Laboratory Pricing – Overcoming the Patient Disincentive

“In this world nothing can be said to be certain, except death and taxes.” With all due respect to Benjamin Franklin, who penned these words in a 1789 letter, regrettably we can add “health care expenses” to this list of certainties.

In the last five years, individuals have taken the biggest brunt of rising health care costs in the form of rising out-of-pocket costs including deductibles; an increased share of employer-sponsored health insurance premiums; increased co-pays and co-insurance percentages; and an increase in non-covered, elective services. Just since 2009, the following shifts in health care have occurred:

  • Patient deductibles have increased 50 percent to an average deductible of $1,217 per individual.
  • Nearly 20 percent of workers overall have to pay at least $2,000 in deductibles or expenses before insurance benefits begin.
  • Employees of small firms are impacted even more, as one-third of employees at smaller firms are paying at least $2,000 per annum in deductibles.
  • In addition to the previous points which are only the first part of the cost shift, employees are covering more of their employer-sponsored insurance costs (37 percent of the overall premium cost) as well as covering higher co-pays for physician office visits.
  • Non-covered services are 100 percent the responsibility of the individual.

Now more than ever, pricing transparency in the health delivery process will be a critical component to health care in the U.S. Hospital laboratories are beginning to feel the squeeze of what I call “the patient disincentive.” Hospitals have long received a premium on their laboratory reimbursement from private payers due to favorable managed care contracts. Many hospitals receive reimbursement four to five times more than a commercial laboratory competitor. With the aforementioned increase in individual deductibles and co-insurance, the reimbursement premium paid by the private payer is subsequently passed on to the individual, thereby creating the patient disincentive.

Laboratory Pricing

So what can be done? If patients are coming to an on-campus hospital facility and receiving other services such as x-rays, the out-of-pocket costs are not seen as much of a disincentive because the patient is physically present on the campus. It is in the off-campus physician office that the patient disincentive is a critical factor in maintaining and growing hospital outreach market share. If your hospital is starting up or expanding an outreach program, we have seen the private payer partner with the hospital to pay commercial reimbursement on the non-patient or outreach patient population and leave true outpatient business (on the campus) unaffected in terms of reimbursement.

If you have a large hospital outreach business that has been built on hospital pricing and the underlying patient disincentive, you may want to begin planning to mitigate the impact of future shrinking reimbursement, patient dissatisfaction, and physician dissatisfaction due to patient complaints about pricing. Consider developing an aggressive growth pro forma to evaluate the impact of higher volumes and reduced pricing on profit margins.

Jeff Myers
Chief Financial Officer and Vice President, Financial Services
Chi Solutions, Inc.

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