Clinical laboratory test claims make up a substantial proportion of all claims filed each year. Thus, any effort to streamline or reform claims adjudication and administration in the US will alter how labs and pathologists conduct business
Clinical laboratory managers and anatomic pathologists know how costly and complex the US healthcare system can be. However, expenses associated with care and treatment are only part of the total picture. Resources devoted to paperwork and administrative costs apparently increase overall expenditures associated with healthcare to a much higher degree than is generally known.
That’s according to several studies The New York Times reported on in July.
US Administrative Costs Higher than All Other Nations
One study conducted by The New England Journal of Medicine (NEJM) in 2003 estimated administrative costs account for approximately 30% of all healthcare expenditures in the US. The researchers examined data from 1999 to reach those conclusions. In today’s economy, those numbers are higher. On average, $5,700 of every $19,000 that US workers and their employers pay for family coverage each year goes towards administrative costs.
A 2014 study published by Health Affairs compared administrative costs for US hospital expenditures to those of seven other countries: Canada, England, France, Germany, the Netherlands, Scotland, and Wales. This study evaluated data from 2010/2011 and found that hospital administrative costs in the US far exceed rates in other nations. According to the study, administrative costs accounted for:
25.3% of total hospital expenditures in the US;
19.8% in the Netherlands;
15.5% in England; and,
12% in Canada and Scotland.
According to the Health Affairs study, more than $150 billion could have been saved in 2011 by reducing per capita spending for administrative costs to the levels observed in Canada and Scotland.
“The extraordinary costs we see are not because of administrative slack or because healthcare leaders don’t try to economize,” Kevin Schulman, MD, Professor, Department of Medicine, Duke University, and co-author of the Health Affairs study told The New York Times. “The high administrative costs are functions of the system’s complexity.” (Photo copyright: Duke University.)
Complexity of Payer System Partly to Blame
One reason for the costliness in the US healthcare system is the myriad of payers that healthcare organizations have to grapple with to receive payment. Private health insurers and public health programs like Medicare and Medicaid, each have their own procedures, regulations, and forms that need to be submitted to receive payments. This translates to more employee time devoted to billing.
Another factor driving costs is the staff time devoted to the collection of debts. A 2017 Health Affairs study examined medical claims data from 88,000 healthcare providers contracted with Athenahealth to determine the percentage of bills paid within one year from the initial service.
The study found that 93.8% of patient bills under $35 were paid within a year. However, that percentage decreased as the patient obligation increased:
90.5% of patients paid bills between $35 and $75 within one year;
83.7% paid bills between $75 and $200 in the same time period; however,
When bills increase to $200 or more, just 66.7% were paid within a year’s time.
Providers wrote off approximately 16% as abandoned or bad debts, with an additional 17% going to collection agencies.
Another study, published in Health Affairs in 2009, surveyed 895 physicians about the time they spent dealing with administrative tasks. On average, physicians reported spending 43 minutes per workday interacting with health plans. This number is the equivalent of three hours/week and almost three weeks/year. Those numbers have reportedly increased since then.
EHRs Do Not Reduce Administrative Costs, Contrary to Belief
Efforts have been made to reduce administrative costs in the US healthcare industry. One such measure involved increased use of certified electronic health record (EHR) systems, which the federal government spent billions of dollars promoting and incentivizing providers to adopt on the claim that EHRs would reduce healthcare costs, in part by removing most of the paperwork.
However, a 2018 study published in the Journal of the American Medical Association (JAMA) reported the adoption of EHRs did not reduce administration costs. Researchers at Duke University and Harvard Business School utilized a cutting-edge accounting method to determine the administrative costs within a large academic healthcare system that was using a certified EHR.
Their study determined the administrative costs for processing a single medical bill ranged from $20 for a doctor visit to $215 for an inpatient surgical procedure. These costs accounted for 3%-25% of total professional revenue for the provided services.
“We need to understand better how complexity is driving these enormous costs within the system, costs that do not add value to patients, employers, or providers,” noted Barak Richman, JD, PhD, Duke University School of Law and Margolis Center for Health Policy, one of the study’s authors.
Clinical Lab Test Claims a Major Portion of Administrative Costs
Nevertheless, administrative costs are a necessary part of doing business and not always as negative as perceived. An article published by Health Affairs in 1992 divided administrative costs in the healthcare industry into four categories:
Transaction-related: claims processing, billing, admissions, and tracking employee hiring/terminations;
Benefits Management: quality assurance, plan design, statistical and internal analyses, and management information systems;
Selling and Marketing: strategic planning, underwriting, and advertising; and,
Regulatory and Compliance: waste management, licensing requirements, and discharge planning.
“We hope that this work is the first step toward informing policy solutions that could reduce these non-value-added costs largely hidden within the healthcare system,” Schulman stated in a Duke University news release.
The issue of costly paperwork and administrative expenditures is significant for the clinical laboratory profession as lab test claims make up a substantial portion of all medical claims filed annually. Efforts to streamline or reform claims adjudication and administration will have an impact on the way clinical labs and anatomic pathology groups conduct business in the future.
Healthcare revenue cycle consultant Jonathan Wiik suggests healthcare providers must prepare their organizations for patients who need help paying increasing medical costs
A recent analysis of this issue by TransUnion Healthcare (NYSE:TRU) states, “patients experienced an 11% increase in average out-of-pocket costs during 2017, rising from $1,630 in Q4 2016 to $1,813 in Q4 2017.” It is a development that should send up red flags to clinical laboratory managers seeking ways to maintain and increase revenues.
“Given the increased payment responsibility, being able to determine a patient’s ability to pay is increasingly important for hospitals,” noted Jonathan Wiik, Principal, Healthcare Strategy at TransUnion Healthcare (TRU). “In order to allow patients to focus on getting the care they need healthcare providers need processes and tools in place to help patients meet their financial obligations and to establish funding mechanisms that will benefit both the patient and provider.” Obviously, this also applies to clinical laboratories.
According to a news release, “The [TRU] analysis also revealed that in 2017, on average, 49% of patient out-of-pocket costs per healthcare visit were below $500; 39% were $501-$1,000; and 12% were more than $1,000.”
For providers, patients’ swelling unpaid balances mean more uncompensated care, the analysis also showed. And that means more unpaid balances for clinical laboratories as well.
“Increasing healthcare costs and patient responsibility is a continuing trend that does not seem to be slowing anytime in the near future,” noted Jonathan Wiik (above) Principal, Healthcare Strategy, at TransUnion Healthcare and author of the new book “Healthcare Revolution: The Patient Is the New Payer,” during a HIMSS 2018 presentation. (Photo copyright: Colorado Managed Care Collaborative.)
Patients Struggle to Pay Amounts Under $500
Each year, more healthcare consumers are forced onto high-deductible health plans (HDHPs) that make them responsible for thousands and even tens of thousands of dollars in upfront costs.
And according to another TRU news release, patients with commercial insurance plans experienced a 67% increase in their financial responsibility over five years. In other words, after insurance plans paid providers, patients still needed to pony up 12.2% of the total bill in 2017, as compared to 8% in 2012.
During the most recent year studied by TransUnion Healthcare, patients’ out-of-pocket costs increased 11%, rising to $1,813 in 2017 from $1,630 in 2016, a news release revealed.
And it doesn’t take a huge bill for patients to feel the pain. TransUnion’s data reveals that 68% of patients with medical bills below $500 did not fully pay what they owed, RevCycle Intelligence reported. This has major implications for clinical laboratories and anatomic pathology groups because many lab charges fall under $500 and TransUnion shows that almost 70% of patients do not pay the full amount of these bills.
According to TRU, medical specialties with the highest out-of-pocket estimated amounts due from patients include:
And, as Dark Daily previously reported, affluent and self-employed people also feel the pinch, as deductibles can be as high as $5,000/year for individuals and more than $10,000/year for a families, whether plans are purchased through the Affordable Care Act (ACA) or employers.
When patients cannot afford to pay their bills, hospitals’ bad debt and charity-care levels rise. Together, bad debt and charity care comprise a provider’s uncompensated care.
“A lot of patients can’t afford these bills, which is why uncompensated care has bounced,” Wiik told Modern Healthcare.
Indeed, uncompensated care was $38.3 billion in 2016, up $2.6 billion since 2015, according to an American Hospital Association (AHA) 2017 fact sheet.
Meanwhile, the Centers for Medicare and Medicaid Services (CMS) reported that Medicare bad debt (the effect of Medicare patients not paying deductibles and co-pays) increased to $3.69 billion in 2016 from $3.14 billion in 2012, a 17% bump, TransUnion Healthcare pointed out.
Consumers Say They Want Prices, Financing Plans
Consumers say healthcare providers are not transparent about costs for procedures, nor do they effectively offer financing options. That’s according to a HealthFirst Financial news release, which states, “More than three-quarters, or 77%, of healthcare consumers say it’s important or very important they know their costs before treatment and 53% want to discuss financing options before care. However, the vast majority of healthcare providers are not satisfying these consumer demands.”
“53% voice concern about the ability to pay a medical bill of less than $1,000;
“35% worried about the ability to pay a bill of less than $500; and,
“16% are concerned about the ability to pay a bill of less than $250.”
These numbers fall well into the amounts clinical laboratories charge for services rendered.
What Can Medical Laboratories Do?
To help their customers pay their bills and improve revenue, Dark Daily suggest labs:
Use software that enables ordering clinicians to process advanced beneficiary notices and prior authorizations for services;
Inform the customer prior to specimen collection about their financial responsibility for the test;
Ask for payment-due at time of the patient encounter;
Share key lab test price data in easily accessible and understandable ways;
Keep credit card information securely on-hand for agreed-to balances patients are responsible for paying; and,
Offer payment options, such as e-billing and financing plans.
As we’ve pointed out many times, because clinical laboratories are dependent on the physicians and hospitals they service, they are particularly vulnerable when patients stop paying their bills.
As consumers increasingly choose physicians and service providers based on other people’s feedback on review websites, Internet-based customer service programs are becoming critical business tools for clinical laboratories and pathology groups
Clinical laboratory managers are becoming increasingly aware that negative reviews on anonymous online review sites, such as Yelp and others, can negatively impact revenues.
Official sources and surveys, such as Medicare’s Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS), already provide information and ratings on healthcare service providers. However, recent coverage in Healthcare Dive highlights how consumers are finding the narrative reviews on websites such as Yelp more accessible and relatable. And, that these reviews focus on the criteria consumers find most important.
“We’re moving to a health system where patient ratings are becoming more important, [one] where top-down ratings are really inaccessible to patients and probably not that useful,” Yevgeniy Feyman, PhD, told Healthcare Dive. Feyman, along with Paul Howard, PhD, co-authored the Manhattan Institute report, “Yelp for Health.”
In the report, they examined the correlation between Yelp reviews of New York hospitals and objective measures of hospital quality. “We find that higher Yelp ratings are correlated with better-quality hospitals and that they provide a useful, clear, and reliable tool for comparing the quality of different facilities as measured by potentially preventable readmission rates (PPR), a widely accepted metric,” they stated.
This is a significant finding for clinical laboratory administrators and pathologists. It demonstrates that how patients review their provider experiences does align with objective measures of provider quality that may be public, but are not as easy for consumers to find as websites like Yelp, Healthgrades, and others.
Online Reviews: A Metric for Determining Healthcare Value and Quality?
Andrea Ducas, Senior Program Manager with the Robert Wood Johnson Foundation (RWJF), told Healthcare Dive the primary considerations patients use to pick providers include:
“Treats patients with respect;
“Accepts insurance;
“Shares in decision-making;
“Responsiveness to phone calls; and,
“Professional skill.”
Research into how patients find/choose their physicians conducted by OnePoll and commissioned by Binary Fountain determined that, of more than 1,000 adults surveyed:
“95% of respondents regard online ratings and reviews as ‘somewhat’ to ‘very’ reliable;
“75% of Americans say online ratings and review sites have influenced their decision when choosing a physician; and,
“30% of consumers share their own healthcare experiences via social media and online ratings and review sites.”
Common research sources listed by respondents included:
“Given that the majority of quality measures out there … aren’t really that accessible for patients, this is a very good proxy,” Feyman told U.S. News in a report on physicians’ concerns about the use and popularity of review sites.
“[T]he emphasis placed on a small number of patient opinions—far fewer patients leave reviews than are treated in a typical health system—makes it harder for doctors to do their job for fear of a career-harming bad review. And a few negative posts from disgruntled patients could unfairly skew public perception—and eventually, a provider’s bottom line,” U.S. News noted.
Despite this, Luther Lowe, Yelp’s Senior Vice President of Public Policy and Government Affairs, assured Healthcare Dive they have processes to “filter spam and quell suspicious activity daily.”
Online reviews recently played an important role in the Wall Street Journal (WSJ) exposé on Theranos, which Dark Daily covered in 2016. Investigative reporter John Carreyrou (above) used Yelp to locate patients who reported negative experiences with specific healthcare services and practices. He described how he used the platform during a presentation to the Association of Health Care Journalists (AHCJ) in April 2018. Click on this link to watch a video of Carreyrou’s presentation. (Photo copyright: Association of Healthcare Journalists.)
Negative Reviews: A Critical Concern for Medical Laboratories
Consumers continue to use Internet platforms to both share ratings and compare information on healthcare professionals and the clinical laboratories supporting them. Thus, to prevent damage from negative reviews, labs must actively monitor feedback, pursue inaccurate information posted online, and encourage consumers to provide positive feedback and opinions.
According to data from Alexa, Yelp is the 32nd most visited website in the United States. Yelp’s own data reports that more than 150-million reviews have been added to the site since its inception 13 years ago.
And, Yelp categorizes 7% of the reviewed businesses as “health-related.”
Between easy-to-access information distributed online and an increased push for transparency, clinical laboratories and other healthcare service providers must work to take charge of the narrative created about their businesses and encourage positive feedback on these developing platforms.
Failing to do so could cost laboratories the physicians’ practices they service.
“There are some providers who are trying to get ahead of the curve and post reviews directly on their website,” Ducas told Healthcare Dive. “Another thing they can do is encourage their patients to read some reviews online and invite them to leave feedback. That’s a radical invitation but it’s certainly something they can do.”
As healthcare customers increasingly turn to review sites for feedback about healthcare facilities and the service providers supporting them, clinical laboratories and anatomic pathology groups must focus on their Internet presence and respond quickly to any negative review feedback with great customer service.
Operational efficiencies, strong management teams, and successful outreach business are key clinical laboratory success in today’s era of mergers and acquisitions
Fierce economic headwinds are taking aim at the entire pathology industry, as shrinking Medicare reimbursement rates, shifting federal regulations and compliance requirements, and changing care models squeeze profit margins and threaten valuations of most clinical laboratories and anatomic pathology groups.
The reimbursement rate changes mandated by the Protecting Access to Medicare Act of 2014 (PAMA), which took place January 1, 2018, loom as the most immediate danger to the long-term financial health and viability of medical diagnostic laboratories.
“Medicare reimbursement rates to labs providing essential testing services are estimated to drop by $670 million this year, and additional reductions scheduled for 2019 and 2020 will cut payments by nearly 30% for many tests critical to caring for Medicare beneficiaries,” noted Julie Khani, President of the American Clinical Laboratory Association (ACLA), in “Patient Care Is Put to the Test as Clinical Laboratory Services Are Hit With a One-Two Punch in Rate Cuts,” an article she penned for the ACLA website.
“For some labs, such as rural hospitals and labs serving patients in skilled nursing facilities—which already have significantly higher operating costs—this could be a death knell that would precede a devastating loss of patient access to necessary testing services,” she concluded.
Assessing Financial Solvency to Survive Impending Mergers and Acquisitions
The ACLA has filed a lawsuit against the U.S. Department of Health and Human Services (HHS) for what it called a “flawed and misguided” implementation of the law. For now, however, the roll out of reimbursement rates cuts will continue, an ACLA blog post reports.
As a result, post-PAMA pressures combined with other factors are forcing clinical laboratory leaders to consider their strategic options, including:
Reorganizing;
Restructuring;
Merging/consolidating with another laboratory; and,
Selling.
As GenomeWeb pointed out prior to PAMA’s implementation, “All clinical labs in the U.S.—from the largest reference labs to in-hospital labs to physician-practice labs—will be touched by the changes to varying degrees.” The future, GenomeWeb predicts, “may be a market with fewer independently operated small and regional labs, as well as fewer outreach labs owned by hospitals. Instead, such operations could become part of [Quest Diagnostics’] and LabCorp’s networks.”
This changing landscape means laboratories need to be assessing their financial solvency and maximizing their valuation even if they are not currently candidates for either side of the merger and acquisition equation. Failing to anticipate and respond to unfolding changes could leave laboratory executives courting a financial reckoning.
One speaker is Vicki DiFrancesco, Chief Strategy Officer, XIFIN, San Diego. DiFrancesco has an insider’s understanding of mergers and acquisitions and 25 years of executive leadership experience. Prior to joining XIFIN, DiFrancesco served as President and CEO of Pathology Inc., the West Coast’s premier women’s health laboratory, which was acquired by LabCorp in March 2016.
The other speaker is David Nichols, Founder and President at Nichols Management Group (NMG) in York Harbor, Maine. NMG provides laboratory consulting services for healthcare organizations. Since its founding in 1988, NMG has provided expertise in improving overall effectiveness and in implementing such strategies as sales force development, market planning, compliance/financial auditing, and in selected cases, hands-on management responsibilities by working onsite with senior personnel in each area of need.
During their 90-minute presentation, you will learn:
Market factors creating financial challenges for your laboratory;
How revenue compression and compliance issues are driving merger and acquisition activity;
Steps to optimizing your lab’s reimbursements, a key to improving financial performance;
Revenue cycle management’s importance as a valuation driver;
Strategies to significantly improve your market position;
Components of an effective compliance program and why compliance is so important to laboratory valuation;
Value drivers that attract buyers, such as profitable growth, a strong compliance program, competent management teams, EBITDA, cash flow and gross margins; and,
Specific challenges that should be addressed in any merger or consolidation plan.
David Nichols (left), Founder and President at Nichols Management Group (NMG); and Vicki DiFrancesco, Chief Strategy Officer, XIFIN, will share vital insights and share critical strategies that clinical laboratories can immediately use to drive valuations and prepare for current and future financial challenges. (Photo copyright: Dark Daily.)
To register for this critical webinar, use this link (or copy and paste this URL into your browser: https://www.darkdaily.com/product/the-pathway-to-driving-valuation-for-your-laboratory-your-roadmap-to-achieving-success-and-how-to-sustain-growth-despite-a-changing-lab-environment/.)
Despite the financial pressure on many existing laboratories, the medical laboratory industry continues to play a vital role in the healthcare system, with clinical laboratory tests guiding more than 70% of all medical decisions made by healthcare providers, according an ACLA fact sheet.
The industry also contributes more than $100 billion in annual economic impact and produces more than 622,400 jobs. While the role of diagnostic laboratories will continue to grow in an era of personalized medicine, only laboratories that optimize their strategic position in response to the changes taking place may be left standing when the predicted industry consolidation is complete.
Clinical laboratories will want to develop value-based lab testing services as the nation’s largest health insurers prepare to engage with Medicare Advantage patients in record numbers
UnitedHealth Group (UNH), the nation’s largest health insurer, forecasts wildly impressive growth of Medicare Advantage plans and value-based care. If this happens, it would further shrink the proportion of fee-for-service payments to providers, including medical laboratories.
Switching to a value-based care reimbursement system, administered through Medicare Quality Payment Programs (QPPs), is one of the more disruptive changes to hit physicians, including pathologists. And, given UnitedHealthcare’s predictions, healthcare system adoption of QPPs will likely accelerate and continue to impact clinical laboratory revenue.
“Within 10 years, we expect half of all Americans will be receiving their healthcare from physicians operating in highly evolved and coordinated value-based care designs,” stated David Wichmann, CEO, UnitedHealth Group (NYSE:UNH), during the company’s second-quarter earnings call in April. (Photo copyright: Minneapolis/St. Paul Business Journal.)
50% of All Americans in Value-based Care Systems by 2028
UnitedHealth Group also envisions more than 50% of seniors enrolled in Medicare Advantage plans within five to 10 years, up by 33% over current enrollments, Healthcare Finance reported.
“Where it can go, hard to tell, but I don’t think it’s unreasonable to think about something north of 40% and approaching 50%. It doesn’t seem like an unreasonable idea,” said Steve Nelson, CEO, UnitedHealthcare, a division of UnitedHealth Group, during the earnings call.
In light of UNH’s widely-publicized comments, clinical labs should consider:
Preparing strategies to reduce dependence on fee-for-service payments;
Developing diagnostic services that add value in value-based reimbursement arrangements.
For labs, more seniors in Medicare Advantage plans means fewer patients with Medicare Part B benefits, which cover tests in a fee-for-service style. In contrast, Medicare Advantage plans are marketed to seniors by companies that contract with Medicare. These insurance companies typically restrict their provider network to favor clinical laboratories that offer them the best value.
Why Insurers Like Medicare Advantage Plans
UnitedHealth Group is not the only insurer anticipating big changes in the Medicare Advantage market. Humana (NYSE:HUM) of Louisville, Ky., is reallocating some services from Affordable Care Act health insurance exchange plans to the Medicare Advantage side of the business, Healthcare Dive reported.
According to a Kaiser Family Foundation (KFF) report, these insurers are ranked by number of enrollees in Medicare Advantage plans:
UnitedHealthcare—24%;
Humana—17%;
Blue Cross Blue Shield affiliates—13%.
Healthcare Dive noted that, in a volatile healthcare industry, payers seem to prefer the stability and following benefits of Medicare Advantage plans:
Market potential, as evidenced by growing elderly population;
Good retention rate of Medicare Advantage customers; and
Favorable payments by the Centers for Medicare and Medicaid Services (CMS) to the insurers.
Cleveland Clinic Makes Deals with Humana, Blue Cross Blue Shield
Last year, Cleveland Clinic and Humana announced creation of two Medicare Advantage health plans with no monthly premiums or charges for patients to see primary care doctors, and no need for referrals to in-network specialists, according to a joint Humana-Cleveland Clinic news release.
And, along with Anthem Blue Cross and Blue Shield in Ohio, Cleveland Clinic also launched Anthem MediBlue Prime Select, a Medicare Advantage HMO plan with no monthly premium, a news release announced. For most of their care needs, members access Cleveland Clinic hospitals and physicians.
Control Costsas Medicare Advantage Plans Grows
These examples highlight the necessity for clinical laboratories to prepare as the Medicare Advantage program expands and accompanying networks narrow.
“Medicare Advantage plans will result in more pressure on providers [such as clinical laboratories] and hospitals to focus on the cost of care,” said Michael Abrams, Managing Partner at Numerof and Associates, told Healthcare Dive.
With an exploding elderly population, medical laboratories should analyze what the shift to value-based care and Medicare Advantage plans may mean for their revenues.
