Lab Claim Integrity: A Vital Component of Healthcare Quality and Cost Containment

Bill Kerr, M.D., MBA

More than 14 billion lab tests are performed annually in the United States at an annual cost of about $85 billion, making it the largest medical benefit. An estimated 70% of clinical decisions are based on lab testing, and the results disproportionately impact spending and care throughout the patient journey.

The number of tests available is growing, particularly in genetics, where an average of 10 new tests are created daily. The growth in personalized medicine will continue to push the volume of testing, particularly with more expensive tests.

Because testing is so common and, on a per-unit basis, relatively inexpensive compared to other medical procedures, it is not as closely scrutinized by plans as other aspects of care. For example, most routine lab tests do not require prior authorization.

However, lab testing is a significant cost for plans and members overall, one that could be better managed. Below are some aspects of testing that bear greater scrutiny.

Fraud, waste and abuse

Though the cost of each routine test is relatively low, testing is done at such a high volume that the amounts lost to fraud, waste and abuse are substantial.

Overuse of lab tests is common, as many as one out of five tests performed may be unnecessary. A 2020 study found that repeat testing of normal test results occurred in up to 85% of patients.

Lab testing is also rife with fraud and misconduct on the part of labs and some providers, which boomed during the pandemic.

Another common practice—one that costs millions of dollars per year — is panel stuffing, the practice of some labs adding tests with no clinical value to panels and billing for them.

Place of service

An often-overlooked aspect of lab testing costs is the place of service, the physical location where lab tests are performed. These options include outpatient hospital-based labs, independent labs, and physician office labs. Where a test is performed has a significant impact on member costs, with outpatient hospital-based labs costing the most, independent labs the least, and physician office labs in the middle.

The trend toward healthcare consolidation means more hospital-based testing, which is increasing costs for plans and members. Shifting testing to independent labs helps control costs.

Genetic testing

Genetic testing is the fastest-growing field of testing. More than 185,000 tests are available, and though genetic tests make up only 10% of all lab tests, they account for 30% of spending. In 2023, the average annual spend per member for routine testing was $165, and the average annual spend per member for genetic testing was $13.

Many genetic tests are performed without proper justification, which adds little value to a patient’s care but affects the costs of providing the benefit. There is a lack of consensus on operationalizing clinical utility, leading to inconsistent determinations of value and coverage across labs, providers, and payers.

Science-backed policies

Plans find it challenging to keep up with the explosion in testing, so they can’t be certain they’re paying for tests that will improve care. Test evaluation and approval processes should be based on peer-reviewed studies, professional society guidelines, government regulations, and evidence-based policies to ensure appropriate use. Tests should be reviewed for analytical and clinical validity and utility before being approved for coverage.

The need for LBMs

Most plans do not have the capacity or expertise to effectively manage lab testing independently. The volume is too large, the increase in new tests is too significant, and the science is too mutable, particularly in the area of genetic testing.

Plans need a lab benefits manager (LBM) that specializes in testing. This manager can review claims based on science-based policies to determine their validity, utility, and applicability to patients, ensuring patients receive the right test at the right time for the right reason.

An LBM can instantly review provider claims for policy adherence and identify fraud, waste, and abuse patterns, as well as high-performing labs and providers.

LBMs ensure that the right tests are ordered and performed correctly, reducing the risk of misdiagnosis and ensuring patients receive effective treatments for conditions, such as cancer. LBMs cut costs and spare patients from additional procedures and stress by eliminating unnecessary tests.

LBMs advance population health management by using lab insights and analytics to identify chronic conditions in patient populations, allowing for early intervention and better disease management. This helps plans ensure that in-demand therapeutics, like GLP-1s, go to those with the greatest need.

A better way forward

Health plans that invest in lab claim management, including routine testing, will see a return in controlled costs for themselves and their members and better health outcomes. Healthcare has become too expensive and complex to leave any part unexplored for greater efficiencies and ways to make it more affordable and accessible.

Bill Kerr, M.D., MBA, is CEO and co-founder of Avalon Healthcare Solutions, the world’s first and only lab insights company.