Hospitals are pushing back against new UnitedHealthcare policies that threaten payments for lab tests and specialty drugs in outpatient settings.
The country's largest private health insurer, with more than $200 billion in revenue in 2020, is cutting off reimbursement to diagnostic labs that don't meet certain price and quality criteria. UnitedHealthcare is also taking over the process of supplying certain outpatient specialty drugs to hospitals rather than reimbursing hospitals for those drugs.
The American Hospital Association penned a letter to CMS' acting administrator this week urging her to take action on both policies, which the group says will significantly harm access to diagnostic tests and pharmacy services for tens of millions of plan members.
The AHA's letter describes potential effects on patient care, but the policies clearly threaten hospitals' bottom lines, too. Molly Smith, AHA's group vice president for public policy, said significant changes like this should have been brought up while the insurer was negotiating contracts with hospitals.
"But that's not how these things play out," she said. "They always seem to play out once the contract is signed and they use what they deem to be unilateral authority around policy changes to do things."
It's the latest notch in a contentious battle as insurers seek to funnel care away from more expensive hospital settings. Last year, Cigna Corp. became the third payer behind UnitedHealthcare and Anthem to restrict coverage for most advanced imaging when performed in hospital-based departments or facilities.
Hospitals are duking it out in court with the federal government on the issue after CMS in 2019 proposed paying the same rates for certain services delivered at hospital outpatient departments as independent doctors' offices.
Diagnostic labs change
UnitedHealthcare said it rolled out the lab policy after it realized it was paying far more for diagnostic tests performed by hospital-owned outpatient labs compared with free-standing labs.
In some cases, the difference was as much as 500%, said Tracey Lempner, a UnitedHealthcare spokesperson. A comprehensive metabolic panel costs the company $156 on average from a hospital outpatient facility compared with $10 at a free-standing facility, she said. A blood glucose test costs $80 on average from an outpatient lab and $5 at a free-standing one.
The new policy forces labs to register as so-called Designated Diagnostic Providers by Feb. 28 or risk losing reimbursement once the policy takes effect in July, although Lempner said the company will continue to evaluate applications received after that date.
Lempner didn't give specifics on how labs can meet the company's efficiency criteria, only saying that, "They are not overcharging and they're reimbursed at a fixed rate." One of the metrics on the quality side is being accredited by more than one independent industry organization, such as the American Association for Laboratory Accreditation, the College of American Pathologists or the Joint Commission.
The AHA says the new policy raises questions about whether UnitedHealthcare will have enough lab providers in its networks to meet federal network adequacy requirements. It also said the policy likely undermines the contractual agreement patients signed with the insurer, as the labs will continue to be listed as in-network, but those services won't be covered.
The AHA's Smith said that patients who go to non-DDP labs won't just be subject to a higher co-pay, they'll be responsible for 100% of the bill.
"We're talking about full coverage versus no coverage, and yet they're still being portrayed as in-network," she said.
UnitedHealthcare plans to reach out to members and explain the change. Non-DDP labs will be differentiated in provider directories with a special icon, Lempner said. Additionally, UnitedHealthcare is allowing one-time exceptions where it will reprocess members' claims the first time they receive services from non-DDP labs, she said.
Smith said she's not optimistic that enrollees will fully grasp that information, especially if those labs still show up in their provider directories.
Lempner said the lab change doesn't apply to inpatient labs or those performed during emergency department visits.
In its letter to CMS, the AHA urged the agency to disallow implementation of the DDP program across the products it oversees, including Medicare Advantage, Medicaid managed care, Children's Health Insurance Program and health insurance marketplace plans. In a separate letter to the Federal Trade Commission's acting chairwoman, AHA urged the agency to investigate UnitedHealthcare's DDP program, among several other requests.
So far, Smith said she's not aware of any hospitals that have gone through the process of registering their labs under UnitedHealthcare's DDP program.
"To be perfectly honest, they were very uncomfortable going through the registration process," she said.
On the specialty drug front, UnitedHealthcare is cutting hospitals out of the process of buying those products and will instead ship the drugs to hospitals as needed, a practice known as white bagging.
The change, which took effect across commercial policies Oct. 1, 2020, applies to certain specialty drugs administered on an outpatient basis. They're expensive products often delivered through infusions to patients with cancer or neurologic conditions.
Typically, hospitals buy, store and administer such drugs to patients and then bill insurers for them afterward. Under this change, UnitedHealthcare will ship individual doses of the drugs as needed through its own specialty pharmacies or affiliated pharmacies.
"This approach allows UnitedHealthcare to potentially eliminate unnecessary costs from the healthcare system to help make healthcare more affordable," the company said in a statement.
The AHA argues the policy will disrupt patient care in a number of ways. Most importantly, it says many patients undergo testing shortly before their treatments that determine the exact dosage they'll require. If the medication that was shipped differs from the dosage required, that patient may have to return another day to receive the correct amount.
Cancer patients in particular undergo white or red blood cell counts or tumor imaging the day they're scheduled for infusions, said Jim Boswell, a partner with King & Spalding who is helping hospitals navigate the new policy. It may be difficult for some patients with transportation issues to return to facilities to update their dosage, he said.
The change also disrupts hospitals' line of sight over the acquisition, storage and administration of medications and threatens to overwhelm hospitals as products are delivered, the AHA said. The change also means hospital staff can't guarantee the safety of certain drugs and can't get ahead of drug shortages.
Hospitals also have financial concerns about the policy. They'll no longer make a margin on the specialty drugs that they used to when UnitedHealthcare reimbursed for them, although they'll still get paid to administer the drugs.
"There is a significant financial impact," Boswell said. "But equally important is the impact on quality and being able to do drug changes and drug administration in real time, which is done by having bulk quantities of these in the hospital pharmacy."
Boswell said he's actually heard more complaints from providers around Anthem's white-bagging policy, which began being rolled out in late 2020 and continues to be rolled out this year. Anthem said the policy is part of its ongoing mission to bring down the cost of expensive drugs.
King & Spalding is representing hospital clients in objections to white-bagging policies, including active litigation, although Boswell couldn't name the parties because the case is in arbitration.
The AHA's letter to CMS urges the agency to prohibit white bagging in cases where patients' dosages depend on the results of their lab tests, among other stipulations. The group also urged CMS to ban brown bagging across the health plans it regulates, which is when the drugs are shipped directly to patients, although Smith said that's less common than white bagging.