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New report notes that variations in price for common clinical laboratory tests should not exist ‘regardless of clinical setting’ and yet they do

Hospital laboratory leaders may soon observe employers—especially those in seven particular states—shopping around a bit more when it comes to insurance coverage of clinical laboratory tests for their employees. That’s because a recent study by the Health Care Cost Institute (HCCI ) found that employer-sponsored insurance pays three to six times more for lab tests performed by hospital outpatient labs compared to lab tests done by physician offices and independent clinical laboratories.

In an issue brief it developed in conjunction with West Health, the HCCI revealed that standard clinical laboratory tests cost as much as six times more when performed through hospital outpatient lab outreach programs rather than physician offices in Colorado, Indiana, Nevada, New Mexico, North Carolina, Texas, and West Virginia.

“Among individuals with employer-sponsored insurance, we observe substantially higher prices paid for common lab tests when these tests were billed by hospital outpatient departments (including on- and off-campus locations) compared to when they were performed in physician offices and independent labs,” the report authors wrote.

HCCI is a Washington, DC-based non-profit research institute focused on issues impacting the US healthcare system. West Health, in Washington, DC, and San Diego, is a nonprofit group that works to lower healthcare costs for seniors.

“By their very nature, [clinical laboratory] tests are standardized to be the same regardless of clinical settings, yet our research finds that hospital outpatient departments are typically billing private insurance three times more for the same lab test compared to physician offices and independent laboratories,” wrote Cristina Boccuti, MA, MPP, Director of Health Policy at Health West in the HCCI report. (Photo copyright: West Health.)

Price Markups Vary by Clinical Laboratory Test Type

In their HCCI issue brief, Cristina Boccuti, MA, MPP, Director of Health Policy at Health West; Senior Researcher and doctoral candidate Jessica Chang; and Aditi P. Sen, PhD, Director of Research and Policy at Health Care Cost Institute, wrote, “In this brief, we compare prices (as determined by total payments on claims) for clinical lab tests between hospital outpatient departments (25% of tests in our study) and physician offices and independent labs (75% of tests in our study) among individuals with employer-based health insurance.

“This analysis,” they added, “uses HCCI’s unique commercial claims dataset, which contains claims for 55 million Americans annually. In addition to analysis of individual clinical lab tests, we also examined variation across five broader categories following previously established methods relying on [Current] Procedural Terminology (CPT) codes.”

Those five test categories and percentage of samples studied included:

  • Clinical Chemistry (54%)
  • Microbiology (24%)
  • Complete blood count (10%)
  • Urine (9%)
  • Toxicology (4%)

Price markups (a calculated ratio based on each setting’s median price) varied by type of medical laboratory test and were usually three to five times higher in a hospital outpatient setting as compared to the physician office or independent clinical lab site. Some urine tests were more than seven times higher.

“Variation should not exist among clinical lab tests,” the HCCI authors wrote. “Analysis of most non-emergent clinical lab tests on a specimen, such as a blood test or urine sample, is identical regardless of factors such as where the test is performed or patient risk.”

The most frequently ordered lab tests with the highest markup included:

  • Urinalysis (automated with microscopy): $2.72 office/independent lab; $21.39 hospital outpatient (more than seven times price markup).
  • Comprehensive metabolic panel: $8.85 office/independent lab; $47.13 hospital outpatient (more than five times markup).
  • General health panel: $22.97 office/independent lab; $127.97 hospital outpatient (more than five times markup).
  • Basic metabolic panel: $7.75 office/independent lab; $38.44 hospital outpatient, (five times markup).

“Under commercial insurance, some hospital outpatient departments are being paid over $200 for a metabolic panel, which has a medical office-based price of (about) $9,” the HCCI report noted.

Medical Laboratory Test Prices All Over the Map

When HCCI explored clinical laboratory test pricing throughout the US, the researchers found price markups in hospital outpatient settings ranging two to six times higher than the same lab tests performed in offices and independent labs. States with low markups were North Dakota, Arkansas, and Minnesota.

Markups varied within states as well. The HCCI analysts shared an example of lipid profile testing in Pennsylvania, where the average price difference between hospital outpatient and physician offices ranged from $34 in Philadelphia to just $17 in Pittsburgh.

Big Differences in Microbiology, Toxicology Lab Test Prices

As to clinical laboratory testing categories, the report found the greatest price markups were in blood count and urine testing. The biggest median price differences—more than $30 per test—was observed in microbiology and toxicology:

  • Blood count: $6.34 in office/independent lab versus $29.61 in hospital outpatient setting.
  • Urine: $4.33 office/independent lab versus $24.39 hospital outpatient.
  • Microbiology: $16.50 office/independent lab versus $47.80 hospital outpatient.
  • Toxicology: $12.15 office/independent lab versus $43.65 hospital outpatient.

While individual lab test prices may seem low, the overall investment is huge in the context of 232 million lab tests, and spending is increasing. Nearly $7 billion was spent on medical laboratory tests in 2019, as compared to $5.8 billion on 155 billion tests in 2012, HCCI data shows.  

Calls for Price Transparency, Payment Integrity

Meanwhile, an analysis of paid claims by Avalon Healthcare Solutions in Tampa, Florida, explained that hospital outpatient labs are paid on average 300% to 400% of Medicare’s Clinical Laboratory Fee Schedule (CLFS).

Bill Kerr, MD, co-founder and CEO at Avalon, noted in an article he penned for MedCity News that a hospital outpatient laboratory may receive $100 for a routine test, while a non-hospital lab will get on average $20 for the same test on the same instrument.

“Hospitals frequently argue that they need to charge more to support their specialty test innovation and development. That doesn’t hold true for routine testing though,” he wrote.

Kerr pointed out that physicians could order tests as part of incentives to use hospital-affiliated labs. “Plus,” he wrote, “payers are often hesitant to educate their members about lower-cost lab testing options because of various provisions in their contracts with hospitals.”

What could help, he added, are lab testing price transparency and “payment integrity programs,” that have science “at the core” and aim to flag unneeded and as well as needed tests, especially in oncology. 

HCCI Advises Site Neutral Payment, Negotiation

HCCI also made recommendations in its report. They include:

  • Policymakers for states with the high hospital outpatient setting markups “should use site-neutral payment policies for insurance plans regulated at the state level.”
  • In negotiations, health insurers and self-insured employers can aim to limit site-based payment differentials for their enrollees and employees.

For hospital clinical laboratory leaders, the HCCI is calling attention to an issue that may eventually restrict the ability of hospitals to bill outpatient lab tests using inpatient pricing. 

—Donna Marie Pocius

Related Information:

Price Markups for Clinical Labs: Employer-based Insurance Pays Hospital Outpatient Departments 3X More Physician Offices and Independent Labs for Identical Tests

Power Your Analytics with HCCI’s Leading Medical and Pharmacy Claims Dataset

Lab Testing Transparency Will Improve Patient Care and Lower Costs