Inside the Lab Industry: Health Plans Cracking Down On Out-of-Network Lab Referrals

An osteopath practicing in West Palm Beach, Fla., received a letter from insurance giant Aetna last August. Its introduction was ungrammatical but also unambiguous: “Referring Aetna patients to Aetna participating contracted LABS crucial,” began the letter. According to the letter, the osteopath was apparently referring patient specimens to Health Diagnostic Laboratory. It’s a rapidly growing regional lab based in Richmond, Va., that specializes in testing for primary care physicians with a focus on issues such as diabetes and cardiac health. Although it has a growing base of referring providers in the Southeast, it is not on Aetna’s list of approved network labs. The concern Aetna raised was that the osteopath’s patients would have an undue financial burden placed on them by paying out-of-network fees. “Aetna is getting ready to terminate your participation from the network for being non-compliant after receiving these letters—your office has not stopped referring our members to non PAR labs,” the letter stated. Five days later, Aetna sent the osteopath yet another letter. Like the first piece of correspondence, it contained compositional issues, misspelling his name. And while the salutation was confused, the message certainly was not: Aetna would be terminating the osteopath’s practice from its network of primary care providers that fall. It did not provide a specific reason, instead citing a clause in its provider contract allowing terminations without cause if proper notice is given. The letter was one of several from various payers obtained by Laboratory Industry Report that told a strikingly similar tale: Primary care providers were being asked not to make any referrals to out-of-network laboratories. The reasons given to the recipients of the correspondence were consistent—the insurers did not want to impose a financial burden on their enrollees. But the letters hinted that contracts would be dropped if the referral patterns did not change—whether or not the enrollees had coverage for out-of-network services. Prices Mentioned Correspondence from UnitedHealthcare to another provider in Florida, a physician who specializes in women’s health issues, included a cost-comparison list for lab tests between in-network and out-of-network providers. An in-network lipid panel costs $6, versus $51 for work performed out of network. A level IV pathology workup costs $105 out of network, versus $42 within the network, the letter reminded her. As with the osteopath, United was trying to discourage the physician from using Health Diagnostic Laboratory. The issue appears to be a sensitive one in the provider community. The osteopath—whom an Aetna spokesperson confirmed had his network status restored not long after the health plan sent him the termination letter—did not return phone calls to both his office and home seeking comment. Neither did the women’s health physician or any of the other doctors mentioned in the letters. However, laboratory executives, attorneys, and industry observers agree that payers are increasing the pressure on providers to make referrals to in-network laboratories, regardless of whether their patients have coverage for out-of-network benefits. A Hard Attitude “Aetna has really taken a hard attitude with all providers, doctors, hospitals and [other providers],” said Daron Tooch, a partner with the Hooper Lundy & Bookman, a Los Angeles law firm that specializes in health care litigation. Tooch has been litigating against health plans in California for 20 years and noted that Aetna had not been a difficult payer until recently. Last year, Tooch sued Aetna on behalf of the California Medical Association and the Los Angeles County Medical Association, claiming that Aetna was terminating providers for making out-of-network referrals whether or not their patients had out-of-network benefits. It is seeking damages for false advertising, breach of contract, and unfair business practices. According to Tooch and the lawsuit, Aetna discourages its provider network if they make out-of-network referrals, often threatening them with termination. The suit also claims that Aetna pays minimal amounts for out-of-network care and often delays authorization. That’s despite the fact Aetna markets the plans to prospective patients as providing the flexibility to choose their providers. Although filed in Los Angeles Superior Court more than a year ago, the suit has yet to reach trial. There are no laboratories as plaintiffs. But Tooch observed that Aetna is not the only payer taking a harder line on out-of-network referrals, which can decrease leverage they have with their in-network providers should those volumes grow too large. “They’re all doing it, and it is interfering with the right of physicians to make referrals for the patients,” he said. Rina Wolf, vice president of commercialization strategies, consulting, and industry affairs for XIFIN, a San Diego-based laboratory billing and consulting firm, agreed that the strategy is become more widespread. “It’s a growing issue, and I think it is another manifestation of narrow networks [that] payers believe they can use to better control costs for themselves and for their beneficiaries,” she said. Why Refer Out-of-Network? Although the parties interviewed for this story acknowledged that sometimes out-of-network referrals are being made by physicians without the direct consent of their patients, they point out that physicians often have valid clinical reasons for making the referrals. Wolf and Tooch noted that the out-of-network labs may have faster turnaround times, better attention to detail and customer service, and may provide data that the network labs do not routinely furnish in their reports. “In the field of pharmacogenetics, some of the data provided by specialty labs can be extremely comprehensive,” Wolf said. “They look at every medication the patient is taking, as well as the patient’s metabolism to see how well they can respond to certain drugs.” And if the physician believes there is clinical value in making the out-of-network referral, “that is a conversation to have with patients,” she observed. The labs may also be waiving some copayments for patients in order to receive the volume—a practice that may irritate health plans but has been determined to be legal in California, according to Tooch. For its part, Aetna is sticking to what it said in its correspondence. “Most of our network contracts require providers to make in-network referrals for any type of service where possible so that members don’t incur higher out-of-pocket costs,” spokesperson Cynthia Michener said in an e-mail. Some Labs Hurt But if the health plans are feeling pressure to keep costs down, it is hurting out-of-network labs. Officials with one regional specialty lab who declined to be named said the pressure on providers to remain in-network is costing them business—and possibly the chance to expand into other regions. Officials with that lab did not want to go on the record for fear of hurting their business further. Tonya Mallory, Health Diagnostic Laboratory’s chief executive officer, suggested the out-of-network referrals to her lab is a testimonial to the quality of services it is providing. “Clearly many physicians and other such providers are recognizing that Health Diagnostic Laboratory offers a more advanced, more insightful cardio-metabolic risk profile paired with behavior modification and health coaching not offered by any other lab company,” she said. Mallory claimed that using such tests can reduce a patient’s health care spending by 23 percent within two years. By contrast, Wolf noted that it is challenging for larger national labs, with their extensive testing menus, to provide such granular information. “Can they truly be an expert in all things?” she asked.