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Health Plans Should Scrutinize Lab, Genetic Testing for Unneeded Expenses

Analysis  |  By Gregory A. Freeman  
   January 31, 2018

Doctors are ordering more advanced laboratory and genetic tests than ever before, and the reimbursement cost can hit health plans hard. Expenses can be cut without harming patients, one expert says.

Health plans could improve profitability by paying more attention to the laboratory tests they pay for, says Russel E. Kaufman, MD, chief medical officer of Kentmere Healthcare Consulting Corporation, which provides laboratory and genetic testing utilization management for health plans.

A practicing physician in biomedicine for 35 years, Kaufman previously served as chief of hematology/oncology and vice dean and vice chancellor at Duke University, and now specializes in deep analytics of insurance company lab expenditures.

The good news, he says, is that health plans can save money without shortchanging their customers on needed laboratory or genetic testing.

Health plans can cut their testing expenditures by 10% to 20% with better guidance to physicians and improved internal reviews, says Kaufman.

The key is to identify exactly what testing the health plan is paying for, he says.

"The goal isn't just to have the health plans make more money by finding another way they can say no to testing," Kaufman says. "The goal is to have the whole system work better so that costs are lower, everyone saves money, and patients get the testing that they need and from which they can benefit. Finding that point where a health plan is spending what it should, but not wasting money on testing that does not yield any real benefit for the patient, is the challenge here."

Significant sums are wasted on testing.

Medicare lost hundreds of millions last year on inappropriate urine, genetic, or heart disease tests. One analysis found that spending on urine screens and related genetic tests quadrupled from 2011 to 2014 to an estimated $8.5 billion a year

Kaufman's company begins its work with health plans by asking for a massive data dump and then looking for potential cost savings.

"We take that data and dice it and slice it in ways that health plans really don't do," Kaufman says. "You would think health plans would have pretty deep analytics around all this, but that's not their expertise. They need help in determining exactly where they're spending their money on laboratory costs."

Kentmere has alerted some health plans to a spike in physician orders for hereditary testing genes predictive of breast cancer, beyond the BRCA1 and BRCA2 that are most commonly ordered for that purpose.

Identifying test spend is key

"Health plans need to understand where the money is going in relation to laboratory and genetic testing, and more than just which tests are ordered. They need to understand things like what percentage of their total spend is on that test, what percentage of their reimbursement that represents, what percentage is rejected," Kaufman says.

"When a health plan understands those numbers, they might realize that a bigger percentage of their total spend than they ever realized is on a certain test. They can use that information to develop internal policies about how they decide which tests to just approve and which tests require internal approval before it is preauthorized," he says.

Internal analytics are one thing, but health plans also can benefit by comparing their laboratory expenditures to those of other insurers, Kaufman says.

He sees trends in ordering patterns from one company to another, but outliers indicate either a plan with the opportunity to reduce costs or a plan that has implemented better approval systems.

"One of the questions they have is how much internal bureaucracy should be devoted to internal review and approval of testing," Kaufman says. "They often don't have a firm grasp on what everyone else in the industry is doing in that regard, hoping their own systems are tight enough to avoid wasting money and appropriate to ensuring their customers get the testing they actually need."

The uncertainly mostly involves testing related to genetics and other advanced areas in which medicine is evolving at a fast pace, Kaufman notes.

Testing policies

The protocols for ordering more routine tests have been established in the medical community and it is easier for health plans to set review and approval policies. Testing standards for the newer and more advanced screening are not as clear, but those tests also can be among the costliest.

"Genetic testing is an emerging area and very few health plans have internal expertise in genetic testing," he says. "So they mostly download policies from the Blue Cross Blue Shield associations and then they internally might modify them a bit to conform to the culture of what the doctors in their region might expect. But we find that in trying to adapt those policies to these new tests, the doctor may have a 65-page policy that must be reviewed before ordering the lab work."

No physician has the time to study a policy like that, so the policy becomes irrelevant, Kaufman says.

Physicians use their best judgment to determine whether they think the test is appropriate, and the health plan has lost the opportunity to guide that decision, he says.

Policies should be simple enough that the clinician can quickly determine what parameters determine whether the health plan will pay for it, he says.

"That improves the efficiency of the process because clinicians aren't ordering tests that are going to be rejected, appealed, and re-appealed. All that takes time and carries an expense," Kaufman says. "Many times the patient is caught up in the middle of all this. If policies can be clear, accessible, and transparent, it improves the system for everyone."

Gregory A. Freeman is a contributing writer for HealthLeaders.

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