Image
To receive an assessment of your laboratory pricing risk or to discuss your strategic options with Labcorp, reach out today.
Planning for price transparency regulations: How health system labs play a role
28 August 2024
Bryan Vaughn, senior vice president of health systems at Labcorp, shares his perspective on price transparency regulations and the impact health systems labs play in these changes.
Reports continue to point out wide differences in the prices of routine laboratory testing across settings; yet routine lab testing may be some of the most comparable procedures in healthcare, with minimal differences in methods or quality.
Two recent reports based on large datasets highlight not 10% or 50% in variation of prices, but up to 600% in differences for routine laboratory tests such as lipid profiles or metabolic panels:
A 2024 report by Avalon Healthcare Solutions using Avalon’s proprietary commercial claims data across 39 million covered lives found that hospital outpatient prices for 2023’s top 10 lab procedure codes ranged from 2-6x that of independent labs. The report also found that the price differential between hospitals and independent labs widened between 2022 and 2023.
A 2022 briefing by the Health Care Cost Institute and West Health, based on commercial claims of 55 million lives using pre-pandemic data, showed that hospital-based prices were over 3x that of independent or physician office labs, with several states showing a 6x difference.
The brief goes on to analyze spending over multiple years, concluding that “rapid spending growth for hospital outpatient department lab tests is driven mostly by their higher prices relative to offices and independent labs on identical tests.”
These price disparities impact the government (taxpayers), employers and patients. In 2023, the percentage of health plans with deductibles greater than $1,000 reached nearly 60% in the United States, meaning that patients are more often affected by these price disparities.
In addition to this data, emotional patient stories of high-cost laboratory testing end up in the media, such as this NPR and Kaiser Foundation story where a patient received devastating news as well as a bill of over $2,000.
Today, due to the continued implementation of multiple price transparency rules and laws, negotiated prices for medical procedures increasingly reside firmly in the public domain. The conditions are ripening for more publication, surfacing and eventual price comparison for laboratory tests.
Imagine how a one-on-one conversation with a patient would go if a physician explained that a routine cholesterol test sent to Lab A would cost five times that of Lab B. Anyone think the patient would choose Lab A?
Healthcare spending is set to continue rising, driven by promising, but costly, new therapies (e.g., GLP-1s, gene therapies), continued surgical innovation and an explosion of genetic testing applications, making patients even more exposed to out of pocket costs for their care.
Policymakers, health plans and employers will be deploying more tools to control spending: price negotiations, coverage policies, network design, site neutral payment and more. Only now, they have unprecedented visibility into prices for all healthcare services.
This sets the context for an era of meaningful strategic planning among incumbent providers and health systems. The call for clear, strategic thinking is being made forcefully by thought leaders and experienced industry consultants.
Kaufman Hall leaders Dan Clarin and Amanda Steele recently wrote that, “defining a distinctive value proposition is a difficult, but essential, task.” They go on to outline practical, if challenging, strategic questions every organization should work to answer.
4sight Health author David Johnson wrote in June 2024 about site-neutral payments, stating, “Although it’s daunting to contemplate, the right response for providers is to embrace site-neutral payment and use innovation to spur waves of growth that deliver better outcomes at lower costs with great customer service.” He eloquently makes the case that the soul of healthcare depends on embracing innovation and disruption.
How do we move toward a more equitable, value-based and consumer-centric system with such wide price discrepancies? The controls that rationalize these prices are coming. They should be less controversial when applied to highly comparable services, like cholesterol or blood sugar testing; those and other routine laboratory tests seem likely to be among the first medical services to see changes in pricing to mitigate current discrepancies.
Now is the time to plan your approach—before you have to react.
Bryan Vaughn is senior vice president of health systems at Labcorp. Prior to Labcorp, Bryan held roles with Raymond James Healthcare Investment Banking and Cigna Health Advocacy groups. He holds a BA in economics from Vanderbilt University and an MBA in health sector management from Duke University.