Consumer-Focused Plans Usher In Lab Service Competition
Todd McDonald, of Aisling Partners Insurance Brokerage in Worcester, believes consumer-driven health plans will eventually become the dominant type of plan offered by employers.
Until recently, consumers had little idea of the differences in prices offered by medical laboratories for diagnostic blood and genetic testing that doctors had ordered.
But the effort to curb health care spending has ushered in a new era of consumerism in the industry, and experts say it's prompting laboratories to consider how to attract customers in a market where consumer-driven health plans are becoming more prevalent.
In a national study conducted last year, Mercer, a global human resources and financial advisory firm, said that each year, more employers are offering consumer-driven health plans (CDHPs), which typically have high deductibles for diagnostic testing, and that trend is expected to continue.
The percentage of U.S. employers offering CDHPs is growing at an accelerated rate, the Mercer survey found. Their prevalence nearly doubled in three years, with 36 percent of companies offering such plans in 2012, up from 20 percent in 2009.
The number of companies offering only high-deductible CDHPs is rising, too. Six percent of large employers surveyed offer only CDHPs, and 18 percent of all employers in 2012 expected to offer only CDHPs in five years, up from 11 percent in 2011.
Competition Expected
Todd McDonald, president of Aisling Partners Insurance Brokerage LLC, an insurance advisory firm in Worcester, believes that eventually, CDHPs will become the dominant type of health insurance plan offered by American employers, and he said there's “no doubt that competition is coming into play.”
McDonald said that, until recently, consumers never realized that the cost of lab work processes can be dramatically different depending on the facility offering it, as there was typically little out-of-pocket cost to them.
That price transparency for consumers is in its infancy, but as CDHPs cover more people, they will have greater incentive to inquire about pricing, as well as ask doctors about the medical necessity of some tests, McDonald said.
In fact, some large insurers offer tools that allow subscribers to plug in a procedure or test and find out if they have to pony up a deductible. But McDonald said the general rule is that preventative procedures aren't subject to deductibles, unlike diagnostic procedures.
Like McDonald, Aron Boros, executive director of the Massachusetts Center for Health Information and Analysis, said he expects CDHPs to become more prevalent. He said that from a policy standpoint, the hope is that doctors and patients will start choosing labs that charge less.
Along with consumers, Boros said physicians have more skin in the game due to state-level pricing reform passed last summer, which gives doctors incentives to send bloodwork to lower-cost diagnostic laboratories.
As a result, the medical lab industry is “going to be one of those areas where there's going to be rapid change,” Boros said.
Commercial medical laboratories may come out the winner as CDHPs become more prevalent. That's because their prices are considerably lower than hospital-run labs, McDonald said.
Tim Anderson, New England vice president of operations for Quest Diagnostics, agreed that commercial labs provide more cost-effective services than hospitals, and he said cost pressures drove UMass Memorial Health Care's decision to sell its clinical lab business to Quest in October 2012.
As far as competition with other commercial labs due to increased CDHPs, Anderson was doubtful, but he thinks commercial labs will be more competitive than ever with those run by health systems.
Thomas Robert, chief financial officer for the Sisters of Providence Health System, said its systems laboratory business, Life Laboratories, is on the lower end of the price spectrum. (He declined to reveal specific pricing data.)
He said the shift in costs to consumers through higher deductibles is, in a way, a good opportunity for a lower-cost lab like Life Laboratories, which is opening a facility on Prescott Street in Worcester at the end of May.
Patients are used to being health care users rather than consumers. In the past, where one gets lab work done has been strictly a matter of convenience. But that will change, Robert said.
“I think that is definitely going to come, and when it becomes more integrated into the market, I think that you'll see operations like Life Laboratories have a more (retail-style) establishment and have marketing along the lower-cost, high-quality side of things,” Robert said.
As for cost transparency, Robert is waiting to see how a mechanism for comparing costs will be created under the new, consumer-driven system. As it stands, many patients have to call different laboratories for pricing information to find the most affordable option.
“Things are going to be changing, and it's going to be really interesting,” Robert said.
On the other hand, laboratories may find it harder to collect money from patients covered by CDHPs, Robert said. High-deductible plans place a greater burden on the patient, and as they grow, so will uncollected fees.
“Now, we have to be in the position of basically asking patients for money out of pocket, and if we don't pay, we lose out on that,” Robert said.
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