What Should Keep You Up At Night:
Lower Lab Pricing is Closer Than You Think
Table of Contents
I. Medi-Cal “Qui Tam” case will lead to higher prices… but not as high as you may think.
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Background•
Case Overview•
Settlement•
Local Impact•
National ImpactII. Health Care Reform
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Patient Protection and Affordable Care Act•
Accountable Care Organizations (ACO’s)•
Congressional “Super Committee”Table of Contents continued
III. Health System Outreach Pricing
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Dual fee schedules•
Insurance company pressure•
Future of hospital outreach pricing•
Internet-based discount lab test companiesIV. Other Considerations
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Most-Favored-Nation Status•
Pricing Options•
Medicare Physician Fee Schedule•
Changes to CPT codes•
California pricing trends•
European health careI. Medi-Cal Qui Tam Case
Background
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False-Claims Act (aka “Lincoln Law”): Imposes liability on persons and companies who defraud governmental programs.•
“Qui Tam” Provision: Allows people not affiliated with the government to file actions on their behalf. The “whistleblower” receives a portion (15-25%) of recovered damages.•
Medi-Cal: The Medicaid program in the state of California•
Our understanding of a rapidly evolving situation with frequent industry updates and clarifications…I. Medi-Cal Qui Tam Case continued
Overview
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In 2005, Hunter Laboratories, LLC and Chris Riedel filed a qui tam lawsuit against Quest Diagnostic Incorporated and four of its affiliates.•
This was later expanded to include 6 other medical laboratories in California including LabCorp, Health Line Clinical Laboratories, PhysiciansImmunodiagnostic Laboratory, Whitefield Medical Laboratory, Seacliff Diagnostics Medical Group, and Westcliff Medical Laboratories.
I. Medi-Cal Qui Tam Case continued
Overview continued
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Defendant accused of giving deeply discounted lab prices to favored clients and charging Medi-Cal patients a higher rate•
According to some state and federal laws, laboratories cannot charge Medicaid programs more than any other client•
Plaintiffs claim that since 1995, Quest has collected $726 million from Medi-Cal and that $509 million were overchargesI. Medi-Cal Qui Tam Case continued
Settlement
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Quest agreed to pay $241 million and attorney’s fees for the plaintiffs, yet denies all allegations•
$171 million is going back to the state of California•
Whistleblowers get $69.9 million•
Largest recovery in history of California’s False Claims ActI. Medi-Cal Qui Tam Case continued
Settlement continued
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California can not make any future claims against Quest regarding price discrepancies that were charged before November 1, 2013•
Quest must comply with certain reporting requirements regarding billing until December 2013•
Temporary billing suspension during trial; Quest has the right collect the $25 million that went unbilled from2010, as well as the amount that was unbilled for the first 5 months of 2011 (approx. $50 million total)
I. Medi-Cal Qui Tam Case continued
Similar Cases:
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LabCorp has agreed to pay $49.5 million to settle a whistleblower lawsuit claiming the company overcharged California's Medicaid program and gave doctors kickbacks for patient referrals. This settlement is the second of seven False Claims Act cases brought by Chris Riedel, CEO of Hunter Laboratories.I. Medi-Cal Qui Tam Case continued
Local Impact
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The California Attorney General (AG) and the California Department of Health Care Services (DHCS) are increasing efforts to enforce existing statutes; Health care providers are advised to evaluate current compliance controls•
Quest can continue to give lower prices to favored providers, IPA’s and managed care plans until December 2013•
To meet requirements, most labs would choose to increase pricing to at least equal the Medi-Cal lab test fee schedule (increasing profits); larger labs may choose to charge Medi-Cal the discounted prices they offer to their more favored clientsI. Medi-Cal Qui Tam Case continued
National Impact
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Large national laboratories could gain a competitive advantage•
Future legislative action to ensure clearregulatory standards for the clinical laboratory industry is likely
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Medicaid officials in other states will increase enforcement of their own state’s “comparable pricing” lawsI. Medi-Cal Qui Tam Case continued
National Impact continued
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The federal Department of Justice (DOJ) may pursue similar cases more energetically•
Potential to motivate otherindividuals/companies to file new qui tam lawsuits
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Six other states are involved in lawsuits over Medicaid with Quest and LabCorp (FL, GA, VA, MI, NV, MA);I. Medi-Cal Qui Tam Case continued
NMG Forecast:
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Smaller labs will firm up their prices to comply with Medicaid rates…•
Larger labs with lower operating costs will firm up prices but will choose to bill Medicaid less than allowed in order to maintain greater market share.II. Health Care Reform
Patient Protection and Affordable Care Act
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Coverage expanded to over 31 million Americans•
Lab services are included as part of basic coverage•
Medicare will cover 100% of preventative care•
Insurance companies remain a critical part of lab care deliveryII. Health Care Reform
Patient Protection and Affordable Care Act continued
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1.75% cut to the lab fee schedule update for the next 5 years•
Deepest cuts and higher taxes on labs avoided; 20% copay by patients originally on the the table, as was a $750 million (2-3%) annual tax on all lab revenue. Congress decided a temporary cut to the lab fee schedule update would be less painful than a permanent tax.
Still, the threat of a lab co-pay has returned as of last week…•
Productivity adjustment to the fee schedule update on all Medicare Part B providers, not just labs, estimated to be 1.1%-1.4% over the next 10 yearsII. Health Care Reform continued
Patient Protection and Affordable Care Act cont.
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CPI update knocked down by about 3 points; CPI needs to be at least 3% for the fee schedule to stay flat. If inflation is tame, reductions to the CPI update turn into cuts to the lab fee schedule.•
Increase in test volume will hopefully offset the cuts to the fee schedule•
Annual reduction in Medicare Part B lab test fees•
2.3% medical device tax, including in vitro diagnostic equipment purchased by medical laboratories, takes effect in 2013 and will serve to increase lab supply costs.II. Health Care Reform continued
Patient Protection and Affordable Care Act cont.
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Protects the concept of personalized medicine and future technologicaladvances in medicine (changes to molecular diagnostic reimbursement). An independent, non-profit Patient-Centered Outcomes Research Institute (PCORI) was created to support comparative effectiveness research (CER). This group replaces the Federal Coordinating Council for CER and moves control away from government agencies.
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Independent Payment Advisory Board (IPAB) of 15 individuals established to control costs of Medicare. This will replace the current Medicare Advisory Commission (MedPAC).II. Health Care Reform continued
Accountable Care Organizations (ACO’s)
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A network of doctors and hospitals that shares responsibility for providing care to patients•
Must manage all of the health care needs of a minimum of 5,000 Medicare beneficiaries for at least three years•
The Medicare Shared Savings Program will reward ACO’s that lower healthcare costs while meeting performance requirements on quality of careII. Health Care Reform continued
Congressional “Super Committee”
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12-member panel (6 Democrats, 6 Republicans) required to present a plan to Congress that would reduce our nation's debt by at least $1.2 trillion byThanksgiving
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Legislation may include reforms to entitlements such as Medicare and Medicaid•
If the joint committee fails to come to a majority agreement, or if Congress fails to enact recommendations, “sequestration” would be triggered. Cuts toMedicare would be limited to 2% of the cost of the Medicare program and would come from provider payments and insurance plans (Cuts to
II. Health Care Reform continued
Positive Impacts:
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Hospital/health system-owned ACO’s could mandate that all physicians in their ACO use the hospital laboratory•
Labs that add value to ACO’s may be rewarded by reimbursement•
Volume of testing should increase, especially tests for preventative careNegative Impacts:
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More than 50% of newly covered patients will bethrough Medicaid, which typically pays less than other insurers
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ACO’s can be a threat to labs if fees for tests are cut significantly•
ACO’s may seek discounted lab pricing in exchange for access to the ACO’s patients•
ACO’s and medical homes may choose to directly contract for lab testing services using a global payment scheme or a capitated arrangementII. Healthcare Reform continued
1984 Payment established for each laboratory procedure code (CPT) based on 60% of median 1994 charge $10.00 1985 4.1% increase in all fees $10.41
1986 National limitations imposed at 115% of median $10.41 1987 5.4% increase in all fees $10.97 1988 Caps reduced to 100% of median $ 9.54 1989 4% increase in all fees $ 9.92 1990 4.7% increase in all fees; $10.39 caps reduced to 93% of median $ 9.66 1991 2% increase in all fees; $ 9.85 caps reduced to 88% of median $ 9.32 1992 2% increase in all fees $ 9.51 1993 2% increase in all fees $ 9.70 1994 Caps reduced to 84% of median $ 9.26 1995 Caps reduced to 80% of median $ 8.82 1996 2.7 increase in all fees; $ 9.01 caps reduced to 76% of median $ 8.56 1997 2.6% increase in all fees $ 8.78
Medicare Laboratory Fee Schedule History 1984-2011
The dollar amounts on the right show the effect of fee schedule changes on a test that was reimbursed at $10.00 in 1984.
II. Health Care Reform continued
Medicare Laboratory Fee Schedule History 1984-2011
The dollar amounts on the right show the effect of fee schedule changes on a test that was reimbursed at $10.00 in 1984.
1998 Caps reduced to 74% of median (2.63% reduction) $ 8.55 1999 0% increase in all fees $ 8.55 2000 0% increase in all fees $ 8.55 2001 0% increase in all fees $ 8.55 2002 0% increase in all fees $ 8.55 2003 1.1% increase in all fees $ 8.65 2004 0% increase in all fees $ 8.65 2005 0% increase in all fees $ 8.65 2006 0% increase in all fees $ 8.65 2007 0% increase in all fees $ 8.65 2008 0% increase in all fees $ 8.65 2009 4.5% increase in all fees $ 9.04 2010 1.9% decrease in all fees $ 8.87 2011 1.75% decrease in all fees $ 8.71
II. Healthcare Reform continued
While cost of goods has increased dramatically since 1984 to today!
1984 2011 % of Increase
Dodge RAM 50 Truck $8,995 $25,000 178% Gallon of Gas $1.10 $3.50 218% Movie Ticket $2.50 $10.00 300% McDonald’s hamburger $.50 $1.00 100% Kellogg’s Cornflakes $.89 $3.79 325% Laboratory Tests $10.00 $8.71 -13%
III. Health System Outreach Pricing
Dual Fee Schedules
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Cash discount programs which charge a lower fee to uninsured versus insured patients, thereby creating dual fee schedules. Also can be used as separate inpatient and outpatient fee schedules•
Considered fraud and over billing in some states•
An attempt to maintain revenue levels while making services available to as many people as possible•
Carriers want to pay only the fee which would have been charged to each patient in the absence of insurance•
The Discount Medical Plan Organization (DMPO) is analternative, legal option for physician; patients pay an annual or monthly fee to join and receive discounted rates
III. Health System Outreach Pricing continued
Insurance Company Pressure
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Public and private payers are seeking ways to limit their expenditures, often by restraining or lowering payment rates for health care services and by imposing greater cost sharing on patients•
In an attempt to control unsustainable health carespending, insurers are requiring that patients pay higher deductibles, copayments, or coinsurance. These tactics have increased lab costs and decreased utilization.
III. Health System Outreach Pricing continued
Future of Hospital Outreach Pricing
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Hospital outreach programs can produce strong growth in net revenue and contribution margin•
Most hospitals charge significantly more than most independent labs; In many cases, hospitals face losing outpatient testing volume if they are not price-competitive•
Increased unemployment rates have left an increased number of cash-payingconsumers looking for affordable lab testing services; They are usually not hospital outreach programs
III. Health System Outreach Pricing continued
Internet Based Discount Lab Test Companies
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Offer low rates similar to Medicare•
Contract with national labs at wholesale prices (up to 60% discounts)•
Helps the uninsured and underinsured gain access to lab testing•
Serve to reduce the cost per test in the industry by “cutting out the middle man”III. Health System Outreach Pricing continued
Examples of Internet Based Discount Lab Test Companies:
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PrePaidLab, LLC – Until last year, PrePaidLab offered discount lab testsonline that were sent to LabCorp locations across the country for testing. LabCorp pulled the plug after PrePaidLab partnered with Summit Country
Medical Society to offer discount testing to uninsured patients. PrePaidLab was recently taken over by a Texas physician who is partnered with LabCorp, and will become part of INeedLabs.com.
IV. Other Considerations
Most Favored Nation Status (MFN)
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Requires a provider to give the payor the lowest rate that it gave to any other comparable payor•
Payors tend to argue that these clauses are a legitimate and reasonable way to control rising health care costs and their impact on premiums; Providers and other opponents argue that they are anticompetitive and lead to informal provider collusion to create a price “floor” in a local market•
Doctors and other medical professionals may be placed in the position of having to limit their payor mix if they cannot afford to provide discounts to small carriers, for fear they will in turn have to deal with the repercussions of having to further discount their services to their larger providers•
Several states have passed anti-most-favored nation legislation due to restraint of trade concernsIV. Other Considerations continued
Most Favored Nation Status continued Medicare
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By Law, Medicare beneficiaries must receive the lowest rate they would accept from any other payer•
In effect, each lab creates its own Medicare Fee Schedule•
“Intended” to eliminate lab discounts to select private payersIV. Other Considerations continued
Most Favored Nation Status continued Blue Cross Blue Shield
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The Justice Department is suing Blue Cross Blue Shield of Michigan for its use of “most favored nation” clauses in contracts with hospitals•
Clauses require hospitals to charge other insurers a specified percentage more than they charge Blue Cross — in some cases, 30 to 40 percent more•
Deters entry by other health insurance companies that automatically face higher costs than BCBS•
BCBS then has more monopoly power and can charge higher prices for its products•
BCBS has less incentive to negotiate lower prices for itself - its competitors prices are automatically higher anyway•
BCBS is willing to pay higher prices to hospitals to get the most favored nation clause put in (buying protection from competition)IV. Other Considerations continued
IV. Other Considerations continued
IV. Other Considerations continued
Pricing Options Capitation
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A fixed amount of money per patient per month paid in advance to the physician for the delivery of health care services•
Used by managed care organizations to control health care costs•
Capitation payments control use of health care resources by putting the physician at financial risk for services provided to patients•
Several benefits: provides a monthly income on a timely basis, slashes billing costs and office staff time and provides revenue in the month the service was rendered.IV. Other Considerations continued
Pricing Options
Capitation continued
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Some labs may chose to charge a capitation rate which covers most testing, and charge fee-for service for more expensive testing such as genetic tests, molecular diagnostic tests, anatomic pathology tests, and certain cytology tests•
Capitation prices while frozen at record lows for 5-7 years simply will increase to shift costs but fee for service and government reimbursement will continue to decline. These dynamics will continue this trend of narrowing the range of reimbursement in the industryIV. Other Considerations continued
Pricing Options continued Fee-for-service (FFS)
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Gives an incentive for physicians to provide more treatments (including unnecessary ones) because payment is dependent on the quantity of care, rather than quality of care•
Drives up costs by charging high prices for “piece work”•
Fee for service is still the bulk of the preferred pull through business in the entity. FFS is quickly disappearing.•
Healthcare providers must continue to cut costs while treating a growing number of patients•
Value-based purchasing (VBP) starts October 2012; rewards providers for improving outcomes among identified population of patients that meet or exceed pre-established targetsIV. Other Considerations continued
Medicare Physician Fee Schedule
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The Medicare sustainable growth rate (SGR) formula indicates that physician’s fees should be reduced by 29.5% during fiscal 2012; This has been postponed numerous times and will most likely be postponed again.•
Steep cuts in pathology and other physician Part B reimbursement lurk for2012; MedPAC has proposed $235 billion in cuts, including $9 billion from Part B lab fees, to offset cuts to the physician fee schedule
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A recent survey by Laboratory Economics indicates declining reimbursement remains the biggest challenge faced by pathology groups and labs over the next five yearsIV. Other Considerations continued
Changes to CPT Codes
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American Medical Association (AMA) added 192 new codes – 101 codes are related to molecular pathology and lab procedures•
Molecular tests are historically underpaid/overpaid•
Molecular codes are now analyte-specific; no more stacked codes•
New molecular pathology codes will not be part of the Medicare clinical lab fee schedule until 2013•
Some codes may be placed on the Medicare physician fee schedule in 2012•
Reimbursement will most likely decreasediscouraging the rapid growth in new investment in the field
IV. Other Considerations continued
California Pricing Trends
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CA tends to precede what happens nationally•
In Southern California and other mature managed care markets, most HMOs no longer take risk, nor do they provide claims management or any real qualityassessment
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HMOs have become commodities and are thus vulnerable to replacement•
California physicians continue to eliminate themiddleman HMO, replacing it with a physician-owned and controlled medical management company
IV. Other Considerations continued
European Health Care
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The majority of Europe provides free, government-run health care to all their residents•
Europe spends between one-third to one-half what the U.S. spends on health care•
France and Italy ranked first and second by WHO on “level of health”; US ranked 72nd out of 191•
Their healthcare systems are non-profit with the goal of keeping people healthy and productive, asopposed to our for-profit commercial enterprise
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Their lab industry focuses on a very small niche that chooses to opt out of public careIV. Other Considerations continued
European Health Care continued
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In general, the overall reimbursement per test is between 25-45% lower than in the US.•
Fees for services are negotiated between representatives of the healthcare professions, the government, patient consumer representatives and the private non-profit insurance companies•
Similar to US Medicare, a national agreement is established for treatment procedures, fee structures and rate ceilings that prevent healthcare costs from spiraling out of control•
Taxes are slightly higher in Europe, but medical fees are heavily subsidized by governments and are drastically cheaper than in the U.S.V. Summary
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Changes to capitation rates and fee-for-service pricing are leading to price equalization•
Lower Prices are to come•
New technology will be more expensive, but utilization will be more scientific•
The MediCal Qui Tam lawsuit will not serve to significantly increaseV. Summary continued
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Health care reform will not serve to increase price per test. More patients will enter the health care system but numerous dynamics will reduce prices.•
Health system outreach pricing will decline to remain competitive withindependent labs, to react to payer demands and finally to serve internalized cost needs with ACOs
