- We’ll assume the hospital draws patients from within a 20-mile radius of its location
- 5,000 of those patients have a health insurance plan with XYZ Insurance Company
- The largest commercial labs have negotiated flat rate lab fee agreements with XYZ Insurance Company, so let’s assume the big labs pay $50 per test for those 5,000 patients
- A hospital lab convinces an outside Physician office to send their patients lab work to the hospital lab , but as a result, the patient with XYZ Insurance Company gets a $300 bill from the hospital lab, because the tests were not performed by the lab with the negotiated agreement in place.
- The patient then calls their physician and complains, claiming that he never had to pay for lab tests before, so “Why am I getting this bill?”
- After the physician’s office gets several complaints, the physician’s office tells the hospital lab that this is not going to work, we are too busy to deal with this issue…we are just going to send XYZ Insurance Company patients to the lab that their insurance plan dictates.
- As a result, outside feeder relationships to the hospital labs are slowly severed and outreach physician relationships lost. The hospital lab suffers because this scenario is repeated multiple times in their small market across a variety of health insurance plans who have negotiated flat fee arrangements with the nation’s largest labs.
It is fairly expensive to maintain a hospital lab right? Just think about it for a moment, all of that specialized testing equipment in the hospital lab is expensive and costly to maintain and generally hospital labs maintain a smaller pool of potential clients. What about the labor costs and all the supplies and reagents that have to be purchased to perform lab tests? The downward pressure on hospital labs is daunting to say the least. Consider this…the most modern testing equipment in a clinical reference lab is so sophisticated that it can handle a tremendous amount of excess capacity over and above what most hospital labs actually receive from in-patient tests. In order to take advantage of the ability to benefit from equipment that can perform more tests, the lab must look outside their health system to generate incremental business, hence the drive to increase their lab outreach. So what are the challenges related to a hospital outreach initiative? First and foremost, hospital labs have to go into battle every day against enormous publicly traded competitors with ticker symbols like, DGX and LH. Competitors who have partnered with health insurers and agreed to charge flat fees for tests based anticipated volume from the health plan participants. So let’s look at a potential scenario with some basic assumptions: