Today’s clinical laboratory can do much more than you think. Advances in molecular diagnostics, genetics and biomarkers have ushered in a new era of clinical laboratory capabilities. Along with these advances, however, are higher laboratory expenditures. The U.S. Medicare program spent $6.5 billion annually on laboratory in 2006. By 2010, the program was spending $8.2 billion—a more than 25% increase in just 5 years (Figure 1).
Private payers have faced similar growth in lab expenses: the health insurer United Healthcare estimates that average annual spending per member on molecular and genetic tests increased by about 14% between 2008 and 2010. Of that amount, about 70% was due to increased utilization of test services and the remainder due to higher prices, intensity or complexity. [1]
Expenditures on clinical laboratory are a function of five factors: (1) the clinical value of the test; (2) the economic value of the test; (3) non-price controls on utilization (e.g., test formularies and clinical practice guidelines); (4) price controls on utilization (such as reference pricing); and (5) improvements in the efficiency of clinical laboratories, which enhances their ability to provide cost-effective services to their clients (e.g., discounts, etc.) (Figure 2).
Some form of all five of these tools can be used for laboratory utilization management, but in most cases only a few of these will be used and for a subset of tests. It is critical that clinical value be established before tests are adopted in clinical practice, but it is equally important that tests with demonstrated value be used appropriately. [2] Economic value is also very important; some tests fail to generate clinical value proportional to testing cost, either at the patient or population level.[3] However, using economic valuation and cost effectiveness as a guide to test utilization management has been slow to diffuse in the U.S. But as diagnostic expenditures increase, there is a greater impetus to use these types of controls. For example, a subset of high-cost tests (with cost a function of per unit price, volume, or both) within a therapeutic area can be identified, and then each test can be “rank ordered” in terms.
Two of the more prevalent utilization control mechanisms are non-price controls, such as laboratory formularies, [4] and price controls, such as reference pricing. Laboratory formularies are similar to drug formularies, and identify diagnostic tests “approved for use in a particular setting, possibly including additional restrictions regarding who may order a particular test and under what circumstances.”[5] Formularies can be driven by clinical utility or economic value, or both via cost-effectiveness analysis. Price controls, such as reference pricing, have also been shown to be effective in reducing laboratory expenditures. In a case-control study of laboratory tests utilized by a large employer group conducted by Avalon’s collaborators at the Berkeley Center for Health Technology, reference pricing led to a 17.8% (p<.001) reduction in laboratory test prices in the first year after implementation. By the second year, this had increased to 21.6% (p<.001) and by the third year to a 27.7% (p<.001) reduction. In the three years after implementation of reference pricing, the employer saved 18.5% in spending compared to what it would have spent had the prices of reference-priced tests continued to increase at the same rate as non-reference priced tests.
Finally, improving the efficiency of labs is another important but often overlooked tool, although it is one that is often overlooked from the payer perspective. A more efficient laboratory is one that has greater flexibility in pricing, is better able to use information systems to track utilization patterns and trends, and more capable of monitoring and assuring high-quality testing. In addition, a more in-depth understanding of clinical laboratory capabilities, efficiencies, and quality can support selective contracting activities on the part of payers, which may be a desired form of utilization management in some therapeutic areas and for some subgroups of diagnostic tests.
-John Schneider, PhD
References
[1] United Healthcare, “Personalized Medicine: Trends and Prospects for the New Science of Genetic Testing and Molecular Diagnostics,” (2012).
[2] See generally A. R. Horvath, “From Evidence to Best Practice in Laboratory Medicine,” Clin Biochem Rev 34, no. 2 (2013); M. J. McQueen, “Evidence-Based Medicine: Its Application to Laboratory Medicine,” Ther Drug Monit 22, no. 1 (2000); D. R. Parkinson et al., “Evidence of Clinical Utility: An Unmet Need in Molecular Diagnostics for Patients with Cancer,” Clin Cancer Res 20, no. 6 (2014); B. Shen and J. Hwang, “The Clinical Utility of Precision Medicine: Properly Assessing the Value of Emerging Diagnostic Tests,” Clin Pharmacol Ther 88, no. 6 (2010); J. R. Trosman et al., “What Do Providers, Payers and Patients Need from Comparative Effectiveness Research on Diagnostics? The Case of Her2/Neu Testing in Breast Cancer,” J Comp Eff Res 2, no. 4 (2013).
[3] Refer to, for example: B. Doble et al., “Modeling Companion Diagnostics in Economic Evaluations of Targeted Oncology Therapies: Systematic Review and Methodological Checklist,” Expert Rev Mol Diagn (2014); P. K. Drain et al., “Diagnostic Point-of-Care Tests in Resource-Limited Settings,” Lancet Infect Dis 14, no. 3 (2014); C. Fang et al., “Cost-Utility Analyses of Diagnostic Laboratory Tests: A Systematic Review,” Value Health 14, no. 8 (2011); D. Husereau et al., “Health Technology Assessment and Personalized Medicine: Are Economic Evaluation Guidelines Sufficient to Support Decision Making?,” Int J Technol Assess Health Care 30, no. 2 (2014); S. Loubiere and J. P. Moatti, “Economic Evaluation of Point-of-Care Diagnostic Technologies for Infectious Diseases,” Clin Microbiol Infect 16, no. 8 (2010); K. A. Phillips et al., “The Economic Value of Personalized Medicine Tests: What We Know and What We Need to Know,” Genet Med 16, no. 3 (2014); J. L. Severens and G. J. van der Wilt, “Economic Evaluation of Diagnostic Tests. A Review of Published Studies,” Int J Technol Assess Health Care 15, no. 3 (1999); A. Towse et al., “Understanding the Economic Value of Molecular Diagnostic Tests: Case Studies and Lessons Learned,” Journal of Personalized Medicine 3(2013); J.E. Schneider et al., “Economics of Cancer Biomarkers,” Personalized Medicine 9, no. 8 (2012).
[4] See generally B. R. Jackson, “Laboratory Formularies,” Clin Chim Acta 427(2014); J. T. Kelly, “Role of Clinical Practice Guidelines and Clinical Profiling in Facilitating Optimal Laboratory Use,” Clin Chem 41, no. 8 Pt 2 (1995); P. W. Marcello and P. L. Roberts, “”Routine” Preoperative Studies. Which Studies in Which Patients?,” Surg Clin North Am 76, no. 1 (1996).
[5] Jackson, “Laboratory Formularies.”
Doble, B., M. Tan, A. Harris, and P. Lorgelly. “Modeling Companion Diagnostics in Economic Evaluations of Targeted Oncology Therapies: Systematic Review and Methodological Checklist.” [In Eng]. Expert Rev Mol Diagn (Aug 21 2014): 1-17.
Drain, P. K., E. P. Hyle, F. Noubary, K. A. Freedberg, D. Wilson, W. R. Bishai, W. Rodriguez, and I. V. Bassett. “Diagnostic Point-of-Care Tests in Resource-Limited Settings.” [In eng]. Lancet Infect Dis 14, no. 3 (Mar 2014): 239-49.
Fang, C., H. J. Otero, D. Greenberg, and P. J. Neumann. “Cost-Utility Analyses of Diagnostic Laboratory Tests: A Systematic Review.” [In eng]. Value Health 14, no. 8 (Dec 2011): 1010-8.
Horvath, A. R. “From Evidence to Best Practice in Laboratory Medicine.” [In eng]. Clin Biochem Rev 34, no. 2 (Aug 2013): 47-60.
Husereau, D., D. A. Marshall, A. R. Levy, S. Peacock, and J. S. Hoch. “Health Technology Assessment and Personalized Medicine: Are Economic Evaluation Guidelines Sufficient to Support Decision Making?” [In eng]. Int J Technol Assess Health Care 30, no. 2 (Apr 2014): 179-87.
Jackson, B. R. “Laboratory Formularies.” [In eng]. Clin Chim Acta 427 (Jan 1 2014): 151-3.
Kelly, J. T. “Role of Clinical Practice Guidelines and Clinical Profiling in Facilitating Optimal Laboratory Use.” [In eng]. Clin Chem 41, no. 8 Pt 2 (Aug 1995): 1234-6.
Loubiere, S., and J. P. Moatti. “Economic Evaluation of Point-of-Care Diagnostic Technologies for Infectious Diseases.” [In eng]. Clin Microbiol Infect 16, no. 8 (Aug 2010): 1070-6.
Marcello, P. W., and P. L. Roberts. “”Routine” Preoperative Studies. Which Studies in Which Patients?” [In eng]. Surg Clin North Am 76, no. 1 (Feb 1996): 11-23.
McQueen, M. J. “Evidence-Based Medicine: Its Application to Laboratory Medicine.” [In eng]. Ther Drug Monit 22, no. 1 (Feb 2000): 1-9.
Parkinson, D. R., R. T. McCormack, S. M. Keating, S. I. Gutman, S. R. Hamilton, E. A. Mansfield, M. A. Piper, et al. “Evidence of Clinical Utility: An Unmet Need in Molecular Diagnostics for Patients with Cancer.” [In eng]. Clin Cancer Res 20, no. 6 (Mar 15 2014): 1428-44.
Phillips, K. A., J. Ann Sakowski, J. Trosman, M. P. Douglas, S. Y. Liang, and P. Neumann. “The Economic Value of Personalized Medicine Tests: What We Know and What We Need to Know.” [In eng]. Genet Med 16, no. 3 (Mar 2014): 251-7.
Schneider, J.E., M.K. Sidhu, C. Doucet, N. Kiss, R.L. Ohsfeldt, and D. Chalfin. “Economics of Cancer Biomarkers.” Personalized Medicine 9, no. 8 (2012): 829-37.
Severens, J. L., and G. J. van der Wilt. “Economic Evaluation of Diagnostic Tests. A Review of Published Studies.” [In eng]. Int J Technol Assess Health Care 15, no. 3 (Summer 1999): 480-96.
Shen, B., and J. Hwang. “The Clinical Utility of Precision Medicine: Properly Assessing the Value of Emerging Diagnostic Tests.” [In eng]. Clin Pharmacol Ther 88, no. 6 (Dec 2010): 754-6.
Towse, A., D. Ossa, D. L. Veenstra, J. J. Carlson, and L. P. Garrison. “Understanding the Economic Value of Molecular Diagnostic Tests: Case Studies and Lessons Learned.” Journal of Personalized Medicine 3 (2013): 288-305.
Trosman, J. R., C. B. Weldon, J. C. Schink, W. J. Gradishar, and A. B. Benson, 3rd. “What Do Providers, Payers and Patients Need from Comparative Effectiveness Research on Diagnostics? The Case of Her2/Neu Testing in Breast Cancer.” [In eng]. J Comp Eff Res 2, no. 4 (Jul 2013): 461-77.
United Healthcare. “Personalized Medicine: Trends and Prospects for the New Science of Genetic Testing and Molecular Diagnostics.” 2012.