Employer group in Houston plans to use the numbers to pressure lawmakers for policy changes involving how hospitals and health plans price their services
Clinical laboratory leaders will probably not be surprised to learn that wide disparities exist between what Medicare pays hospitals and what is paid by private insurers and employers. That’s according to analysis by the Houston Business Coalition on Health (HBCH) which examined costs and billing practices at four of the region’s top hospitals, each a flagship for its respective health system.
This study—by a business group concerned about the spiraling cost of healthcare for their employees—is significant because it indicates that some large employers are willing to become more aggressive in driving down healthcare costs. In the Houston study, three of these hospitals—Houston Methodist, Memorial Hermann, and HCA Houston Medical Center—charged more than 250% over Medicare, noted a press release, which stated the group plans to use the numbers to lobby Texas lawmakers for policy changes.
“The prices employers paid to hospitals are unsustainable and negatively impact business growth, family quality of life, and resources needed for other critical community social needs,” said HBCH executive director Chris Skisak, PhD, in the press release. “Our intent in sharing and publicizing these resources is to facilitate direct discussions with health systems and employers to better understand the ramifications to Houston businesses and the greater community.”
The HBCH describes itself as a resource for local employers and healthcare providers seeking to promote cost-effective healthcare delivery and health benefits. It has 60 members that collectively provide healthcare coverage for 500,000 area residents.
Hospital Claims Medicare Reimbursement Flawed
A spokesperson for Memorial Hermann disputed the HBCH’s analysis, telling the Houston Chronicle that “Medicare reimbursement is a flawed and an inappropriate benchmark to use for commercial payments, as Medicare payments do not cover the cost of services provided.”
But the HBCH analysis also disclosed that each hospital was charging private insurers more than double the breakeven, defined as the amount needed “to make up for any shortfalls from public sector payers such as Medicare and Medicaid and uninsured patients.” And they “achieved a commercial profit margin of more than 45%” over the breakeven.
The fourth hospital, Baylor St. Luke’s, charged 216% over Medicare and had a commercial profit margin of close to 20%.
The Medicare claims data came from a RAND study, titled, “Prices Paid to Hospitals by Private Health Plans.” The 53-page report is accompanied by a downloadable spreadsheet with details on prices at more than 4,000 hospitals in 49 states plus the District of Columbia. Released in May, it covers data from 2018 through 2020.
The HBCH analysts combined data from this report with data from the NASHP Hospital Cost Tool (HCT), which was released in April. The HCT allows anyone with a web browser to look up cost metrics for 4,600 hospitals in the US. The numbers, available through 2019, include revenue, profitability, and breakeven points. It also incorporates an earlier set of the RAND Medicare claims data.
An NASHP press release notes that the breakeven calculation “accounts for a hospital’s operating costs, profit or loss from public coverage programs, charity care and uninsured patient hospital costs, Medicare disallowed costs, and a hospital’s other income and expense.”
The HBCH press release notes that hospitals need only 127% of Medicare to break even.
Nationally, the RAND study found wide variations in prices paid by private health plans from state to state. “In Texas, prices paid to hospitals for privately insured patients by employers averaged 252% of what Medicare would have paid,” the HBCH press release noted.
But that places Texas around the middle of the pack compared with other states. According to a Rand press release, prices charged to commercial payers were over 310% of Medicare in Florida, West Virginia, and South Carolina. But in Arkansas, Hawaii, and Washington, the numbers were below 175% of Medicare. The overall national average was 224%, the study found.
The RAND report’s downloadable spreadsheet breaks out the numbers by state and for individual health systems by name.
Numbers like these could have policy ramifications as employers seek to reduce the costs of providing health benefits. “The data is already being used to guide a new path forward,” states the HBCH press release. “As an example, HBCH and its members are working to demand transparency and change policies in the upcoming Texas 88th Legislative Session to eliminate anti-competitive language between hospitals and health plans.”
Clinical laboratory managers and pathologists working in hospitals and health systems will want to watch how employer groups respond to future studies of hospital pricing compared to the Medicare program. Employers increasingly are dissatisfied with the status quo in how hospitals and doctors price their services to health insurers.
It is reasonable to expect more studies to be published that compare what hospitals charge private health insurers versus what they are paid by the Medicare program.
By shifting away from fee-for-service, the state encouraged collaboration between hospitals and physicians to improve care and lower costs
Maryland “leads the way” in value-based payment reform, according to a series of articles published in Health Affairs. “The evidence is clear,” the article declares, “Maryland’s application of uniform prices within global budgets lowers total care costs, reduces unnecessary utilization, and incentivizes proactive preventive and chronic disease management care. Can other states implement Maryland-like payment models and achieve similar financial success?” It’s a fair question.
It is widely-known that clinical laboratory testing is integral to early and accurate diagnosis, and, under Maryland’s current reimbursement model, hospital/health system C-suite administrators have recognized that a robust clinical laboratory service is invaluable to showing progress toward cost containment and patient outcomes goals. But how did that come about? And what can other states learn from Maryland’s success?
Focusing on Better Patient Outcomes at Reduced Costs
Maryland’s current value-based payment arrangement set its first roots back in 2014. That is the year when the state of Maryland and the federal Centers for Medicare and Medicaid Services (CMS) announced a “new initiative to modernize Maryland’s unique all-payer rate-setting system for hospital services aimed at improving patient health and reducing costs,” declared a press release at that time.
Dubbed Maryland’s “All-Payer Model,” the press release went on to say, “This initiative will replace Maryland’s 36-year-old Medicare waiver to allow the state to adopt new policies that reduce per capita hospital expenditures and improve health outcomes as encouraged by the Affordable Care Act. Under this model, Medicare is estimated to save at least $330 million over the next five years.” Did that happen? Apparently so.
The state designed its “All-Payer Model” hospital payment system to render reimbursements based on populations served and the quality of care provided. The program focused on better patient outcomes and higher quality care at a reduced cost, instead of concentrating on the volume of care. The system incentivized hospitals to prevent readmissions, infections, and other potentially avoidable events.
“By shifting away from traditional fee-for-service payment, Maryland’s new model encourages collaboration between hospitals and physicians to improve patient care, promotes innovative approaches to prevention, and accelerates efforts to avoid unnecessary admissions and readmissions,” said pediatrician Joshua Sharfstein, MD, Vice Dean for Public Health Practice and Community Engagement at the Johns Hopkins Bloomberg School of Public Health in a 2014 CMS press release.
Sharfstein was the Secretary of Maryland’s Department of Health from 2011 to 2014.
Then, in 2019, Maryland implemented the successor to the state’s “All-Payer Model” dubbed the “Total-Cost-of-Care (TCOC) Model.”
According to the CMS, whereas the All-Payer Model “established global budgets for certain Maryland hospitals to reduce Medicare hospital expenditures and improve quality of care for beneficiaries,” the TCOC “builds on the success of the Maryland All-Payer Model by creating greater incentives for healthcare providers to coordinate with each other and provide patient-centered care, and by committing the State to a sustainable growth rate in per capita total cost of care spending for Medicare beneficiaries.”
The TCOC began on January 1, 2019, and runs through December 31, 2026.
Results of Maryland’s All-Payer-Model Program
In general, an all-payer system allows a state to manage healthcare prices via rate setting where all healthcare payers, including the government, private insurers, and employer healthcare plans, pay similar prices for services provided at individual hospitals.
When it announced the results of the five-year All-Payer-Model program, Maryland’s Health Services Cost Review Commission—the state agency responsible for regulating cost and quality of hospital care in Maryland—declared the program’s targets had been achieved. They included:
1.92% average annual growth per capita in hospital revenue (goal was to be less than or equal to 3.58%).
$1.4 billion cumulative Medicare savings in hospital expenditures.
Below national average for hospital readmissions of Medicare patients within five years.
All of Maryland’s 47 acute-care hospitals paid based on health populations served—not number of services rendered—with 98% of total hospital revenue under Global Budget Revenue (GBR) payment method.
In addition, the Maryland HSCRC report indicated that innovative care was a key tenet of the model and that hospitals benefitted from being given the ability to:
Invest in new healthcare programs that improve collaboration with other providers in the community.
Implement new clinical protocols, patient safety techniques, and follow-up procedures for high-risk patients at hospital discharge.
Create hubs of care to triage needs, coordinate important services, and ensure patients in need are connected to services outside the hospital.
After the success of the Maryland All-Payer Model, the state’s Total-Cost-of-Care Model program continued to focus on healthcare cost savings to Medicare. But it introduced population health improvement activities across the entire healthcare delivery system.
Future of Maryland’s Total-Cost-of-Care Model Program
Maryland’s TCOC Model program seeks more than $1 billion in Medicare savings by the end of 2023, or the fifth performance year of the program. According to the CMS Innovation Models webpage, Maryland’s TCOC Model includes the following three programs:
The Hospital Payment Program, where each hospital receives a population-based payment amount which covers all hospital services provided during a year.
The Care Redesign Program, which allows hospitals to make incentive payments to nonhospital healthcare providers who partner with hospitals to provide care.
The Maryland Primary Care Program, which incentivizes primary care providers to offer advanced care services to their patients.
An analysis of the first two years of the TCOC program found some significant improvements particularly in the areas of care management, access, and continuity.
In the first performance year of Maryland’s TCOC model, the state reduced spending by $365 million, relative to national trends, according to a Mathematica implementation report.
Part of the success of the model is due to its use of global, fixed budgets that are set for every hospital. Rates are established by an independent commission which prevents cost shifting and provides a more equitable system for patients where they pay the same price for the same service at all hospitals throughout the state, Mathematica noted.
“We believe [global budgets are] a real distinguishing factor, because unlike the rest of the country, our hospitals aren’t paid more to do more,” said Nicole Stallings, told State of Reform. Stallings is Chief External Affairs Officer and Senior Vice President, Government Affairs and Policy at the Maryland Hospital Association (MHA).
Expanding Maryland’s All-Payer-Model Program to Other States
In 2016, CMS established the Center for Medicare and Medicaid Innovation (CMMI) to identify ways to improve healthcare quality and reduce overall costs in the Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) programs. Maryland’s All-Payer model has produced the most savings out of any of the projects and experimental payment programs researched by CMMI. The success of Maryland’s programs prompted CMMI to look at expanding similar programs in other states.
Reductions in hospital costs combined with improved outcomes can only benefit patients and the healthcare industry in the long run. Since clinical laboratory testing is integral to early diagnoses and treatment of diseases, under Maryland’s current reimbursement model a robust clinical laboratory service is invaluable for succeeding at cost containment and patient outcome goals.
An estimated 80 pathologists will now work for larger pathology superlabs as part of the deals, bringing stiffer competition to independent anatomic pathology groups
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Consolidation among private practice anatomic pathology groups continues with news that two large regional pathology groups decided to sell to larger pathology companies. The first transaction announced was on Dec. 16, 2021, when Sonic Healthcare of Sydney, Australia, disclosed that it had acquired Dallas-based ProPath. Sales price and other terms were not announced.
The second transaction happened last month. On Jan. 24, Nashville-based PathGroup announced it had bought Pathology Consultants of Greenville, S.C. Price and terms of this transaction also were not disclosed.
Pathology Consolidation Continues
The decision by two of the nation’s leading regional pathology groups to sell themselves to larger pathology entities confirms that the trend of consolidation is continuing within the pathology profession. It is also a sign that smaller pathology groups will find it increasingly difficult to compete and stay profitable as new technologies transform the surgical pathology profession, such a digital pathology platforms.
ProPath was considered a financially strong regional super-group, as it operates facilities in three states and has 50 pathologists and 500 employees. Sonic noted that ProPath’s annual revenue was about $110 million.
It should be noted that graduating pathology residents and fellows are tech-savvy and want to work in practices that have all the latest technologies in histology, scanning, and digital pathology. This observation plays into the consolidation of the market.
Speakers at this week’s Executive War College in San Antonio explained that the way records are collected and stored plays a large part in the long-term usefulness of clinical laboratory data
Data structure as a term may not flow off the lips of clinical laboratory and pathology laboratory managers, but it should be top-of-mind. Well-structured data improves reimbursements and, in aggregated form, can be an enticing avenue to partnerships with outside parties.
Data structure refers to the makeup of digital records—in other words, how data is collected, stored, and accessed. Structured information offers consistency and is easier to analyze and share.
“You have to make sense of all that messy data, and that’s a heavy lift,” she said. “Results are not standardized.”
Appeals Payments Increase with More Clinical Data
Data quality can improve claim reimbursement appeals, Goede noted. When a more complete clinical record is provided to payors, they are more likely to reimburse for services.
According to information Goede covered along with Julie Ramage, Director of Precision Medicine Quality Initiatives and Partnerships at biopharmaceutical company AstraZeneca, when appealing a denied claim for a colon cancer molecular test, for example, the average appeal payment was $318 without cross-specialist clinical records.
Meanwhile, payment for a similar claim appeal which included that added data jumped to $612!
This information is often available, but may not be structured in a way that makes it easy to share with a payer. “You really have to be thinking about what elements you need,” Goede said.
Market for Structured, Anonymized Lab Data
Clinical laboratories that want to provide or sell anonymized, aggregated data to outside parties—such as research firms or pharmaceutical companies—also need to pursue efficient data structure. The re-use of existing, high-quality lab data can create a new business revenue stream.
“But it has to be more than that vanilla, male/female, date-of-birth stuff,” Ramage noted.
For example, she said, genetic testing builds up data registries, and that’s what pharma is looking for to find patients early on.
“If you don’t have a way to structure your data, you’re not going to be able to play in the sandbox,” she added.
How Clinical Laboratories Can Improve Clinical Data Structure
Here are some tips for clinical laboratory executives to consider as they tackle data structure:
Standardize how to enter patient information and test results. A common problem with data input is that the same information is entered differently over time. For example, various patient records might refer to dates in different ways: November 1, 2021, can also be entered as 11/1/21, 11/1/2021, or 11-01-21. Structured data uses a single way to list dates in records. This lesson applies to all similar clinical data.
Use dropdown menu choices instead of free-typing, open fields. An online box to enter a test result can create a variety of entries that affect data structure. While not perfect, drop-down options create a consistent set of entries, Goede said.
Ask patient advocacy groups about common nomenclature. Clinical laboratory data should reflect how patients speak, Ramage said. For example, do patients refer to genomic and genetic testing as the same thing? Establishing more consistency improves data structure as records are updated.
Enlist your organization’s IT or research team for help. Tech workers and principal investigators can easily look at clinical laboratory data and tell what information is missing or inconsistent, said Cheryl Schleicher, Director of IT Strategy at Northwell Health Labs in Lake Success, NY. Schleicher attended this week’s Executive War College.
Look Further into Clinical Laboratory Data Structure
Data structure can help clinical laboratories and pathology laboratories grab more reimbursement dollars and potentially sell anonymized data to external partners.
It is an area many lab executives are not familiar with and need to investigate more, particularly following the accelerated move to digital lab services during the COVID-19 pandemic. Your organization’s IT department or Chief Information Officer can be a useful ally.
If you could not make it to this week’s Executive War College, then join us for our next Executive War College on April 27-28, 2022, in New Orleans. Click here to take advantage of special early-bird pricing for this critical event.
When people receive COVID-19 testing at an out-of-network facility, federal law requires insurers to pay that clinical laboratory’s posted ‘cash price’ when negotiated prices have not previously been established
In the latest example that some COVID-19 testing companies are charging significantly higher prices than others, The New York Times (NYT) recently reported that one COVID lab company with “more than a dozen testing sites” throughout the US was charging $380 for a COVID-19 rapid test that can be purchased at many drug stores for $20. Sadly, this practice, the NYT also noted, is protected by federal law.
Media reporters and the lay public are not fully aware of the long-established clinical laboratory test payment modalities that govern the daily performance of tests ordered as part of regular healthcare. Thus, when the COVID-19 pandemic hit—along with tens of billions of federal dollars to pay for SARS-CoV-2 tests—it triggered a gold rush of people wanting to get into the clinical laboratory testing business specifically to make money.
It is the bad actors in this group who are tainting the entire clinical laboratory industry with often outrageous business practices that, at best, cross ethical lines—such as overpricing tests to consumers—and at worst, represent fraudulent behavior, such as inducing medically-unnecessary tests, then submitting claims for these tests.
Even as the pandemic appears to be waning, news outlets are reporting instances of insurers being charged higher “cash prices” for tests performed by out-of-network testing laboratories. Worse yet, federal law requires insurers to pay these exorbitant prices and they are not happy about it.
In-Network versus Out-of-Network Pricing
In its report, the NYT noted that the CARES Act (H.R. 748) requires insurers to pay whatever “cash prices” out-of-network labs post online, and that this is leading to “expensive coronavirus tests” that could ultimately be reflected in future “higher insurance premiums” charged to healthcare consumers.
One company the NYT highlighted in its report is GS Labs in Omaha, Neb., a provider of COVID-19 testing throughout the US. The testing company’s COVID-19 Pricing Transparency webpage lists these prices for the following COVID-19 tests:
“Insurers are obligated to pay cash price, unless we come to a negotiated rate,” Christopher Erickson, a GS Labs Partner, told the NYT.
Negotiate or ‘Pay the Provider’s Cash Price’
In Missouri, Blue Cross and Blue Shield of Kansas City (Blue KC) has filed a lawsuit against GS Labs. “This action seeks a judgment declaring Blue KC and our members are not required to pay GS Labs’ unreasonable, inflated reimbursement demands,” according to a Blue KC news release.
However, section 3202 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act “specifies the process for private health insurance plan issuers to reimburse providers of COVID-19 diagnostic tests. Specifically, a reimbursement rate negotiated for such test prior to the public health emergency declared on January 31, 2020, continues to apply for the duration of the emergency. If a reimbursement rate was not negotiated prior to the emergency declaration, an issuer may either negotiate such rate or pay the provider’s cash price.”
In its own news release, GS Labs said it has “countersued Blue KC over the insurance company’s failure to pay $9.7 million for COVID tests covered by federal law.”
According to a legal expert who spoke with the NYT, GS Labs has grounds for its test charges due to the CARES Act. “Whatever price the lab puts on their public facing website, that is what has to be paid. I don’t read a whole lot of wiggle room in it,” said Sabrina Corlette, JD, Research Professor and Co-Director of the Center on Health Insurance Reforms at Georgetown University.
The patient, Travis Warner, reportedly has insurance from Molina Healthcare through the federal Health Insurance Marketplace. After an employee at his company tested positive for COVID-19, Warner drove 30 miles outside of Dallas in search of COVID-19 testing sites. He eventually visiting an out-of-network free-standing emergency room in Lewisville where he received PCR diagnostic and rapid antigen tests. The results of the tests were negative for COVID-19. But the bill was a shock.
The total bill came to $56,384. Molina Healthcare paid its negotiated rate of $16,915.20 for the testing and facility fee, leaving Warner responsible for the remaining $54,000!
In the end, Warner did not have to pay the bill. Molina resolved the charge with SignatureCare and, in a statement to KHN, wrote, “This matter was a provider billing error, which Molina identified and corrected.”
For its part, SignatureCare Emergency Centers, with freestanding centers throughout Texas, said it has a “robust audit process” to flag errors and processed “thousands of records a day” at the height of the pandemic, according to KHN, which reported the business showing a $175 price for a COVID-19 test on its website.
“If the insurance company is paying astronomical sums of money for your care, that means in turn that you are going to be paying higher (insurance) premiums,” Adler told KHN.
Insurance Group Finds Price Gouging
“Price gouging on COVID-19 tests by certain providers continues to be a widespread problem,” according to a statement by America’s Health Insurance Plans (AHIP), a national association representing insurers.
AHIP has studied COVID-19 test prices since April 2020. It released a survey earlier this year which found COVID-19 test prices were on average $130. However, AHIP also found that out-of-network providers charged “significantly higher” (more than $185) for more than half (54%) of COVID-19 tests (PCR, antigen, antibody) in March 2021—a 12% increase since 2020. More than 27% of COVID-19 tests in March 2021 were done out-of-network, a 6% increase since 2020.
However, in, “COVID-19 Lab Test Prices Give Some Health Plans ‘Indigestion’,” Dark Daily’s sister publication, The Dark Report, wrote, “Interestingly, [AHIP] researchers reported that the share of COVID-19 tests claims submitted from ‘high-cost locations’—identified as hospitals and emergency departments—declined from 18% in the first three months of the pandemic to only 5% during the first three months of 2021.”
Niall Brennan, President and CEO of the Health Care Cost Institute (HCCI), told KHN, “People are going to charge what they think they can get away with. Even a perfectly well-intentioned provision like [the CARES Act] can be hijacked by certain unscrupulous providers for nefarious purposes.”
Of course, most medical laboratories priced their tests fairly and have performed them in an efficient and professional manner during the pandemic. So, it is unfortunate to learn through AHIP’s survey findings and the media that some COVID-19 testing providers are posting prices that may confuse patients and affect their health insurance premiums.
For example, radical prostatectomy is the removal of the entire prostate gland and surrounding tissues. It is one of the primary treatments for malignant cancer. Failure to remove all the cancer tissue during the procedure typically leads to poor clinical outcomes, including tumor reoccurrence and subsequent increased risk of metastasis and death.
Currently, intraoperative frozen-section analysis of the prostate is the most common intraoperative method for real-time analysis of surgical margins. But research into CLI may provide surgeons with an additional strategy for reducing positive surgical margins.
“Our objective was to assess the feasibility and accuracy of Cerenkov luminescence imaging (CLI) for assessment of surgical margins intraoperatively during radical prostatectomy,” they wrote.
According to the Essen researchers, the “single-center” study “included 10 patients with high-risk primary prostate cancer. 68Ga-PSMA PET scans were performed followed by radical prostatectomy and intraoperative CLI of the excised prostate. CLI images were analyzed postoperatively to determine regions of interest based on signal intensity, and tumor-to-background ratios were calculated. CLI tumor margin assessment was performed by analyzing elevated signals at the surface of the intact prostate images.
“To determine accuracy, tumor margin status as detected by CLI was compared to postoperative histopathology. Tumor cells were successfully detected on the incised prostate CLI images and confirmed by histopathology. Three patients had positive surgical margins, and in two of the patients, elevated signal levels enabled correct identification on CLI. Overall, 25 out of 35 CLI regions of interest proved to visualize tumor signaling according to standard histopathology,” the Essen researchers concluded.
The research showed that CLI can accurately assess surgical margins during radical prostatectomy. This first in vivo research of the technique was conducted over a 17-month period between 2018 and 2019.
The researchers found that two of three patients who had positive surgical margins were correctly identified using CLI images. Overall, 25 of 35 CLI regions of interest successfully visualized tumor signaling, which is a result in line with standard histopathology. The one positive surgical margin CLI missed had group 3 prostate cancer at the surgical margin.
Essen Study Finds CLI Results in ‘Higher than Expected’ False Positives
The Essen University Hospital’s CLI feasibility study also revealed the technique resulted in a higher-than-expected number of false positives, with 10 of 35 regions of interest showing “elevated signal levels without histopathologic evidence of PC tissue at the resection margin.” Most of the false positives occurred at the prostate base.
The Essen study authors speculated that the presence of radioactive tracer in the urinary bladder and other factors may explain the false positive rate. They suggested that, “Further optimization of the CLI protocol, or the use of lower-energy imaging tracers such as 18F-PSMA, is required to reduce false-positives.”
The researchers called for a larger study to assess CLI’s diagnostic performance.
Boris A. Hadaschik, PhD, Director of the Clinic for Urology at Essen University Hospital, added, “Radical prostatectomy could achieve significantly higher accuracy and oncological safety, especially in patients with high-risk prostate cancer, through the intraoperative use of radioligands that specifically detect prostate cancer cells. In the future, a targeted resection of lymph node metastases could also be performed in this way. This new imaging combines urologists and nuclear medicine specialists in the local treatment of patients with prostate cancer.”
Because of the high reoccurrence rate of prostate cancer in men, surgical pathologists will find this potential new strategy for reducing positive surgical margins a welcomed advancement, but additional investigation will be needed to ensure its promise can be realized.