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The Centers for Medicare and Medicaid Services does not have oversight of lab benefit managers, a spokesperson said in an email.
CMS contracts with Palmetto GBA, a subsidiary of Blue Cross Blue Shield of South Carolina, to perform lab benefit management functions on behalf of the Medicare program. It serves as an administrative contractor to enforce coverage policies, processes claims and resolves appeals with genetic testing providers. Palmetto did not respond to an interview request.
Some industry observers stress the need for more regulation of lab benefit managers. The companies’ role in the diagnostic supply chain means they have the same kinds of potentially conflicting incentives as pharmacy benefit managers, which have been the subject of several state and federal lawsuits alleging they overcharged public programs for drugs.
“It would be a mistake not to learn from what’s happened with PBMs and to be more proactive in what’s going on with the lab benefit managers,” Caughron said. “There are differences, obviously, but the reason these exist should be to improve the system and lead to better outcomes for patients. If they’re not accomplishing that, then that needs to be addressed.”
Like pharmacy benefit managers, lab benefit managers’ role as a middleman could lead companies to engage in spread pricing, in which they charge payers more than they reimburse labs for a test and retain the difference.
Several states have banned pharmacy benefit managers’ use of spread pricing. The Senate Health, Education, Labor and Pensions Committee advanced legislation this month that would forbid PBMs’ use of the practice nationally, beginning in 2025.
Committee chair Bernie Sanders (I-Vt.) and ranking member Dr. Bill Cassidy (R-La.) said they have not yet determined the timeline for a full Senate vote on the package.
Lab benefit managers could also receive a rebate from labs for recommending insurer coverage of a specific test, leading labs to compete over rebate sizes and ultimately drive up the test prices.
CMS should play a role in helping ensure lab benefit managers are properly determining how much taxpayer money is being spent on tests and in enabling patient access to tests, said Dr. Eli Cahan, a pediatrics resident at the University of Southern California who researched lab benefit managers as part of his master’s degree in health policy at Stanford University.
“I certainly do not think there’s been adequate agency attention paid to LBMs,” Cahan said.
Insurers’ investment in lab benefit managers could lead companies to create overly burdensome medical necessity guidelines to discourage use, Flannery said. CMS should require insurers and lab benefit managers to publicly report data on their prior authorization decisions for genetic testing, he said.
Avalon Healthcare offers a pricing model allowing insurers to pay the same amount for tests at all the labs across their network, Kerr said.
“We will take the risk of signing a contract with the labs. Some of those rates we sign up will be higher than the fee schedule we’ve given you, and some will be lower, and we’ll just take that risk,” Kerr said.
“Sometimes we make money on the spread, and sometimes we lose money on the spread in aggregate. We at least want to break even,” he said.
Avalon also offers insurers per-member, per-month pricing models, shared savings payment programs or flat contracts to administer the claims, Kerr said. The company does not collect rebates from labs, he said.
“I lived through being a health plan executive and some of the challenges of PBMs. We have very transparent pricing,” Kerr said.
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