Perry Cohen, PharmD, FAMCP

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In the early 1990s, employers started to carve out prescription drug coverage from the medical benefit. This separation evolved into the pharmacy benefit management (PBM) industry of today. PBMs’ landscape focused on managing the cost of the pharmacy benefit and managing drug companies and pharmacies (see chart). PBMs consolidated the purchasing power of employers to obtain rebates from drug companies and discounts for pharmacies.

Over the past several years, a similar development has been occurring with laboratory testing. With the development of thousands of new diagnostic tests, the need for managing the cost of the laboratory benefit is now necessary. Laboratory benefit management (LBM) companies act as an intermediary between laboratory test companies and physicians to manage the use of certain laboratory tests.

LBMs fill the need to manage laboratory testing for payers, which include employers who are self-insured and health insurers. LBMs that can offer a range of services are gaining influence over clinical lab testing in important ways. They perform several functions, ranging from educating to obtaining prior authorization to setting formularies and determining coverage policies. They also manage claims and the utilization of lab tests, often reviewing medical necessity.

Some payers adopt LBM coverage policies wholesale, whereas others check their own internally developed policies against LBM policies to see whether their own policies might be improved.

Routine tests make up most of the market, including common lab tests such as complete blood count, lipid and liver panels, urinalysis and cultures for infectious diseases. However, much of the recent growth in the number and expense of laboratory tests relates to specific conditions such as cancer, cardiovascular disease and diabetes. Examples of diagnostic tests include the following:

 determine the order of DNA building blocks (nucleotides) in an individual’s genetic code, a process called DNA sequencing. The purpose of these tests is to identify genetic changes that can cause disease. This is commonly referred to as somatic testing.

 analyze whole chromosomes to identify large-scale changes, such as an extra (trisomy) or missing (monosomy) copy of a chromosome, or abnormalities of large segments of chromosomes that underlie certain genetic conditions. This is commonly referred to as germline testing.

Tests are reimbursed according to current procedural terminology codes. Currently, there are approximately 1,860 codes. The price of these tests can vary greatly, ranging between $2,000 and $12,000. The high prices and the number of tests clinicians are ordering can make lab tests a cost burden for payers. As a result, they are seeking ways to better manage the use and reimbursement of such tests. However, the soaring number of tests is outpacing formularies, billing code sets and clinical utility evidence, which are all necessary for coverage determinations.

Many professional societies have issued guidelines that spell out which tests are medically necessary, but in reality there is minimal adherence to these stated guidelines. In addition, there is just not much agreement on when these tests should be completed.

Today, there often is confusion about which tests get ordered and why. To some extent, the tests physicians order are determined by the pathology laboratories that do the tests. Some are done in-house by the lab, whereas others are sent to an outside lab. Certain payers have said the most efficient use of resources is to have an agreed-upon panel of tests set for each cancer type. The pathology labs are opposed to this practice because it impedes their ability to differentiate their services and may affect their profitability. Labs competing for market share want to be able to control the integrity of their profiling systems from both financial and performance standpoints. That competition can lead to fragmentation.

Payers are also contributing to the chaos. Many have minimal understanding of the evolving technology of genetic testing. They believe that by limiting molecular testing to more traditional methods, as opposed to next-generation sequencing or cell-free DNA technologies, they are controlling cost. Just the opposite may happen. In response to limiting reimbursement to older standards of practice, some laboratories have been known to resort to billing multiple gene codes, also known as stacked billing. As a result, it is not always apparent to the payer whether the tests were appropriate for the patient.

Stuck in the middle are the physicians. They may be knowledgeable about the current recommendation, but labs and payers have turned ordering lab tests into a tug of war. A lab may recommend a test that may be clinically appropriate for the patient, according to current guidelines, and the payer may say the test is not medically necessary, per their coverage policy. But payers also have reason to be wary of unnecessary lab tests ordered because they increase revenues and profits for the labs.

Both Avalon Healthcare Solutions and Kentmere Healthcare Consulting Corporation state their services can cut the cost of clinical lab testing. Avalon has stated payers can cut costs from between 8% to 12%. Kentmere’s website says health plans can get a 20-to-1 return on their investment.

Several industry associations, such as AHIP, American Medical Association, and Blue Cross Blue Shield Association have reported that LBMs improved genetic test payment turnaround times but also that prior authorization denials have increased.

Research generally supports the positive financial impact of genetic testing. The research is largely done on specific diseases. For example, for certain gastrointestinal tumors, studies indicate cost-effectiveness for genetic testing of $92,000 compared with typical treatment regimes. Testing ensures appropriate drug therapy as a part of precision medicine, as well as the avoidance of costly invasive exploratory procedures (e.g., biopsies) that are currently the standard of care.

Although there are differences between PBMs and LBMs, employers can transfer the lessons from one industry segment to another. For the most part, PBMs have provided value to employers in the form of formulary management, utilization management and lower drug costs through volume purchases and rebates. On the flip side, payers acknowledge that PBMs have their limitations and require oversight.

Employers should consider using an LBM to help manage the coverage, reimbursement, claims payment and utilization management of laboratory tests. As the market develops, employers should understand that LBMs provide only a portion of the requirements for better precision medicine and develop strategies to gain a greater benefit.

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The Time is Now for Laboratory Benefit Management 

Two important risk factors for COVID-19 severity are age and obesity. Both Sweden and Japan have populations significantly older than that of the U.S. Japan has the greatest proportion (28%) of people older than 65 in the world. Sweden ranks 12th with 20%, and the U.S. is 36th with 16%. Based on the age of its population, Japan would be expected to be hardest hit by COVID-19.

But obesity is a major contributing factor to diabetes, hypertension and other morbidities associated with poorer prognosis for those who have received a diagnosis of COVID-19. Just over 36% of the U.S. population is obese — the largest proportion in the world, and greater than in Sweden (20.6%) and Japan (4.3%).

The exact course of the pandemic is difficult to predict, but as of Dec. 14, 2020, COVID-19’s impact on the Japanese, Swedish and American populations was dramatically different. Japan had significantly fewer cases and deaths on a population basis than the U.S., whereas Sweden had one-third fewer cases and one-fifth fewer deaths per million people. On a population basis, the U.S. has among the highest number of cases and deaths of any country in the world.

How did your country initially respond to COVID-19?

 Unlike the U.S., Sweden took what many considered a controversial and dangerous hands-off approach that did not include lockdowns or mandatory use of masks. The country also kept its schools open. The initial spike in cases and deaths was largely in nursing homes and among the elderly. The attitude among the country’s health officials was to treat the COVID-19 response as a marathon, not a sprint. Doing too much too quickly would cause people to get tired of the requirements and actually make things worse in the long run.

Swedish officials encouraged working from home and banning large gatherings but did not impose lockdowns or face masks. These steps were based on our goals of not overwhelming the healthcare system, minimizing the negative impact on the economy and not exhausting society’s resilience before the pandemic is over. The Swedish people have a high level of trust in the government. Anders Tegnell, M.D., the very controversial Swedish equivalent of Anthony Fauci, M.D., had an extremely high approval rating – people were even getting tattoos of him. Combined with Sweden’s relatively healthy population and the normal social distancing in our culture, the approach of moderation seemed the most effective way to go. (Note: This approach has not been as effective as once thought. Sweden currently has one of the highest rates of COVID-19 death in the world on a deaths per million population basis.)

 Japan immediately put five strategies in place. The first involved offering easy access to care through the government’s national healthcare system; the second, assuring high-quality care even in the rural and more remote areas; the third, reinforcing the Japanese citizens’ high standard of personal hygiene; the fourth, focusing on early detection of COVID-19; and, the fifth, prospective tracing and follow-up with close contacts of anyone diagnosed.

Culturally, Japanese people are very open to, and experienced with, wearing masks and practicing social distancing, even prior to the pandemic. Building on this, the government’s focus has been to promote avoidance of the three C’s: closed spaces, crowded places and close-contact settings.

What is the plan for vaccinating people in your country?

 We will start the vaccination process in either late winter or early spring 2021. Our expectation is that the Swedish people will walk and not run to be vaccinated because many remember a swine flu vaccine (2009) that left some children with narcolepsy.


 Because there is much emphasis on holding the Summer Olympics in Japan in 2021, there is a strategy to move quickly with vaccinations. The government has contracts with AstraZeneca, Pfizer and Moderna. People have a high trust in the vaccines if they have been approved by the FDA .

Is the vaccination going to be enough to get through this pandemic?

 My personal opinion is that because we’ve never used mRNA vaccines before and we have developed these vaccines much more rapidly than any previous one for a new disease, no one really knows how this will go. The best case is that we will still be dealing with COVID-19 until the summer and that we won’t see a fourth wave in the fall of 2021.

 While the vaccine is important, we won’t be relying on it alone. The public health measures and the need to continue the three C’s will still be important. We expect to be through it and safely host the Olympics in the summer.

What changes in the healthcare system, including telemedicine, and in the economy do you expect to continue after the pandemic is over?

 Sweden is already a leader in telemedicine, and the use of remote technologies for healthcare will continue to grow. I expect to see online retail to increase and moremployeoffices going virtual.

 Japan does not depend on telemedicine because so much healthcare is delivered in the home. But the interest level has been very high, and we will be moving toward increasing telemedicinie.

 is CEO of The Pharmacy Group and the TPG family of companies and a member of the 

Opinion piece by MHE's Editorial Advisory Board Member and CEO of The Pharmacy Group, Perry Cohen. Perry discusses the response differences and vague similarities between the countries and addresses the continuous question, "What is the new normal?"

COVID-19 Response in Japan, Sweden and the United States

Some of the most amazing things are happening in the delivery of medical care these days. Surgical techniques, new devices, drugs, and diagnostics can treat and cure many medical conditions. Now the only challenge is who pays for these advances and how. More than ever, managed care pharmacy is at the center of healthcare and needs to help design, develop, and implement new solutions to address this challenge.

, discusses the changing nature of managed care pharmacy and the role it needs to take in curbing healthcare costs. Here are some of my thoughts.

With the growth of specialty pharmaceuticals, the roles of the physician, pharmacist, and patient need to be redefined and the total cost of care must be evaluated to see what really adds value in medical care. We need to develop new models of care to address the new world of healthcare.  

The administrative costs of medical and pharmacy benefits must decrease and there must be more price transparency as patients begin to act as consumers.

Currently, purchasers measure the effectiveness of PBMs by whether they reduce the unit cost of prescription drugs. Utilization management is also widely used to make sure the right drugs are used by the right patients. Systems and processes for this work are driving physicians and pharmacists crazy.

We need to merge pharmacy claims data with medical claims data and patient reported outcomes to measure drug performance and have value-based contracting.

Managed care pharmacy needs to reinvent itself to make value-based contracting happen on the healthcare financing side.

It’s encouraging to see that most industry leaders agree that value-based contracting is a top priority. When asked, “What is the biggest opportunity to reduce specialty pharmaceutical costs?” The most popular response among healthcare executives who took our Managed Care Pharmacy Survey 2018 was value-based contracting (see page X). Further, 60% of respondents said value-based contracting with manufacturers is the best coverage strategy for new, innovative therapeutics and biologics. 

It’s also good to see that new players and new technology to deliver healthcare, such as telemedicine, are continuing to grow. The kitchen countertop in the patient’s home is where the action will happen. New technology from Google, Amazon, and others will drive this change.

As younger patients view time and space differently from senior citizens, the roles of physicians and pharmacists will change and the movement of information will be digital. Pharmacist house calls will be used to provide patient supportive care and lead to more collaboration between physician, pharmacist, and patient.

The use of companion diagnostics to drive personalized medicine will become the standard of care for certain diseases.

Lastly the use of data, analytics, and reporting will drive decision making for physicians, pharmacists, and patients in the delivery and financing of healthcare to ensure the best use of resources.

Exciting times are ahead, and managed care pharmacy is well positioned to drive the necessary changes.

 editorial advisor and chief executive officer of The Pharmacy Group and the TPG family of companies, which provides services to associations, healthcare and information technology organizations, payers and pharmaceutical companies.

Perry Cohen, PharmD, FAMCP

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The Time is Now for Laboratory Benefit Management

COVID-19 Response in Japan, Sweden and the United States

Managed Care Pharmacy’s Future: What Health Execs Should Know