R. Lewis Dark: California's Legal Challenge to Discount Pricing

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.

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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.

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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.

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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.

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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..

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INTELLIGENCE: Late & Latent

BIO-REFERENCE GROWS 27% IN ITS SECOND QUARTER

MORE ON: Kaiser

R. Lewis Dark: Irish Labs Are at an Important Crossroads

GLOBAL OUTSOURCING OF CLINICAL LABORATORY TESTING IN IRELAND has entered its second phase. The Irish Health Service Executive (HSE) granted Quest Diagnostics Incorporated a contract for an additional two-years of cervical cancer screening tests while awarding 25% of the nation'' annual Pap testing to Sonic Healthcare Ltd. in a similar two-year contract.

These developments are significant, because as long as the Irish outsourcing experience is favorable, it makes it easier for other nations to outsource laboratory testing to lab testing companies located in other countries. But there is another dimension to the lab testing story in Ireland which fascinates me even more. As clients and regular readers of THE DARK REPORT know, the Irish HSE has announced a complete restructuring of laboratory services throughout the country. (See pages 6-8 and The Dark Report, January 25, 2010).

I'd like to make two observations about this ambitious project, which is a typical government health official approach to saving money. First, veteran pathologists and lab managers know all too well that, over the past 25 years, there are more disasters than successes when a government health system decides that it can take out costs by consolidating pathology testing, laying off medical technologists, and reducing the number of labs and blood collection centers serving a community. Certainly the cost of lab testing did go down in the short term in these cases. But it was physicians and patients in these communities who often endured service deficiencies, glitches in the process of consolidating lab testing, and even serious problems in the accuracy and trustworthiness of lab test results.

Second, I'll guess that the Irish Health Service Executive, in developing its "total laboratory consolidation" plan with a consulting company from England back in the years 2004-2007, did not spend much money sending a team of experienced pathologists, laboratory scientists, and healthcare policy makers on a tour to several countries to do first-hand investigations of successful, innovative regional laboratories, along with an on-the-ground visit to some of the larger-and often not-sosuccessful- laboratory consolidation projects.

If this assumption is true, it is an interesting comment on the due diligence of Ireland's healthcare leaders that they would embark on a major makeover of the nation's pathology service without having invested a rather modest amount of time and money to send their laboratory profession's best and brightest out on a factfinding tour of the world's best examples of lab testing. To the contrary, might it be true that the HSE, for the cost of a consulting fee to an English company, has gotten the answer it wanted and is proceeding with a laboratory restructuring and consolidation plan that was likely pre-ordained as early as 2004?

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Optimism & Opportunity at Executive War College

This year's gathering was high-energy and marked by a positive outlook for lab testing

CEO SUMMARY: Instead of our annual review of key speakers as a source of emerging trends and common themes, this year we assess the attitudes, opinions, and activities of the pathologists, laboratory administrators, managers, and industry executives in attendance at the 15th Annual Executive War College. These people are the grass roots of laboratory medicine and they are ready to tackle all the coming challenges in healthcare and the laboratory testing marketplace. ALL SESSION AUDIO RECORDINGS ARE AVAILABLE NOW!

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Sonic Health Wins Irish Contract for Pap Testing

First nation in the world to outsource 100% of its Pap testing also renews contract with Quest

CEO SUMMARY: Evidently the Irish Health Service is satisfied with its decision to outsource all the nation�s cervical cancer screening tests. In recent weeks, it announced that two international laboratory companies would handle Pap testing for the next two years. Sonic Healthcare, Ltd., won a contract to perform 25% of Ireland's 300,000 Pap tests annually. Quest Diagnostics renewed its contract and will perform the balance. Both lab companies indicate they will build laboratory facilities in Ireland.

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Pathologists Can Still Earn Medicare PQRI Incentives

Federal program offers pathologists a 2% bonus during 2010 for reporting required quality measures

CEO SUMMARY: During 2010, the Medicare Physician Quality Reporting Initiative (PQRI) will pay a 2% bonus to pathologists who register and report data on 80% of their cases for the specified CPT codes. However, independent pathology laboratories still cannot participate in the PQRI program. Also, PSA, LLC, reports it can be challenging to audit the Medicare PQRI bonus amount paid at year's end against the actual amount that was billed to Medicare by individual pathologists for the CPT codes included in the PQRI program.

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French Company Buys Pittsburgh-Based RedPath

ExonHit Therapeutics acquires Redpath�s proprietary molecular test and its CLIA laboratory

CEO SUMMARY: Here's a deal that is all about proprietary molecular assays and access to new markets. With its purchase of RedPath Integrated Pathology, ExonHit Therapeutics, S.A., of Paris, France, gains a CLIA laboratory and access to the U.S. market, even as the new owner opens the door to the European market for RedPath. As announced by the two companies, ExonHit will spend $22.5 million to acquire RedPath Innovative Pathology and will pay an additional $9.5 million if RedPath achieves certain sales targets.

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LETTER TO THE EDITOR: Letter to Editor on EMR Donations, Deeply-Discounted Client Prices

Starting 10 years ago, physicians in Bristol, England alerted NHS officials about problems in lab test accuracy

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EMR Donations, Client Bill Issues in Anatomic Path

Federal law has lots to say on EHR donations and discounted client bill pricing to referring docs

CEO SUMMARY: In today's market for anatomic pathology services, local pathology practices are facing tough competition from national pathology companies that are quite aggressive at using EHR donations and discounted client bill arrangements to win new clients. Attorney Jane Pine Wood of McDonald Hopkins identifies federal safe harbor requirements governing EHR donations involving laboratories and referring physicians, then discusses compliance issues triggered by discounted client billing arrangements.

INTELLIGENCE: Late & Latent

PERKIN ELMER PAYS $90 MILLION TO BUY SIGNATURE GENOMICS

MORE ON: Aurora

R. Lewis Dark: Is Laboratory Industry Ready for Facebook and MySpace?

WHO COULD HAVE IMAGINED, JUST A FEW YEARS AGO, that social networking sites such as Facebook.com, MySpace.com, and YouTube.com would become a useful platform that allows clinical laboratories, pathology groups, and in vitro diagnostics (IVD) companies to engage in two-way conversations with patients and customers?

After all, in those days, the preponderance of active users of these social networking services were young people. There were no obvious business reasons why a clinical laboratory might want to establish its own page on any of these sites. If that was the popular wisdom then, it is not accurate today.

In my neighborhood, even the retired ladies now maintain Facebook or MySpace pages and regularly communicate with each other via this medium. Of course, since elderly folks tend to have a variety of health problems, there is plenty of conversation taking place about these topics. I suspect that is why certain lab companies, like Myriad Genetics with its predictive genetic test for breast cancer, have established a presence on these social networking sites and find themuseful for communicating with women concerned about breast cancer.

On pages 3-6, THE DARK REPORT provides the lab industry's first briefing about why IVD companies and certain clinical laboratories are consciously incorporating social networking activities into their marketing and business development programs. I suspect it will surprise many pathologists and lab managers at how rapidly social networking has become a useful conduit for organizations to directly conduct two-way conversations with patients, customers, and prospects.

In fact, it might be smart for clinical labs and pathology groups to invite their Generation Y pathologists and medical technologists to enlighten the marketing and sales teams at their labs about how social networking works. An even bolder move would be to empower themost enthusiastic of these Gen Y laboratory professionals to help design social networking programs in tandem with the lab's sales and marketing team.

By way of full disclosure, this aging curmudgeon acknowledges that he doesn't surf such social networking sites as FaceBook.com and MySpace.com. However, he has learned that he can go to YouTube.com and easily find entertaining clips of musical performers popular during his youth. With just a couple of mouse clicks, performances by Mitch Miller and Patti Page can be accessed!

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Social Networking Is New Laboratory Marketing Channel

Clinical labs and IVD companies encourage customer dialogue at Facebook, YouTube, Twitter

CEO SUMMARY: Using social marketing sites on the Web allows labs and IVD manufacturers to interact with customers in ways that were not possible years ago. Marketers use these interactive web sites to supplement traditional methods of advertising. Inviting customers to discuss your company and products on a Facebook site can result in powerful word-ofmouth testimonials. But proceed with caution! Negative comments about your company or laboratory can pop up as well.

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Pre-authorization Coming For Pricey Molecular Tests

Health insurers ready to control utilization of expensive genetic and molecular tests

CEO SUMMARY: In response to the steep ramp-up in the utilization of genetic and molecular testing, the nation's largest health insurers are preparing to institute new guidelines for coverage and reimbursement. These will include pre-authorization by physicians, a more effective genetic test coding arrangement for claims submission by laboratories, and implementation of evidence-based medicine (EBM) guidelines. All of these developments create opportunities for clinical laboratories to step up and add value in new ways to payers.

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ISO 15189 Accreditation Requires Specific Steps For Global Recognition

CEO SUMMARY: This intelligence briefing is the third in an ongoing series about quality management systems (QMS) and their role in advancing the performance of clinical laboratories and improving the quality of the testing services they provide. ISO 15189 is a set of standards for medical laboratories based on the ISO 9001 quality management system. It provides a way for medical laboratories to demonstrate to outside examiners both conformance to the QMS and competence in the performance of laboratory testing services.

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Competitive Bidding Update: Two Years Later, CMS Still Holds Labs' Competitive Bid Documents

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LAB QUALITY: Errors in Surgical Pathology Surface in the United Kingdom

Starting 10 years ago, physicians in Bristol, England alerted NHS officials about problems in lab test accuracy

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INTELLIGENCE: Late & Latent

FIRE DESTROYS TACOMA FACILITY OF STERLING LABS

HBO BIOPIC ABOUT JACK KEVORKIAN TO AIR ON APRIL 24

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R. Lewis Dark: For Better or for Worse: Nation Has New Health Law

CONGRESS AND THE CURRENT ADMINISTRATION HAVE THEIR HEALTH LAW. Whether this new law serves the citizens of this country for the better or for the worse will not be known for several years into the future.

I suspect that many of our elected officials in the House and Senate do not fully understand the major elements of the health bill that has just become law. I believe I amalso on safe ground to state the opinion that few of these "servants of the people" actually took the 2,700+ pages of the bill and perused themcarefully before deciding how to cast their vote.

Therein lies the rub. First, these legislators have exempted themselves and their Congressional staffs from the health mandates that they are imposing on the remainder of the country. They know this insulates themselves and their families from whatever negative consequences develop fromthe parts of the new law which prove detrimental to the healthcare system. As an American citizen of good standing, I find it sad that our political leaders deliberately take themselves out of the legislative solution they consider best for the nation.
 
Second, in coming years, none of us should be surprised when various unintended consequences of this health law become obvious and troublesome. Expect these same senators and representatives to tell news reporters that "I didn't know that was in the bill," or "I didn't understand how this specific mandate would cause health providers to change the way they practiced medicine."

Forgive me for being skeptical about these developments. Like many of you, early last year I was hopeful that the goal of improving our nation's health system would include a robust exploration of innovative ways to organize healthcare.

Healthcare's "best practices" examples, such as Mayo Clinic, Cleveland Clinic, Kaiser Permanente, and Geisinger Health, would be studied by policymakers and legislators. As part of the health bill, seed funding to encourage similar "health innovation incubators" would be authorized with the goal of covering more people at lower cost while achieving improved health outcomes.

On this point, I am not aware of any provision in the new law that financially encourages a health system, hospital, or physician group to experiment with innovative ways to organize and deliver healthcare. I amwilling to be proven wrong on this point. If you know of such a provision, contact me at our editorial offices. In the meantime, like most of you, I am reserving judgement about whether this health law is good for our country. Like the residents of Missouri, I say "Show me."

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2.3% Medical Device Tax Hits Clinical Labs in 2013

Newly-enacted health reform bill requires medical device companies to pay excise tax

CEO SUMMARY: One aspect of the massive new health bill is that medical device companies will pay a 2.3% tax, effective January 1, 2013. Students of economics know that it is customers who invariably end up paying such direct taxes. Thus, clinical laboratories in the United States should prepare to see this 2.3% tax show up as a line item on sales contracts and in the form of higher prices for in vitro diagnostics analyzers, lab equipment, reagents, consumables, and even medical software.

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Business Advantages From Whole Slide Imaging

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WSI creates ways to significantly improve collaboration between pathologists and physicians

CEO SUMMARY: Whole slide imaging (WSI) is a niche product today, but it offers the potential to redefine the practice of pathology. That's the opinion of pathologists presenting at a digital pathology workshop last month. One pathologist explained how WSI significantly improves collaboration between pathologists and referring physicians. Another pathologist explained how regulators soon may require standards for WSI and why such standards are likely to result in a call for standards for light microscopes as well.

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Use of Point-of-Care Testing Reduces Mortality by 50%

In a thinly-populated region the size of Texas and New Mexico combined, an integrated clinical care program based on point-of-care testing (POCT) has delivered impressive gains in health outcomes. For rural residents, mortality rates from cardiovascular disease have fallen by 50%. There were comparable declines in hospital length of stay and the rate of readmissions. A reliable test result and speed to answer fromPOC testing is a major factor in these improved outcomes.

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Serious Problems Plague Newfoundland Laboratory

Inaccurate cyclosporine test results trigger lab director resignations and more media scrutiny

Newfoundland's St. John laboratory was rocked by revelations in February that its cyclosporine testing was flawed, exposing patients to the harmful affects from inappropriately high doses of the immunosuppressant drug. Within weeks of this news, the Chief of Laboratory Medicine resigned. Now a team from Toronto's University Health Network (UHN) is at the laboratory to conduct a review of operations and make recommendations to the health authority.

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INTELLIGENCE: Late & Latent

JUAN ROSAI, MD'S CASES TO BE PUT IN DIGITAL ARCHIVE

PHLEBOTOMIST GETS LUCKY, WINS $111,250

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