As the Public Becomes More Aware of the Large Variability in how Clinical Laboratories Price Their Tests, All Labs Need Strategy for Complying with CMS’ Pricing Transparency Requirements

Journalists, researchers, and a growing number of consumers now recognize the often huge variability in the prices different medical laboratories charge for the same lab tests

One step at a time, the Medicare program, private health insurers, and employers are putting policies in place that require providers—including clinical laboratories and pathology groups—to allow patients and consumers to see the prices they charge for their medical services. Recent studies into test price transparency in hospitals and health networks have garnered the attention of journalists, researchers, and patients. These groups are now aware of enormous variations in pricing among providers within the same regions and even within health networks.

There are several reasons that pricing is such a popular topic at the moment. Many medical laboratory professionals know, for example, how in January 2019 the Centers for Medicare and Medicaid Services (CMS) passed the IPPS/LTCH PPS final rule, which requires hospitals to post pricing information on their websites. Dark Daily covered this in “New CMS Final Rule Makes Clinical Laboratory Test/Procedure Pricing Listed on Hospital Chargemasters Available to Public.”

Now that hospitals’ medical laboratory test prices are required to be easily accessible to patients, researchers are beginning to compile test prices across different hospitals and in different states to document and publicize the wide variation in what different hospital labs charge for the same medical laboratory tests.

Journalists are jumping on the price transparency bandwagon too. That’s because readers show strong interest in stories that cover the extreme range of low to high prices providers will charge for the same lab test. This news coverage provides patients with a bit more clarity than hospitals and other providers might prefer.

Shocking Variations in Price of Healthcare Services, including Medical Laboratory Tests

The Health Care Cost Institute (HCCI) in conjunction with the Robert Wood Johnson Foundation (RWJF), examines price levels of various procedures and medical laboratory tests at healthcare institutions across the United States in the first release of a series called Healthy Marketplace Index. According to the HCCI website, “a common blood test in Beaumont, Texas ($443) costs nearly 25 times more than the same test in Toledo, Ohio ($18).”

In April, the New York Times (NYT) made the wide variation in how clinical laboratories price their tests the subject of an article titled, “They Want It to Be Secret: How a Common Blood Test Can Cost $11 or Almost $1,000.” The article discusses the HCCI findings.

The coverage by these two well-known entities is increasing the public’s awareness of the broad variations in pricing at clinical laboratories around the country.

Aside from the large differences in medical laboratory test prices in different regions, the HCCI found that there are sometimes huge price variations within a single metro area for the same lab tests. “In just one market—Tampa, Fla.—the most expensive blood test costs 40 times as much as the least expensive one,” the NYT notes.

In other industries, those kinds of price discrepancies are not common. The NYT made a comparatively outrageous example using ketchup, saying, “A bottle of Heinz ketchup in the most expensive store in a given market could cost six times as much as it would in the least expensive store,” adding, however, that most bottles of ketchup tend to cost about the same.

“It’s shocking. The variation in prices in healthcare is much greater than we see in other industries,” Amanda Starc, PhD, Associate Professor, Kellogg School of Management, Northwestern University, told the NYT.

The graphic above is taken from the New York Times article on test price discrepancies in healthcare. The range of prices for the medical lab test known as a comprehensive metabolic panel are for metropolitan areas only. The data is sourced from the Health Care Cost Institute study. It’s easy to see why patients would be confused by clinical laboratory pricing that varies so widely. (Graphic copyright. The New York Times.)

The CMS mandate designed to make the prices of medical services accessible to healthcare consumers has, in many ways, made things more confusing. For example, most hospitals simply made their chargemaster available to consumers. Chargemasters can be confusing, even to industry professionals, and are filled with codes that make no sense to the average consumer and patient.

“This policy is a tiny step forward but falls far short of what’s needed. The posted prices are fanciful, inflated, difficult to decode and inconsistent, so it’s hard to see how an average person would find them useful,” Jeanne Pinder, Founder and Chief Executive of Clear Health Costs, a consumer health research organization, told the NYT in an article on how hospitals are complying with the mandate to publish prices.

In addition to the pricing information being difficult for consumers to parse, it also may lead them to believe they would need to pay much more for a given procedure than they would actually be billed, resulting in patients opting to not get care they actually need.

Why Having a Strategy Is Critically Important for Clinical Laboratories

Clinical laboratories are in a particularly precarious position in all of this pricing confusion. For one thing, most hospital-based medical laboratories don’t have a way to communicate directly with consumers, so they don’t have a way to explain their pricing. Additionally, articles and studies such as those in the NYT and from the HCCI, which describe drastic price variations for the same tests, tend to cast clinical laboratories in a somewhat sinister light.

To prepare for this, medical laboratory personnel should be trained in how to address customer requests for pricing and how to explain variations in test prices among labs, before such requests become problematic. Lab staff should be able to explain how patients can find out the cost of a given test, and what choices they have regarding specific tests.

In 2016, Dark Daily’s sister-publication, The Dark Report (TDR), dedicated an entire issue to the impact of reference pricing on the clinical laboratory industry. In that issue, TDR reported on how American supermarket chain Safeway helped guide their employees to lower-priced clinical laboratories for lab tests, resulting in $2.7 million savings for the company in just 24 months. Safeway simply implemented reference pricing; the company analyzed lab test prices of 285 tests for all of the labs in its network, and then set the maximum amount it would pay for any given test at the 60th percentile.

If a Safeway employee selected a medical laboratory with prices less than the 60th percentile, the normal benefits and co-pays applied. But if a Safeway employee went to clinical laboratories that charged more than the 60th percentile level, they were required to pay both their deductible and the amount above Safeway’s maximum.

Safeway’s strategy revealed wide variation in testing prices, just as the HCCI report found. This means that employers can be added to the list of those who are paying much closer attention to medical laboratory test pricing than they have in the past. These are developments that should motivate forward-looking pathologists and clinical laboratory executives to act sooner rather than later to craft an effective strategy for responding to consumer and patient requests for lab test price transparency.

—Dava Stewart

Related Information:

Healthy Marketplace Index

Past the Price Index: Exploring Actual Prices Paid for Specific Services by Metro Area

They Want It to Be Secret: How a Common Blood Test Can Cost $11 or Almost $1,000

Hospitals Must Now Post Prices. But It May Take a Brain Surgeon to Decipher Them

New CMS Final Rule Makes Clinical Laboratory Test/Procedure Pricing Listed on Hospital Chargemasters Available to Public

Using the Reference Pricing Strategy, Safeway and its Employees Reduce Spending on Clinical Laboratory Tests by 32% in Only 24 Months by Selecting Lab with Lowest Prices