With health insurers’ provider networks continuing to shrink, laboratories that can tackle an unmet need or provide added value will improve their chances of getting in-network with a particular managed care provider. Because insurers largely view routine laboratory services as a commodity—much to the chagrin of the lab industry—laboratories must go above and beyond in their offerings if they hope to get a foot in the door, according to experts.

“While cost is still a critical factor, there are other things that insurers look for,” explained Michael Snyder, senior vice president of provider management for Avalon Healthcare, a laboratory benefit management firm, and a former executive with United Healthcare. “Do you represent access that we don’t have today? Do you represent a proprietary and clinically useful technology that I can’t get through the big labs? Do you offer a unique community perspective such as offering special services for veterans?”

Typically, only a small percentage of labs that apply for in-network status with managed care providers will receive it. Aetna, which has a national lab network of more than 400 lab providers, receives up to 50 in-network requests each month and approves fewer than 15%, according to Richard Gentleman, senior director of national ancillary contracting.

“Especially in the esoteric space, we look for value-added services,” he said. “You can’t really do that with labs that provide routine testing, which is more screening. For example, we look at whether a specialty lab is willing to manage or take on risk for a certain population. Can the lab help us or one of our partners identify gaps in care? Do they offer outreach services to improve convenience for patients?”

Bryan Loy, vice president of oncology, laboratory, and personalized medicine for Humana, agreed. “We really are looking for labs to be partners with us since we view ourselves as more than just an insurer. We’re looking for partnerships in the pursuit of our members' journey to health. Laboratories, we believe, play an important and key role in this.”

Data and Disease Management

The ability to provide useful data and offer disease management services will definitely give a laboratory a leg up in its bid to join a provider network. Aetna, for example, requires all in-network labs to upload test results to ActiveHealth Management, a subsidiary that focuses on improving population health. The ActiveHealth CareEngine system reviews all data submitted on a daily basis and uses clinical algorithms to support physicians. When a potential problem is flagged, such as a patient missing regular testing for diabetes, a care alert is sent to the doctor for further care coordination.

Aetna also gives added weight to labs that demonstrate additional quality processes. For example, Aetna will only contract with new laboratories that provide BRCA genetic testing services if the lab reports variant findings to ClinVar, a public database hosted by the National Center for Biotechnology Information. ClinVar integrates dozens of existing databases and provides a central place for labs to deposit their data. This can help accelerate clinicians’ understanding of the effects of variants and shows whether labs are interpreting the same variant in different ways. “The ability of a lab to share and connect its data is essential,” Gentleman said.

In fact, all health plans today have an expectation that labs will provide data and results, Snyder noted. At a high level, they’re looking for HEDIS (Healthcare Effectiveness Data and Information Set) data developed by the National Committee for Quality Assurance to measure performance and quality. Altogether, HEDIS consists of 81 measures across five domains of care—preventive services, chronic disease management, behavioral healthcare, appropriateness/overuse of services, and value. Among the measures are those for high-burden diseases such as diabetes, heart disease, and depression.

“We’re not just interested in a test, we’re interested in the quality of the test and how it affects outcomes,” said Humana’s Loy. “We’re also interested in the delivery of the test information and how it’s being used. We’re looking for labs that provide physician support on the front end and on the back end.”

Ultimately, it will be difficult for small labs to gain in-network status, Snyder commented. “The best thing to do is to network with other labs or maybe even work through a local health information exchange for data collection and connectivity,” he said.

The Value of a Test

To determine the value of a test, managed care providers first look to see whether the test is covered by their clinical policies. Clinical guidelines, set by a panel of medical professionals, usually are posted online. Tests that are not approved by the Food and Drug Administration—such as lab-developed tests—require additional review to determine validity and clinical utility.

Cigna, for example, has a Medical Technology Assessment Committee that develops coverage policies based on an extensive examination of peer-reviewed medical and scientific studies, journal articles, and other evidence such as outcomes of clinical trials and whether the positive outcomes outweigh any potential harmful effect, explained Julie Kessel, MD, senior medical director in charge of Cigna’s coverage policy unit. The committee also considers guidelines from professional medical societies.

The test, procedure, or device must be deemed safe and effective, Kessel said. Those determined to be experimental, investigational, or unproven will not be covered. “The review does not consider costs,” Kessel noted. “The review considers only safety and efficacy and the other factors cited above.”

If the committee finds that these criteria are met, then a new technology, test, or procedure will be considered for coverage depending on the specific terms of an employer’s benefit plan, which vary from employer to employer. When a coverage policy is published, it includes a “next review” date, which is typically 1 year following implementation of the coverage policy, though some payers review twice a year. Coverage policies can change based on new peer-reviewed evidence.

National fee schedules based on a percentage of Medicare reimbursement serve as a starting point for determining payment to laboratories. The actual fee schedule for each lab and each payer is determined through contract negotiation, and no two fee schedules are alike. Since UnitedHealthcare inked an exclusive contract with LabCorp in 2007 at a fraction of what Medicare pays, labs have been pressured to take lower and lower payments if they want to remain in-network with payers.

Pressures Lead to More Consolidation

The trend toward more restrictive lab networks is likely to lead to continued consolidation in the lab industry, Snyder predicted. While lab industry deal activity leveled out in 2012 and 2013 after reaching record levels in 2011, activity has picked up again in the last few years. Since 2014, there have been a number of acquisitions, including Quest Diagnostics' acquisitions of Solstas Lab Partners and the lab outreach business of Clinical Laboratory Partners, Hartford HealthCare, and MemorialCare Health System.

LabCorp has largely focused on acquiring companies that enable it to branch outside the core laboratory space, such as Covance, a global contract research organization and drug development company, and Safe Food International Holdings, which performs tests related to food safety. LabCorp has, however, also absorbed some competitors, including Pathology Inc., LipoScience, and Sequenom Inc.

Aurora Diagnostics has also been busy in the mergers and acquisitions space, acquiring a number of smaller labs in the past 2 years, including Arizona Dermatopathology, Mid-Atlantic Pathology, Hallmark Pathology, Pacific Pathology Associates, West Georgia Pathology, Pathology Associates of Sebring, and Consultants in Laboratory Medicine of Greater Toledo Inc., among others.

Snyder expects this level of activity to continue in the coming years as labs join forces to obtain maximum leverage with payers.

“It’s really tough to be a small laboratory these days,” Snyder said. “I think over the next three to five years, we’re going to see immense consolidation.”

Kimberly Scott is a freelance writer who lives in Lewes, Delaware. +Email: kmscott2@verizon.net