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Labs Brace for Potential Plusses, Minuses of Price Transparency Regulations

NEW YORK – Slated to go into effect at the start of next year, the Centers for Medicare & Medicaid Services' new hospital price transparency regulations could have a significant impact on outreach labs, several industry observers said.

The regulations will likely present challenges for labs in terms of collecting the data needed to provide the required price information. Additionally, they could affect labs' negotiations with payors as well as their relationships with customers, potentially cutting into the higher pricing outreach labs have traditionally received compared to large national labs.

While these impacts may not all be welcome, the new regulation could serve as a prod to move the industry in a more patient-focused direction, said Jane Hermansen, manager of outreach and network development at Mayo Clinic Laboratories.

"I think the regulation is needed, and I think that as an industry it is about time that we provide patient-focused information," she said.

CMS developed the rule following President Trump's June 2019 executive order directing the Secretary of Health and Human Services to come up with a regulation requiring hospitals to publicly post pricing information.

The transparency rule, which CMS finalized on Nov. 15, 2019 and is schedule to go into effect January 1, 2021, requires hospitals to annually post online in a machine-readable format "all standard charges (including gross charges, discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges)" and to make public the standard charges for at least 300 "shoppable services," 70 of which are specified by CMS and 230 of which are to be selected by the hospital itself.

Among the 70 services specified by CMS are 14 laboratory tests, including many commonly ordered tests like basic metabolic panels, lipid panels, and complete blood counts.

Jeff Myers, vice president of consulting services at healthcare consulting firm Accumen, said that while with regard to the transparency rule the lab component was likely not the primary concern for most hospital executives, he believed it would put pressure on lab prices as customers, particularly those with large deductibles or copays, would opt for lower priced testing services from national labs like Quest Diagnostics or Laboratory Corporation of America.

"The [hospital executives] who do have lab as a priority in their strategic plan are concerned about price transparency, and the fact that hospital-based services are charging patients more, and the payor contracts that they have are paying hospitals up to two to three times what lower cost labs receive," he said.

While the fact that a hospital lab typically charges more for testing than a large national lab doesn't necessarily mean that additional cost is passed on to patients, the rise of insurance plan deductibles and co-pays makes it more likely patients will feel these prices directly, leading them to choose the lower priced option — a dynamic the price transparency rule could accelerate.

Insurers are also making moves that could heighten the impact of the transparency rule. For instance, UnitedHealthcare last year launched its Preferred Laboratory Network (PLN). While UHC customers can still use labs that are not part of the PLN, the insurer has eliminated out-of-pocket charges for many of its members when they use a PLN member for their lab testing.

This sort of arrangement gives insurers leverage in situations where they might not otherwise have it, Myers said. For instance, if an insurer came to a major hospital system and told them it was going to drastically cut lab reimbursement rates, the system would likely be successful in pushing back since the insurer couldn't afford having the dominant provider in that region go out of network. An arrangement like UHC's PLN, on the other hand, allows the insurer to incentivize the system's patients to move to lower priced testing while avoiding a direct fight over reimbursement it would likely lose, Myers said.

The price transparency rule could also give different payors insight into how they each reimburse a hospital lab for tests, which could impact the hospital's negotiations with insurers.

Myers said, though, that this was less of an issue for hospital labs than patients opting for lower cost providers.

"I think there could be some downstream impact on payor negotiations, but I don't think that's the biggest concern," he said.

Kyle Fetter, executive vice president and general manager of diagnostic services at Xifin, suggested that there was an upside for labs, though, in that the ruling could make for a smoother billing process.

"I think even on the hospital outreach laboratory side it is a net benefit to confirm upfront what the patient's out-of-pocket is going to be," he said. "Because one of the biggest issues in laboratory billing, whether you're a hospital outreach lab or an independent lab, is bad debt. This basically gives you the opportunity from a provider perspective to move that process upfront and potentially collect a payment upfront. And that probably outweighs any potential concern over loss of business."

He added that, unlike many healthcare providers, labs often aren't able to collect copayments or payments against deductibles upfront given that they typically don't see the patient in person.

"I think it is a process that many labs will welcome," he said.

Mayo's Hermansen noted that past research has observed modest effects of price transparency on lab payments. A 2014 study in JAMA looked at medical claims made between 2010 and 2013 by 502,949 patients whose employers provided a price transparency platform. They found that of nearly 3 million lab claims, around 6 percent were associated with a search on the transparency platform and that lab claim payments associated with a search were roughly 14 percent lower than those not associated with a search, with an absolute payment difference between the two of $3.45.

Hermansen questioned how far the information required by the CMS rule would go toward helping patients assess their actual out-of-pocket costs, noting that this would require looking at their specific deductibles and copays as well as what spending levels they have hit for a given year.

"There almost needs to be an algorithmic flowchart of questions to ask," she said. "Who is this patient? What is their insurance? If they have met their deductible, what percentage is their co-insurance."

She said that this sort of system was plausible, given that many hospitals already have tools to query a patient's insurance and get that information.

"Those are pretty routine and rapid procedures," she said.

Fetter said that various tools exist for delivering this sort of information to patients.

"If hospitals have that tool, it's very easy to roll it out across their entire patient base," he said. "If they don't, they just need to get the capability to do it, or else you're going to be taking a lot of [patient] phone calls."

Like Fetter, Hermansen suggested that whatever pricing or competitive pressures the law might exert, moving toward price transparency would be an overall benefit for labs.

"You have the back end of dealing with a patient who says, 'I got a $20,000 bill for a strep culture. You must be kidding me,'" she said. "When you think about that and all the angst and bad press and everything that comes from a situation like that, would [the lab] have been better served by just going upfront and saying here is what you're going to be paying for this service."

"The challenge for us is to design our systems in such a way that we give patients the information that is relevant to them," she said.