Questions Health Plans Must Ask Before Considering a Laboratory Benefit Management or Prior Authorization Program

New or rebranded companies are emerging in the laboratory benefits manager (LBM) and prior authorization provider (PAP) space. What was once a small, fairly tame corner of American health care has become a hot spot because of uncontrolled costs and increasing numbers of tests, especially genetic ones. The LBMs and PAPs companies are bombarding managed care executives with intense marketing. Much of the marketing is incomplete and misleading. Companies are trying to apply the pharmacy benefits manager model to laboratory testing. However, managing pharmacy and laboratory costs are not the same, and some of these programs will add significant overhead and member and provider burdens. Here are some of the questions managed care executives should ask before contracting with an LBM or a PAP:

Charles Cini

Charles Cini, Kentmere Healthcare Consulting Corporation

  1. Is the business generating a profit? Has the company demonstrated that it is operationally profitable or does it require ongoing funding from its parent company or investors to survive? In recent years we have all seen what happened to Theranos, which, despite hundreds of millions of dollars of investment, closed its laboratory division.
  2. Does it have documented experience and validated results with health plans that are not financially or operationally partnered with them? Complete independence from clients and laboratories is critical to the credibility of references and savings data from LBMs and PAPs.
  3. Does the health plan have an accurate and complete analysis (validated by your actuaries) of your current outpatient laboratory process and current spend? Many analyses submitted by vendors are outdated or inaccurate and can result in decisions that lead to both negative financial and operational results.
  4. Has the health plan reduced outpatient laboratory spend to the level that can be obtained without the use of an LBM or a PAP? An LBM or a PAP should not receive credit or fees for reductions that are already occurring in the market and changes you can make without their assistance. Genetic test prices and some utilization rates are dropping because of competition and new technologies.
  5. Does the LBM or PAP claim that non-national health plans cannot maximize volume discounts? This is not true. Laboratory contract pricing has very little to do with the size of the health plan. It is related to the knowledge the plan has of its market and the labs’ competitive positions. Using a lab subject matter expert, many small plans have received better pricing than the nationals.
  6. Who will control (and own) the outpatient laboratory network or process? Some LBMs contract with the labs directly. The risk associated with this arrangement is that health plans could be giving up control over the network, pricing, and performance requirements.
  7. What happens to the network or process if the LBM or PAP fails or is terminated? While your contracting team may protect you financially, you may need to re-attain the expertise you lost when you outsourced the network and re-contract with laboratories at a disadvantage.
  8. Does the health plan have the internal experience and expertise to evaluate, negotiate with, and monitor an LBM or a PAP? This area is full of hidden minefields that are new to health plan contracting experts. Internally, a health plan would require up-to-date technical laboratory expertise, in addition to a database with reference points from around the country to evaluate these programs.

These questions show that the use of an LBM or a PAP should be just one of the potential results of your laboratory benefit management program, not the program itself. You shouldn’t have to pay for services you already provide yourselves or add a middleman that’s not necessary.

Charles Cini, CPA, is CFO and chief analyst for Kentmere Healthcare Consulting Corporation in Wilmington, Del.


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