News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

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News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

Hosted by Robert Michel
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More Big Companies Engage Health Networks Directly to Cover Their Employees’ Healthcare: Should Medical Laboratories Be Talking to Self-Insuring Employers?

By negotiating directly with healthcare systems employers garner cost savings, while creating opportunities for clinical laboratories willing to be flexible about claims and reimbursement

It’s a healthcare trend called “direct contracting” and it is the latest method that self-insuring employers are using to better manage the cost of their health benefits plan, while maintaining access and quality for their employees. The interesting thing about direct contracting is that it might be a strategy that could work for innovative regional clinical laboratories to negotiate a place for themselves in that employer’s provider network.

Healthcare costs continue to skyrocket in the United States, and in response, many large companies are providing healthcare services to their employees by working directly with health networks and other organizations, instead of using third-party administrators (TPAs) of insurance plans to create healthcare benefits packages for their employees.

This can provide clinical laboratories and anatomic pathology groups with opportunities to create revenue and further outreach into their communities. Astute lab leaders may want to consider meeting with the decision-makers at large companies in their areas and develop strategies for working together directly. Human resources managers may be interested in the benefits of working directly with medical laboratories.

Employers Already Engaged with Health Networks for Provider Services

Self-insuring is not a new concept. In a direct contracting relationship, the employer skips the TPA in hopes of achieving cost savings. Sometimes the direct contract is for specific services that employees need most often, or they can be designed to cover the entire spectrum of services available to employees.

Many companies have already engaged in direct contracting for healthcare services. Among them are: Cisco Systems, Boeing, Intel, Walmart, and Whole Foods. Amazon, JP Morgan Chase, and Berkshire Hathaway also have announced a joint agreement to self-insure their employees, which Dark Daily reported in June. (See, “Six New Jersey Hospitals and Several Major Corporations to Self-Insure Their Million+ Employees; Trend Could Impact How Local Clinical Laboratories Get Paid,” June 11, 2018.)

Cisco has negotiated a direct healthcare agreement with Stanford Health System. Stanford operates a clinic at the Cisco campus, so that the primary care doctor is a member of the community within the company.

“I’m in their space. I’m actually where they work. I’m a bit of a village doc,” Larry Kwan, MD (above), a doctor of internal medicine with Stanford Health Care, told Reuters about his role in the Stanford clinic at the Cisco campus. About 1,000 Cisco employees are enrolled in the Stanford plan. Katelyn Johnson, Integrated Health Manager at Cisco Systems, says it’s a program that requires a more active approach from companies than traditional health benefits plans. (Photo copyrights: Stanford Health Care.)

Boeing, too, has explored direct contracting in a program where the company negotiated directly with hospitals in four different states. The direct contracts have resulted in cost savings and cover some 15,000 employees plus their families. Some of those cost savings have come from things like getting doctors to prescribe generic drugs.

Intel also has a similar program, covering around 38,000 employees and their families. They have found success in managing chronic conditions like diabetes. Technology, such as video-conferencing, also has helped lower costs and improve retention.

Even health networks are getting into the game. One recent example is the Healthcare Transformation Consortium (HTC), a six-hospital healthcare systems in New Jersey that formed to self-insure and provide direct healthcare coverage for their employees.

Companies may gain some cost savings from directly negotiating, but there are gains for the health systems as well. In a deal with Whole Foods in 2016, Adventist Health System gained a new set of skills that they plan to use in negotiating similar deals with other employers.

“We have a little bit more flexibility as a health system to design around what Whole Foods defines as quality, or what Whole Foods defines as patient satisfaction, which is sometimes different than the traditional definitions,” Arby Nahapetian, MD, regional chief medical officer and SVP at Adventist-Southern California told Modern Healthcare.

Signs Point to Trend Continuing

The Healthcare Transformation Consortium in New Jersey, along with the joint agreement between Amazon, JP Morgan Chase, and Berkshire Hathaway, are examples of what the future is likely to hold. The more these kinds of collaborations and direct contracts result in both cost savings and patient satisfaction, the more companies will likely consider direct healthcare contracts.

Hospital-based and independent laboratories may want to consider meeting with the larger employers in their service regions and explain to the HR benefits managers how better utilization of selected lab tests could improve patient outcomes and contribute to better managing costs.

After all, employers tell health insurance companies what they want to cover with their health benefits plans. So, educating the employers’ HR teams about the true value of clinical laboratory tests could be a winning strategy for labs willing to take the time to do this.

Dava Stewart

Related Information:

Fed Up with Rising Costs, Big US Firms Dig into Healthcare

Left Out of the Game: Health Systems Offer Direct-To-Employer Contracting to Eliminate Insurers

Six New Jersey Hospitals and Several Major Corporations to Self-Insure Their Million-plus Employees; Trend Could Impact How Local Clinical Laboratories Get Paid


Excessive $48,329 Charge for California Patient’s Outpatient Clinical Laboratory Testing Calls Attention to Chargemaster Rates and New CMS Price Transparency Rule

Studies show medical laboratories may be particularly hit by adjustments to hospital chargemasters as hospitals prepare to comply with Medicare’s New Transparency Rule

Recently, Kaiser Health News (KHN) published a story about a $48,329 bill for allergy testing that cast a spotlight on hospital chargemaster rates just as healthcare providers are preparing to publish their prices online to comply with a new Centers for Medicare and Medicaid Services (CMS) rule aimed at increasing pricing transparency in healthcare. The rule goes into effect January 1, 2019.

The patient—a Eureka, Calif., resident with a persistent rash—had received an invoice for more than $3000 from her in-network provider.

Though this type of allergy skin-patch testing is usually performed in an outpatient setting by a trained professional, such as an allergist or dermatologist, the patient elected to have the testing performed at Stanford Health Care (Stanford), a respected academic medical system with multiple hospitals, outpatient services, and physician practices.

The patient’s insurance plan, Anthem Blue Cross (Anthem), paid $11,376 of the $48,329 amount billed by Stanford Health Care, which was the rate negotiated between the insurer and Stanford, Becker’s Healthcare reported. The patient ultimately paid $1,561 out-of-pocket.

So, where did that $48,329 in total charges come from? Experts pointed to the provider’s chargemaster. A chargemaster (AKA, charge description master or CDM) lists a hospital’s prices for services, suppliers and procedures, and is used by providers to create a patient’s bill, according to California’s Office of Statewide Health Planning and Development (OSHPD).

Chargemasters note high prices beyond hospitals’ costs and may be considered jumping off points for hospitals to use in invoicing payers and patients, RevCycleIntelligence explained.

Hospital representatives will negotiate with insurance companies, asking them to pay a discounted rate off the chargemaster list. A patient with health insurance accesses care at that negotiated rate and perhaps has responsibility for a share of that amount as well.

However, an out-of-network patient, uninsured person, or cash customer who receives care will likely be billed the full chargemaster rate.

In a statement to KHN, Stanford explained that the California woman’s care was customized and, therefore, costly: “We conducted a comprehensive evaluation of the patient and her environmental exposures and meticulously selected appropriate allergens, which required obtaining and preparing putative allergens on an individual basis.”

Johns Hopkins researchers Ge Bai, PhD, CPA (left), and Gerard Anderson, PhD (right), authored a study published in Health Affairs that shows “Hospitals on average charged more than 20 times their own costs in 2013 in their CT scan and anesthesiology departments.” Hospitals with clinical laboratory outreach programs will want to consider how their patients may respond as new federal price transparency requirements make it easier for patients to see medical laboratory test prices in advance of service. (Photo copyright: Johns Hopkins University.)

Now is a Good Time for Clinical Laboratories to Make Chargemaster Changes

Some organizations, such as the Healthcare Financial Management Association (HFMA), are calling for chargemaster adjustments as part of a comprehensive plan to improve transparency and lower healthcare costs. This falls in line with the new CMS rule requiring hospitals to post prices online starting Jan.1, 2019.

In fact, hospital medical laboratories, which cannot distinguish their services from competitors, may be impacted by the new CMS rule perhaps more than other services, the HFMA analysis warned.

“The initial impact for healthcare organizations, if they have not already experienced it, will be on commoditized services such as [clinical] lab and imaging. Consumers do not differentiate between high and low quality on a commoditized service the same way a physician might, which means cost plays a larger role in consumers’ decision making.” That’s according to Nicholas Malenka, Senior Consultant, GE Healthcare Partners, and author of the HFMA report. He advises providers to do chargemaster adjustments that relate charges to costs of services, competitors’ charges, and national data.

Medical laboratory leaders also may want to take another look at the opportunities and risks for labs suggested in an earlier Dark Daily e-briefing on the Medicare requirement. (See, “Latest Push by CMS for Increased Price Transparency Highlights Opportunities and Risks for Clinical Laboratories, Pathology Groups,” August 8, 2018.)

Are Chargemaster Charges Truly Excessive? Johns Hopkins Researchers Say ‘Yes!’

Most hospitals with 50 beds or more have a charge-to-cost ratio of 4.32. In other words, $432 is charged when the actual cost of a service is $100, according a study conducted by Johns Hopkins University and published in Health Affairs.

The researchers also noted in a news release about their findings titled, “Hospitals Charge More than 20 Times Cost on Some Procedures to Maximize Revenue,” that:

  • Charge-to-cost ratios range from 1.8 for routine inpatient care to 28.5 for a CT scan; and,
  • Hospitals with $100 in CT costs may charge an uninsured patient or out-of-network patient $2,850 for the service.

“Hospitals apparently markup higher in the departments with more complex services because it is more difficult for patients to compare prices in these departments,” lead author Ge Bai, PhD, CPA, Associate Professor at Johns Hopkins Carey Business School, noted in the news release.

“(The bills for high charges) affect uninsured and out-of-network patients, auto insurers, and casualty and workers’ compensation insurers. The high charges have led to personal bankruptcy, avoidance of needed medical services, and much higher insurance premiums,” co-author Gerard Anderson, PhD, Professor of Health Policy and Management at Johns Hopkins Bloomberg School of Public Health, stated in the news release.

Legal Issues Possible for Hospitals, Medical Laboratories, Other Providers

Still another study published in the American Journal of Managed Care (AJMC) explored the legality of “surprising” uninsured and out-of-network patients with bills at the chargemaster rates. It found that contract law supports market-negotiated rates—not chargemaster rates that do not reflect actual costs or the market.

“Patients and payers should know that they are under no obligation to pay surprise bills containing chargemaster rates, and state attorneys generally can use the law to prevent providers from pursing chargemaster-related collection efforts against patients,” the researchers wrote.

Labs Need to Get Involved

Clinical laboratory leaders in hospitals and health systems are advised to reach out to hospital chargemaster coordinators to ensure the chargemaster, as it relates to the lab, is inclusive, accurate, and in sync with competitive market data. Independent medical laboratories may want to similarly check their chargemasters to see how their lab test prices compare to the prices charged by other labs serving the same community.

—Donna Marie Pocius

Related Information:

That’s a Lot of Scratch: The $48,329 Allergy Test

Allergy Tests

Six Things to Know About a Woman’s $48K Allergy Test

The Role of the Hospital Chargemaster in Revenue Cycle Management

Why Your Access Strategy Demands Pricing Transparency

CMS Proposes Changes to Empower Patients and Reduce Administrative Burden

US Hospitals Are Still Using Chargemaster Markups to Maximize Revenue

Hospitals Charge More than 20 Times Costs on Some Procedures to Maximize Revenue

Battling the Chargemaster: A Simple Remedy to Balance Billing for Unavoidable Out-of-Network Care

Latest Push by CMS for Increased Price Transparency Highlights Opportunities and Risks for Clinical Laboratories and Pathology Groups


Some Hospitals Launch Concierge Care Clinics to Raise Revenue, Generating both Controversy and Opportunity for Medical Laboratories

Critics are quick to note that this creates a disparity in how patients access healthcare services

Independent concierge care (AKA concierge medicine) is available to anyone willing to pay the additional costs, which are over and above any health insurance. In a concierge care medical practice, patients pay an annual retainer fee to gain increased access to doctors, specialists, and services, such as faster TATs on clinical laboratory testing.

Depending on the program, concierge care also can offer patients a range of “improved” healthcare benefits, including same-day appointments, extended appointment times, around-the-clock telehealth services, and the experience of receiving care from a physician with a smaller patient roster and in a more personalized manner.

Clinical laboratories and anatomic pathology groups might also find benefit from the concierge care model. Though some concierge providers bill insurance, most work on a cash basis with payment due upfront for services. This ensures prompt payment for any medical laboratory testing provided, reduces administrative overhead, and eliminates the need to deal with payers.

Concierge Medicine Is Not Just for the Wealthy Anymore

Since its inception, concierge care has been considered a luxury available to only financially well-off patients. However, that may soon change. Several major health systems and hospitals are piloting scaled-back versions of concierge care aimed at both middle- and upper-class consumers. However, the programs are not without critics and have elicited both positive and negative responses from healthcare providers.

According to Modern Healthcare, hospitals and health systems currently testing concierge care programs include:

Patients with busy schedules or chronic conditions may see the biggest gains from investing in concierge care. The added flexibility and increased access might allow them to take advantage of care options more frequently. Physicians being able to take their time during consultations and more closely focus on specific concerns is also seen as a benefit to patients.

However, Modern Healthcare points out that patients are not the only ones to see benefits from this arrangement.

“Doctors who have switched to concierge-style medicine sing its praises, claiming the smaller patient panel allows the doctor to build relationships with patients and spend more time on preventive medicine,” Modern Healthcare noted.

In 2016, Dark Daily reported on similar findings from the American Academy of Private Physicians (AAPP). They noted that the average primary care physician in the US maintained between 2,000 and 4,000 patients using the traditional care model. In contrast, the AAPP found concierge physicians maintained on average only 600 patients. (See, “Concierge Medicine Increases in Popularity as More Consumers Opt for This Care Model; Will Clinical Laboratories Exploit This Business Opportunity?” May 6, 2016.)

Paul-Huang-MD-PhD-Mass General-500w@96ppi

Paul Huang, MD, PhD (above right), a concierge doctor at Massachusetts General Hospital, told Modern Healthcare, “We are not doing this just to make more money—we are doing this to make money to put back into the mission of the hospital and to support programs that otherwise would be difficult to support.” (Photo copyright: Modern Healthcare.)

Concierge Care: Controversial Approach or Major Boon to Hospitals?

Since its debut in the 1990s, concierge care has faced scrutiny and opposition from those who feel it discriminates against those who cannot afford retainer premiums and out-of-pocket expenses.

One health system that has drawn such criticism is Michigan Medicine (MM), which is owned by the University of Michigan. As reported by the Detroit Free Press, in a letter to hospital administration, 200 of MM’s own doctors and staff expressed their feelings about the concierge care program, stating, “Victors Care purports to offer ‘better’ healthcare to those with enough money to pay a large access fee. The University of Michigan is a public institution and our commitment is to serve the public, not a private few. We do not feel this is the role of a state university and are unable to justify this to the patients and families we serve.”

Tom Cassels, a consulting partner with the Advisory Board Company, told Modern Healthcare, “It’s a cultural learning curve, because most not-for-profit health systems are geared toward providing the same level of service to everyone in their community. The fundamental model of concierge medicine is to price-discriminate.”

However, media coverage also highlights how the hospitals creating concierge care services are using the financial benefits to help offset the cost of low-margin services or provide care to low-income patients who wouldn’t otherwise have access to care.

Misty Hathaway, Senior Director of the Center for Specialized Services at Mass General, explained to Modern Healthcare that since their physicians are salaried, margins from concierge services can help support “things like our substance abuse program, or other parts of primary care where the margin is a little bit harder to achieve.”

Despite the ethical debates, use of concierge care services continues to gain momentum as middle and upper-class patients find the increased quality of care a worthy value proposition. As more options emerge at major healthcare centers, medical laboratories and other service providers might find that this trend also offers an opportunity to increase revenue with a minimal impact on administrative and billing costs.

—Jon Stone

Related Information:

Concierge Care Taking Hold at Some Large, Urban Hospitals

No Appointment? No Problem … For a Price

Exclusive U-M Medical Plan Buys You ‘Better’ Care, Special Access

The Future of Healthcare Could Be in Concierge Medicine

The Doctor Won’t See You Now

Concierge Medicine Increases in Popularity as More Consumers Opt for This Care Model; Will Clinical Laboratories Exploit This Business Opportunity?

More Doctors Consider Concierge Medicine as Healthcare Reform Looms

Concierge Medicine Trend Continues and Creates New Clients for Clinical Pathology Laboratories