clinical laboratory testing and to revise (read: reduce) the amount of reimbursement paid for anatomic pathology professional services. These events were described in ongoing coverage in The Dark Report .

As you read this, Dark Daily is in Vancouver, British Columbia, researching how reduced prices for laboratory and pathology services have affected the private laboratory sector in one of Canada's more progressive provincial healthcare systems. As regular readers know, British Columbia's provincial health authority has had an uneasy relationship with the two major private laboratory companies in the province. BC Biomedical Laboratories of Surrey, BC, and Life Laboratories  (formerly MDS Metro McNair Laboratories) are the dominant providers of laboratory testing services to office-based physicians in British Columbia.

There have been two reimbursement earthquakes that hit the private laboratory sector in British Columbia. First was an attack on fee-for-service prices paid for clinical lab testing by the British Columbia health agency. In its November 24, 2004 issue, The Dark Report wrote that "This began with a [British Columbia] law that specified cuts of 8% and 12% to laboratory test fees were to be enacted by September 1, 2003 and April 1, 2004, respectively. The other major damaging element of the regulation was the introduction of a competitive bidding program for laboratory testing services in British Columbia." This statute was successfully challenged in court by the British Columbia Medical Association (BCMA). Following negotiations with government health officials, an across-the-board 10% reimbursement cut in laboratory fees was instituted by the end of 2005.

The second event was a negotiated, province-wide reimbursement contract between anatomic pathologists in British Columbia and the BC provincial health authority, which took effect by 2007. In response to findings that British Columbia was paying as much as 50% more for laboratory testing compared to other Canadian provinces, provincial health officials initiated discussions with the pathology profession in the province. Following a pathologist workload and productivity study, the pathology profession in BC negotiated a revised compensation plan with the BC health authority.

As a consequence of these two significant reductions in reimbursement for lab testing services, the private laboratory sector in British Columbia has shouldered the burden of providing diagnostic services at a reduced price. Both independent lab companies took steps to drive down their internal testing costs and each lab reports that it was able to cope with reduced reimbursement without significant cuts to its core infrastructure or a noticeable reduction in services provided to referring physicians. However, both laboratories remain wary of future arbitrary and unexpected actions by the government which would trigger negative financial consequences to independent laboratories in the province.

What adds intrigue to this story of an uneasy relationship between a public health system that must reimburse private laboratory providers is the fact that the province's two biggest private laboratories have collaborated to create what might be viewed as the first step toward a regional health information organization (RHIO). BC Biomed and Life Labs created Excelleris . This Web-based system allows physicians to access and view all the patient's lab test results in a single view. The Excelleris system polls both labs' LIS's and presents a single, unified view of an individual patient's lab test results in response to the physicians' query.

According to BC Biomed, more than 60% of the physicians in British Columbia regularly use Excelleris to see their patients' lab test results. One-by-one, hospitals in the province are connecting their laboratory test data to Excelleris. This allows physicians to see all the inpatient and outreach lab test data for their patients.

Excelleris perfectly demonstrates the competitive tension that exists in a healthcare system that includes both public and private sectors. Private laboratories successfully invested their capital and created an integrated solution to combine patient lab test results and make this lab data easily accessible to physicians. Meanwhile, the government health authority is spending heavily to create a unified patient health record (PHR). It is actually reinventing a system to allow physician access to lab test data, despite the fact that Excelleris exists today and gets high marks for usability by physicians.

Dark Daily believes that British Columbia is one of those bellwether regions to watch for clues in how single-payer government health programs accept and incorporate private providers in their clinical service mix. With demand for health services outstripping the ability of most government health programs to pay for such services, attempts to slash reimbursement or use extreme contracting models as budget-cutting tools can have dire consequences to private sector laboratories. Examples of ill-conceived laboratory contracting schemes have surfaced in recent years in the Florida Medicaid and California MediCal program in recent years. For this reason, it remains important to track the consequences of government contracting and reimbursement policies for laboratory testing services.

Related Articles:

CA, FL, BC Move Forward With Lab Test Contracts
The Dark Report, Volume XI, No. 16, November, 22, 2004