Today I am an old Curmudgeon who is in high dudgeon. What's got my dander up is the disturbing revelation in this issue of The Dark Report about the willingness by some of our industry's biggest companies to use"free testing" as a way to protect and build market share. (See pages 2-8.)

This is an important story. I believe it might signal the earliest stages of a competitive market strategy which could end up being as self-destructive to the laboratory industry as did below-cost bidding of capitated HMO contracts in the 1990s. I also believe it is a harbringer of how the two blood brothers will use their national oligopoly to enlarge their regional monopolies.

For pathologists practicing in Florida, this ruling affects the way they bill for such services. It appears that judges, with little true understanding about clinical practices and long-standing reimbursement customs, have tried to fashion a solution which will please no one. From this point forward, there will be lots of frustration as payers, pathologists, and patients try to transact business under the ruling issued by the appeals court. Certainly those pathologists in Florida who bill for clinical pathology professional services will need to respond to this ruling and insure that their billing activities confirm to the appeals court's decision.

You will learn how both the two blood brothers have established corporate policies that allow their sales reps to approach physicians with a proposition that boils down to this: "Since we are not a contract provider to this HMO, we will ‘waive charges' for lab testing done on behalf of these patients while continuing to do all your other lab testing work." This is offered selectively in situations which meet OIG anti-kickback guidance.

My first observation is this: "waiving charges" is the same as "free testing." I believe that the two blood brothers are taking the entire lab industry down a slippery slope should they expand their use of this heretofore unpublicized market ploy. How will private payers and Medicare respond if they see a national lab willing to do work for free? This certainly does not bolster the arguments of the lab industry, including the two blood brothers, that reimbursement for many critical lab test procedures is inadequate.

My second observation is this: The OIG Fraud Alert which supports this practice of "free testing" has been around since 1994. Yet the two blood brothers have not used this tactic extensively in past years. Why not? I would bet that, in the days when there was a SmithKline Beecham Clinical Labs, a Dynacare, an AML, competition at both the national and regional level made "free testing" a poor strategy. But now, with much less competition, the oligopoly/monopoly power of the two blood brothers makes this a more inviting market ploy—at least in the short term.

My final observation is simple. Once again, actions of the two blood brothers demonstrate that they emphasize their self interest regardless of their public pronouncements and the long-term interests of the entire lab industry. After all, how do public statements of "lab test pricing discipline" square with private offers of "free lab testing?"

Two Blood Brothers Use "Free Testing" Strategy

Nation's two biggest labs implement strategy to counter hospital lab outreach competition

CEO SUMMARY: It's a business strategy that Quest Diagnostics Inc, and Lab Corporation of America use in select areas where they have lost exclusive managed care contracts to regional lab competitors. In order to retain access to a physicians fee-for-service testing business, each lab company is willing to waive HMO testing fees in specific situations that conform to an OIG fraud alert.

Will "Free Testing" Ploy Financially Affect Laboratories?

Wider use of marketing strategy could lead lab industry into unwelcome financial turmoil

CEO SUMMARY: It's a marketing scheme which public lab companies have quietly used for years. Now there is evidence that the use of "Waiver of Charges to Managed Care Patients" (free testing) seems to be on the increase, raising new questions about how and why competitive practices are changing. Will the two blood brothers use their increasing clout to bring more intense competitive pressures against regional labs?

Lab Informatics Update:

Newly-Issued HIPPAA Regs Generate Lots of Controversy

Lab Competitors Pool Lab Data For Clinicians In British Columbia