THE MYTH OF NATIONAL CLINICAL LABORATORY “EXCLUSIVITY”

The national laboratories would like you to believe that they have the advantage when it comes to managed care contracting—that they alone have negotiated “national exclusive contracts” with certain payers that require physician offices to send all patient insurance types to their laboratories. This is hogwash. Or perhaps brainwash is more apropos. They have brainwashed physicians and their office staff into believing they are contractually required to follow these “rules.” And, of course, no one wants the inconvenience of using multiple laboratories, so they might as well send all their work to the national laboratory, effectively cutting out the hospital laboratory altogether. Slick, right? That is their story and they stick with it, as shown in the cartoon below:

National Labs Cartoon

Here’s the real story. The nationals have negotiated highly discounted, exclusive agreements with certain payers (such as LabCorp for United Healthcare and Quest for Aetna) that rule out other independent laboratories but not hospitals. It’s the last part that is conveniently left unsaid. This is one of the best kept secrets of the laboratory industry. The strategy of the national laboratory is to use the exclusive contract to capture what is commonly referred to as “pull-through” business along with it (other insurances and governmental payers) in order to offset losses due to highly discounted fees.

The nationals have negotiated highly discounted, exclusive agreements with certain payers (such as LabCorp for United Healthcare and Quest for Aetna) that rule out other independent laboratories but not hospitals. It’s the last part that is conveniently left unsaid. This is one of the best kept secrets of the laboratory industry.

The real story is that, as long as a hospital has a contract for inpatient services, the laboratory can provide outreach laboratory services. Has anyone ever told you that before? Of course not! It is not in the interest of the national laboratory or the payer. The contracted laboratory is penalized for “leakage,” and the profitability of the insurance company goes down because hospitals are reimbursed at a higher rate. Both are incentivized financially to exclude hospital laboratories. Undoubtedly, you will see all manner of marketing materials for physicians and patients to attempt to maintain this untruth.

So how do you overcome this barrier? Your managed care contractor can have a candid conversation with the insurance company. I have seen many variations of deals that have been forged. In one case, the hospital agreed to accept the independent laboratory fee schedule with an agreement to offset the loss in other parts of the contract. In other cases, hospitals have agreed to accept the same reimbursement as the national laboratory without the offset so that they can garner all the pull-through business. With a careful analysis of profitability, this is a sound strategy. Each case must be looked at individually because the rates vary widely. Some may make good business sense; others may not. The issue is not really exclusivity but reimbursement.

Suffice it to say that hospitals and health systems have more leverage in these conversations than is typically understood. The payers have to maintain their contracts with hospitals for inpatient and outpatient services, and that gives you more clout than you realize. Leverage that relationship to benefit the laboratory business.

Kathleen A. Murphy, PhD
Chief Executive Officer
Chi Solutions, Inc.

 

    3 thoughts on “THE MYTH OF NATIONAL CLINICAL LABORATORY “EXCLUSIVITY””

    1. This is an excellent article. Early on in my career as a lab director, Quest and Labcorp wanted our lab to be a Collection station because they claimed exclusive contracts. It was a tough battle to try to explain to them that the patient can come to our laboratory and their insurance will cover our costs. It is something that keeps coming up everytime they change their sales force.

    2. This is a great article, however we are a hospital laboratory and our outreach patients are complaining that their labs being sent to our hospital lab are not being paid by the insurance it is going towards their hospital deductible. So even though we get their business, the insurance companies are not paying for the labs. So is this where we need the managed care contractor to negotiate with the insurance companies?

    3. This article is only about half true, and is clearly written from someone with an interest in their local lab outreach efforts. Some observations…

      1). Hospital labs are often extremely limited. Esoteric tests and out-of-network specimens will end up with the exclusive lab 99 times out of 100. This can affect turnaround time and can jeopardize proper specimen handling.

      2) Sometimes it’s difficult for hospitals and payers to distinguish between which deductible to charge, especially if the patient has recently been hospitalized.

      3) The author presents 2 alternatives for HCP’s. Quest/LCA or Hospital. There is another world in between those 2 options for clinical & anatomical pathology, molecular pathology, molecular genetics, UDT,’s, etc. There are several national and regional laboratories with robust network contracts that providers can choose from.

      While I agree that exclusivity contracts rob clinicians of valuable tools needed for diagnoses, to act like its a decision between big box and hospital doesn’t paint an accurate picture.

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