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Walking The Walk
And Talking The Talk
by Dr. Sheila Dunn

In parts I and II of this series, we talked about why in-house testing is valuable to your primary care accounts. Unfortunately, many of them don't know it. Why? Because they lack basic business skills. You, on the other hand, have business skills, right? This is why the present market provides such an opportunity for distributors.

In this final part of the POL series, you will learn how to change the shape of money, by translating it into value. This requires a new way of looking at reimbursement and revenue generation. You will learn how to help your accounts cope with changes and turn these changes into opportunities for you.

Your primary care accounts are confused and frustrated by the rapid changes in their market. In other words, rump rockets are flying not from just payors, but from society as a whole. No longer are doctors considered "Gods" whose medical judgment is final. Managed care has turned the entire practice of medicine upside down. (Figure 1)


Figure 1.
Changes Affecting Your Physician Accounts
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Medicare reimbursement "has gone to hell in a handbasket," I overheard one physician lament at a recent seminar. He was referring to the recent changes in physician reimbursement for all services from all payors. The key to success for practices, then, is not to discontinue providing services (i.e., close up shop and go sell sea shells by the seashore), but to provide them more efficiently.

Even though reimbursements aren't what they used to be, they're still quite lucrative (e.g., cost/test $3.50, reimbursement $14.00). Depending on your locale - and no state currently has more than 41% overall managed care penetration- your accounts will vary from virtually no managed care to almost all managed care.

Your strategy for selling to accounts that are primarily unmanaged will be different than for those that are mostly managed. Use a combination of the two selling strategies for lab products based on the proportion of managed care. (Figure 2).

Figure 2. Lab Products Selling Strategies
Type of Account Selling Strategy -- Show Account How:
Pre-Managed Care Lab testing generates excellent revenues
Mid-Managed Care Lab generates good revenues for private pay/Medicare and breaks even or generates only modest revenue for managed care patients.
Full Blown
Managed Care
Lab will not generate incredible revenues, but will save money in the long run, i.e., help retain more of the capitated payment.

Unless your territory is in Mayberry, you must begin selling value. How? By asking the right questions and learning to confidently overcome objections voiced by some accounts ("I'd love to buy that analyzer, but managed care won't pay for it").

Remember that only a small portion of managed health plans either limit or forbid in-house testing. In some cases, MCO reimbursement exceeds the usual and customary for an area. As you know, managed care is physicians' favorite objection to purchasing lab equipment.

First, we need to learn what "value" means to your customers.


 Managed Care Speak  Translation
  • Increases Patient Satisfaction
  • Patients are happy so they continue to see that doctor and stay enrolled in that MCO, i.e., retaining patients saves money
  • Decreases employee absenteeism
  • Saves money for the MCO and the MCO's customer, the employer
  • Increases practice efficiency + productivity
  • Saves money for the doctor and the MCO
  • Better patient outcomes
  • Patients get better quicker which saves money for the employer

The bottom line is that near-patient testing makes patients happier and better which saves money for the entire healthcare system. And saving money is the reason managed care exists!

Good probing questions to ask accounts to demonstrate the value of in-house testing are:

  • Have any of your patients expressed dissatisfaction that they now need to travel to XYZ hospital to get their blood drawn? Do you think patient satisfaction is important to the MCO?
  • Is the turnaround time for test results from XYZ lab good?
  • Do you find it easier to diagnose some patients when you have their test results when they are in for a visit? Which tests? What type of patients?
  • Do you have any capitated plans where each patient visit actually costs money? Can in-house testing help avoid a second visit?
  • How much time does it take your staff to choose the correct blood tubes, log, package, store, and find the right metal box to send tests out? How much do you think that costs the practice?
  • Is it possible that a patient could get worse because lab tests were delayed? What tests and which circumstances?
  • How much would it cost you (under a capitated plan) or the MCO (under a FFS plan) if the patient got worse and had to go to the ER or the hospital?
  • Could you treat a patient with a less expensive drug if test results were available at the time of the patient visit?
  • Who on your staff has to call every patient with their lab results? Do they spend valuable time in telephone tag? How often does the physician have to reschedule a patient or call a patient to change their treatment plan or medication after learning of lab results days after the patient visit?

Although your physician accounts don't know it, most managed care contracts are very negotiable. Less than 20% of physicians are currently negotiating ANY portions of their managed care contracts, yet those who do get incredible concessions.

Before telling an account that it's a snap to negotiate managed care contracts, look realistically at an account's bargaining power in your community. A practice that specializes in "hairology" in the immediate vicinity of 10 other hairologists should do something to differentiate himself from the competition, or accept whatever terms managed care plans dole out. Ideas for differentiation could be:

  • having a wellness center where patients are tested and screened for illnesses
  • forming a single or multi-specialty group
  • demonstrating patient satisfaction (through patient surveys)
  • having later office hours or Saturday hours

You get the picture. These are examples of some value-added services that primary care accounts must consider in order to outdo their competition.

To share some of your business knowledge with your accounts, consider offering some of the following:

  • helpful advice about contract negotiation
  • suggest ways to negotiate rather than letting doctors take their own course (picture a shouting match instead of a civilized business meeting)
  • relay success stories from other accounts
  • sponsor local medical society meetings where physicians discuss proactive strategies for dealing with managed care locally
  • devise cost-saving programs

Practices that approach MCOs on behalf of better patient care for their patients and in a spirit of cooperation will achieve concessions. Help your accounts to do this by showing them the Ready, Aim, Fire approach (Table 1) and the sample letter to negotiate reimbursement for in-office testing (Figure 3).

With a little planning (READY), strategizing (AIM), and sharpening communication skills (FIRE), POLs will achieve concessions (in all aspects of contract negotiations, not just in-house testing).

The key to success is to convince MCOs that near-patient testing achieves their objectives: high quality care (better patient outcomes and great service) at the lowest possible price.

to Managed Care Negotiations
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Identify MCOs that represent major portions of your business. Plan to concentrate your efforts on them. Locate their contracts and identify any limitations placed on POL testing.

Prepare a convincing argument to demonstrate the value of office-based tests (See Table 1 from article two in this series). Assemble a list of tests for which you wish to negotiate payment. After justifying each test, assume that the MCO will say "no" to your every request. Then, prepare an iron-clad argument to overcome their objections. The most common objection you will encounter is "we've negotiated a nationwide contract with ABC mega-lab that's set in stone."

Negotiate payment in person or by letter (Figure 3). It's possible to negotiate by writing a letter, but developing a personal relationship with MCO officials is more effective. Arrange a face-to-face business meeting on your turf. The home court advantage works as well in negotiations as it does in sports!

If your accounts choose to negotiate via letter, be sure they only include arguments that demonstrate how in-house testing reduces the overall cost of care while enhancing the quality of care. Figure 3 provides a good outline of the major points to include.

Some tips for negotiating with MCOs are in Table 2. Now this is where distributor sales professionals can really be of assistance to accounts: Encourage your accounts to be persistent with MCOs by reminding them of their power in the healthcare system.

Their professional negotiators and will often say "no" to all attempts to change contract provisions, and do so in an intimidating fashion. Often, MCO negotiators respond with the same blanket statement: "our contracts aren't negotiable". Sound familiar?? Tell your accounts what you learned years ago: say "If I can show you a way to increase quality of care for our patients (your members) and reduce the cost of care, would you consider changing the contract? Teach your accounts how to "sell" their benefits and services and encourage them to take a "business partner" approach when dealing with MCOs.

TABLE 2. Tips For Face-to-Face Negotiations
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  • Give MCO representatives a tour of your POL during which you display its benefits and services.
  • Exhibit a cooperative problem-solving attitude rather than a competitive one.
  • Never accept a new contract "as-is." There's always room for negotiation.
  • Go in with high expectations. It's been shown that aspiration level is related to achievement.
  • Start talks with easy-to-settle issues rather than highly controversial ones.
  • Give concessions that give "nothing" away. Get something for every concession given.
  • Be patient. The person with a time deadline invariably loses the negotiation.
  • Change the shape of money. (e.g., reduce the pay period)
  • Emphasize areas of agreement rather than differences. Always stress the desirability of the overall agreement during negotiations.
  • Question any non-negotiable demands of the MCO. By doing this, the opponent becomes more likely to compromise somewhere else in the contract.

Advise your accounts to ask for their usual and customary reimbursement or the Medicare fee cap, depending on their bargaining power. Also, suggest that they consider accepting a capitated payment for POL testing.

A worst-case scenario would be that the MCO required a POL to meet the payment accepted by the mega-lab (often less than $1.00 PMPM). Even at $0.75 PMPM, testing can be profitable. You will need to walk your accounts through an example similar to the one in Table 3 involving the particular tests you are demonstrating.

Also, point out that only a certain percentage of the overall POL business may be "managed." Each account has a different ratio of Medicare, managed care, and private pay receivable depending on their location, specialty, and size.

Table 3. The Economics of Capitation
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A POL is offered $0.75 PMPM to provide the lab services listed below for 3,000 patients. This means that the POL receives $2,250/month or $27,000 per year, regardless of the number of tests performed on plan patients. The reason capitation is risky is that if only a few patients need testing, the practice makes a huge profit, but if many patients come in for testing, profits plummet. Patient health, i.e., whether they seek medical attention, is the big variable in capitation. For this example, the managed care company provided the utilization data below. If utilization data is not provided by the plan, the account can estimate lab usage from similar patient populations.

 CPT  Test  Est. Annual
 Lab's Cost
to Perform
 Annual Cost
to Perform
 85024  CBC  1000  $2.75  $2,750.00
 80002  2 Chem. tests  500  $4.30  $2,150.00
 80012  Chem.12 Panel  500  $8.30  $4,150.00
 80061  Lipid Profile  200  $6.85  $1,370.00
 80092  Thyroid Panel  250  $9.00  $2,250.00
 86588  Strep Screen  750  $3.00  $2,250.00
 - - - - -  Miscellaneous Tests  500  varies  $5,500.00

Difference = $6,580 ($27,000 - $20,420)

This example is based on commonly-used POL instrumentation and does not include fixed laboratory costs (e.g., personnel, overhead). A table such as this could be constructed to cost-justify any testing done under a capitated agreement. Generally, new managed care contracts with lab provisions will increase the volume of the office lab significantly and enable it to achieve further economies of scale. Practices with office labs who participate in capitated agreements should focus on reducing utilization of unnecessary tests as well as gaining efficiencies that reduce the cost to perform each test. As a sales consultant, remember that this capitated payment may account for only a small percentage of the total POL revenues.


Approximately 90% of physicians who negotiate get concessions. Moreover, in some areas, physicians staged aggressive letter-writing campaigns and persuaded a major MCO to change their ways regarding in-house lab testing. Last year, CIGNA Health Care of Texas wrote to their doctors and reversed their requirement to send all patient lab tests to SmithKline Beecham Clinical Laboratories. CIGNA noted:

"We have received numerous requests from physicians to permit exceptions to this national agreement in order to enhance medical care to your patients, our members. As a result, we will allow participating providers to perform the following 25 tests in your offices, and reimbursements for these procedures will be paid according to CIGNA's maximum fee schedule in effect at the time of service." (Table 4)


Table 4:
Managed Care Payments for Certain Lab Tests
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 CPT Code  Lab Test  Medicare Fee Cap  CIGNA Payment
 G0001  venipuncture  $3.00  $5.50
 80019  chem 19  $15.28  $17.79
 80007  chem 7  $11.29  $13.16
 80092  thyroid panel  no cap  $37.80
 85023  CBC  $11.71  $13.63
 86588  rapid strep  $13.06  $15.21

The pendulum is definitely swinging back in the direction of office-based testing. I am not making this up. Some physicians who enjoy office labs are proactively approaching MCOs and offering to do all the testing for doctors in their vicinity. In essence, they're becoming mini-referral labs!

Show skeptical accounts the Ready, Aim, Fire Table, the sample form letter to negotiate in-house reimbursement, and the Tips for Face to Face Negotiations table. As proof sources, you can also show accounts the three articles below:

  • American Society of Internal Medicine, September 1996. Part of the Reinventing Managed Care Series: Assuring Appropriate Access to Laboratory Testing for Patients in Managed Health Care Plans.
  • Family Practice Management, January, 1996. How to Convince a Managed Care Plan to Reimburse In-Office Testing. by Sheila Dunn.
  • Medical Economics, January 13, 1997 Are You Missing Out on a Valuable Profit Center? by Michael Jahn.

The availability of test results during patients' office visits is a tremendous improvement in healthcare. Healthcare is a service industry, and as such, it must meet customer's (patient's) needs. Managed care organizations who do not yet recognize the value of near-patient testing will soon see that it does indeed pay off by providing higher quality care and better service at a lower cost. Hopefully, within the next few years, MCO's will require testing at the point of care!

Figure 3.
Sample Letter to Negotiate In-House Lab Reimbursement
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Our contract with your organization currently states that laboratory tests must be referred to a commercial laboratory. This requirement not only inconveniences our patients but reduces the quality of care that we can provide to your members. We therefore request that this contract provision be amended as soon as possible.

The vast majority of patients surveyed indicate that traveling to a remote site for phlebotomy and waiting two to five days for test results is a considerable inconvenience. Most patients are accustomed to immediate test results and a diagnosis or treatment during the office visit. Delays for test results often require patients to make an extra trip into our office or to a pharmacy. This unnecessary travel is difficult, especially for sick patients.

This requirement also reduces productivity and increases costs for your employer clients, who are faced with increased employee absenteeism due to delays in diagnosis and treatment.

More importantly, during the time between the first patient visit and receipt of test results, a patient's condition may worsen or change. Simply stated, it has been proven repeatedly that physicians can provide higher quality medical treatment when "real time" test results are available at the point of care. (Give examples:_____________________)

Studies have also shown that laboratory tests performed on-site are actually much less expensive than those performed at remote sites. Although the actual cost per test at the point of care is higher than a reference laboratory, consider the expense of only one patient per month that requires extra treatment, a referral, or even a hospital admission because of a delay in test results! (Give examples: ____________________________________________)

For these reasons, we request compensation for performing the following tests in our office:

 _________________  _________________  _________________  _________________
 _________________  _________________  _________________  _________________
 _________________  _________________  _________________  _________________
 _________________  _________________  _________________  _________________

Performing the above tests in our office laboratory will not only increase the quality of care, but decrease the overall cost of care. You must agree that this fulfills the primary mission of our association. We will contact you during the week of __________________ to discuss this further. Please don't hesitate to contact us with your questions or concerns. Thank you for your prompt attention to this matter.

About the Author:
Dr. Sheila Dunn heads Quality America, Inc., an Asheville, NC-based company that assists medical manufacturers and distributors as well as healthcare professionals to survive and prosper in this rapidly evolving industry. Quality America's publications include "Managed Care: Strategies for Success", "Lab Testing: Get Your Fair Share From Managed Care", and "Satisfaction Guaranteed1", a patient satisfaction primer. For information about Quality America's products or services, call 828-645-3661. (Go to detailed Dunn biography)

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