PROBABLY NO TOPIC IN THE LAB TESTING INDUSTRY generatesmore controversy than discounted pricing for physicians, managed care companies, and IPAs (independent physician associations). Almost every pathologist and laboratory executive decries the corrosive effects of below-cost pricing.

Yet, many of these same lab executives quietly continue to solicit new clients by dangling deeply discounted, and often money-losing-prices to physicians and health insurers. Competing labs recognize that often the prices are at marginal cost—which means that the lab doesn't recoup its fully loaded cost of performing the test. Sometimes a lab company will even offer prices that are less than the lab's marginal cost to perform the test.

The only way the lab can offer these money-losing prices is because it "pulls through" enough Medicare and other fee-for-service specimens to offset the losses incurred for testing the discount priced tests. Typically it is national lab companies or investor-owned labswhich aremostwilling to play this price game. Local labs, hospital lab outreach programs, and pathology groups continously grumble about these business practices. Among these laboratory professionals, price discounting—particularly if the lab test price is less than the offering lab's marginal cost to perform the test is seen as a form of inducement or kickback.

The lab gives the discount for one part of the client's test referrals, and gains access to the Medicare and other fee-for-service specimens in exchange. At the federal level, there has never been enforcement action that draws a clear boundary as to where a deeply-discounted lab test price falls on the wrong side of the law. That allows a number of laboratory companies to operate in the grey area, while labs with conservative compliance policies lose a competitive edge in the market. I point all this out because the deeply-discounted lab test pricing game might soon get a new set of rules in California.

Last year, Attorney General Jerry Brown unsealed the whistleblower lawsuit that alleges seven lab companies in California defrauded theMedi-Cal program. Now there is news that one laboratory has signed a settlement, and two others may have also settled. Brown argues that California state law requires a lab to bill Medi-Cal at the same lowest price for a test that the lab offers its other clients. If Brown gets the other four to six labs to settle and agree to bill Medi-Cal in this manner, then hemay disrupt a long-standing lab industry practice in California. For that reason, the progress of this whistleblower suit bears watching.

Westcliff Labs Announces BK and Sale to LabCorp

Chapter 11 bankruptcy reveals huge losses at what was once a profitable independent lab

CEO SUMMARY: Subject to court approval, Laboratory Corporation of America is poised to acquire the assets of California-based Westcliff Medical Laboratories, Inc., which just filed a Chapter 11 bankruptcy action in federal court on May 19. In a separate transaction, LabCorp has an agreement to acquire Diamond Reference Laboratory of Diamond Bar, California. The two acquisitions will build LabCorp's share of the market for laboratory testing in California.

AG Jerry Brown Settles With Westcliff Med Labs

First look at the settlement agreement reveals how the AG may want labs to price tests to Medi-Cal

CEO SUMMARY: In California, Attorney General Jerry Brown is making progress in the whistleblower lawsuit alleging that seven lab companies in California violated state law by not giving Medi-Cal, the state's Medicaid program, the same lowest lab test prices they extend to physicians, managed care plans, and IPAs. Westcliff Medical Laboratories, Inc., is the first of the seven defendants to publicly acknowledge that it finalized a settlement agreement with the State of California.

Did Wrong Strategy Sink Westcliff Medical Labs?

California's third-largest commercial lab firm took just 46 months to slide into bankruptcy court

CEO SUMMARY: All sorts of people will argue all sorts of opinions about the financial demise of BioLabs, Inc., and its subsidiary, Westcliff Medical Laboratories, Inc., and why it ended up in a California bankruptcy court. Documents filed in the case indicate that, from the birth of the new company in June, 2006, it never produced an annual profit. During the 46 months of BioLabs/Westcliff's business life, its owners worked with two different management teams, each of which had a different strategy for growth.

Taming the Blood Beast With Better Utilization

Rapid yearly increases in blood product cost motivates hospital labs to educate physicians

CEO SUMMARY: For hospital labs, explosive increases in the cost of blood products is a budget buster. At St. Vincent Indianapolis Hospital, a multi-year blood management program is paying big dividends. Patient safety has improved, even as utilization of blood dropped by 7,000 units per year. Annual savings from this innovative blood management program now total $4 million. One key element behind this succes was for the lab to engage and educate physicians in a multi-disciplinary approach..

INTELLIGENCE: Late & Latent

BIO-REFERENCE GROWS 27% IN ITS SECOND QUARTER

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