Should you contract with Blue Cross/Blue Shield?

If you are an independent laboratory, Blue Cross/Blue Shield has probably made your billing more difficult over the past few years. A combination of changing BCBS policies, the morphing landscape of healthcare, competitive market pressures, and acquisition binges by LabCorp and Quest have posed a new question for independent laboratories: is it better to be contracted or out of network?

Like most issues, the ultimate answer depends on your situation. But the pros and cons of being on contract are quite a bit more complicated than they used to be. Contract payments have shrunk to the point that profits margins are functionally non-existent, and out-of-networks payments have become increasingly harder to collect. It seems to be a damned-if-you-do and damned-if-you-don’t scenario.

So what should you do? Let’s break down the origin of the problem, some strategies to mitigate the challenges, and how to evaluate your choice.

The Consolidation Effect

There was a time when it was generally better (and simpler) to be on contract with any given payer. It made your laboratory billing simpler and your revenue more stable and predictable.  But over time there has been extreme downward pressure on contracted rates. And this phenomenon has been exacerbated by (and has probably driven) industry consolidation. LabCorp and Quest have become the “Walmart” of clinical labs, building economies of scale through acquisition of smaller labs and more recently acquisition of hospital laboratories in order to drive down costs.

So BCBS pushed the bulk of their business to the two dominant labs, who offered reduced rates for volume commitments, and for the most part closed their panels and refused to contract with most independent labs.

The “Out of Network” Nightmare

As the option of contracting and becoming in network disappeared, most laboratories were left with no choice but to be out of network (“OoN”).  But BCBS also moved to make that more complicated by adopting a policy of sending OoN payments directly to the patient and making it their responsibility to reimburse providers.

So labs were in a position of having to chase the patient for payment. Worse yet, BCBS did not implement any system to inform providers when/if payments had been made to the patient, so labs had no way of knowing when (or if) it was appropriate to bill the patient, how much was allowed, how much was paid to the patient, whether to follow up on payment of an existing bill, or even whether the claim had been denied entirely. Under the typical revenue cycle management process, most billing departments or laboratory billing services don’t function in a way that is compatible with this system.

They typically wait to hear back from payers on payment or denial. They might follow up after 60-90 days if they don’t hear anything, if they follow up at all. Typically they will then send a statement to the patient requesting reimbursement for the payment by the payer. By the time you hear whether or not the claim has been adjudicated and payment has been made, it could be a period of months after a check has been mailed to the patient.

Even if patients are honest (though some are not, of course), it is an uphill battle to receive payment.  Patients get a check and very often neglect to set aside the amount they need to pay out. They are unlikely to be diligent about disbursing money to labs and other providers, especially if the bill from the lab shows up long after the money has been spent.

The bottom line is that this laboratory billing process is essentially designed to fail, so labs typically collect next to nothing when billing out of network with Blue Cross/Blue Shield. In fact, many labs just refer these samples out to a reference lab that is contracted to eliminate the cost, avoid the loss, and allow someone to collect on them. Not only does this result in a loss of revenue, but it adds tremendous operational complexity in managing referrals and coordinating the delivery of results.

BCBS Opening Up

While for many years there was little choice in whether to contract or remain out of network, recently many of the Blues have been reversing course and allowing independent laboratories to contract and bill in network. While this could be seen as a good sign for labs, the rates being offered are so low as to be insulting and often unlikely to even cover the marginal cost of running the test.

A Rational Decision Process

So contract fees are too low to be profitable, and OoN fees are nearly impossible to collect.  What to do?

Contracted Rate Expected OoN
BCBS sample test $42.21 $0 – 10

Since the standard laboratory billing process yield little to nothing for out of network payments to patients, you’d be forgiven for casting this as a simple choice between the lesser of two evils and potentially choosing to contract.  Isn’t something tiny better than nothing at all?

But there is a way to make the choices a bit less evil. First, out-of-network collections can be improved dramatically. There are processes whereby you can substantially increase your collections on OoN payments. This involves proactive outreach to the patient regarding payment at three critical points:

  • Written notification of a pending check prior to receipt of the check, as well as the legal implications for keeping the check
  • Outbound call to patient anticipating imminent arrival of the check
  • Outbound call to patient shortly after check arrives

The laboratory billing company should take payment in the form of an endorsed check of course, but they should be prepared to request payment over the phone via credit card, ACH, or other means when they make the outbound call to the patient. Immediacy is important.  Waiting for a patient to take action rarely yields success.

Precisely because contract payments are so low, this process for out of network payments to patients, while it involves investment expense can make OoN a better financial choice because it can dramatically increase collections and provide a positive return.  The example below shows how this can optimize your revenue.

Contracted OoN w/Pt Outreach
BCBS contracted rate $42.21
BCBS Allowed out-of-network average $250
Payment to patient $150
Collection target (70%) $105
Patient collections (40%*)   $42
Net collection $37.98 $147.00

*Note that in this example patient collection percentage is lower than the insurance collection percentage because in an attempt to get the insurance check out of the patient and get a prompt payment, laboratory billing companies are often willing to negotiate on the balance.

As long as you have a patient outreach program in place, you can clearly exceed what you would have collected in-network. So from a purely financial (revenue) perspective, being out-of-network is clearly a better choice.

Collateral Benefits

On the other side of the coin, in-network status can deliver value that might not be readily apparent. There is value in being contracted that extends beyond what revenue you immediately collect from those samples. In fact, it may sometimes be worthwhile to be willing to generate less collections (revenue) from BCBS in order to be in network.  And that may contribute to your bottom line in ways you need to account for. Some of these benefits are:

  • Access to a new-patient pipeline: it may help your position and standing in the marketplace to be an “in-network” provider, making it more likely for you to get business from referral sources.
  • The “loss-leader” effect: money-losing lab tests from BCBS may lead to other, more profitable tests from other payers.
  • Avoiding the time and hassle of dealing with angry or confused patients or frustrated referring providers.

Don’t underestimate the value in an increasingly competitive marketplace of being able to market your laboratory as being “in network”.

Conclusion

In order to avoid the increasing hassle of being completely out of network, many labs are adopting alternative strategies like buying in-network labs, or starting up under a pathologist to get in network under their contract. If this is not an option, the decision to contract with Blue Cross/Blue Shield comes down to which is of more value to your business. If you want to maximize your revenue per sample, stay out of network as long as you have a process in place to collect on those checks going to patients. If the marketing benefit you get from being in-network outweighs the foregone revenue, then contracting is probably the way to go.

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