The New Cost Driver - Drug Labs

Start a trend, create a sub-industry and develop a new cost driver.

Or in another colloquialism that is frequently used to describe workers' compensation: whack-a-mole.

We've all played whack-a-mole: that crazy carnival game where you try to hit a mole puppet with a mallet popping up variously through numerous holes in a grid, and as time progresses the pace of the mole popping up increases, making it nearly impossible to hit every time.

In workers' compensation this analogy describes the imperious nature of issues taking on their own lives, spawning new sub-industries, driving up new costs, creating new headaches and ultimately new regulation, which in itself creates new costs.

The repetitive nature of this phenomenon can almost be predictable except that we never seem to know what kind of new enterprise will arise until disturbing trends become decently defined and identified, and by then it generally is too late to reel in the offending vendors and the entire industry takes a hit.

Kind of like capping the entire whack-a-mole game with a cover that closes all the holes ... until the next carnival operator comes to town.

That's the prescription drug situation that has been sweeping the medical world and the workers' compensation world the past couple of years, but I'm not talking about the spread of opioids or the underground economy that drugs support.

I'm talking about the quasi-legitimate industry that is supported by this trend - drug testing laboratories.

Legitimate because labs require licensing. Quasi because some have figured out how to make outsized profits at the expense of the system which means we all pay in excess of reasonableness.

If accusations are correct, there is a "dirty" side to the business - the side that really drives costs because some operators are unscrupulous, and the industry is uninformed and uneducated about such practices.

A couple of weeks ago WorkCompCentral ran a story that was prompted by Dr. Gerald 

Pearlman

's allegations that a national drug testing laboratory of which he was medical director was engaged in improper activities and billing practices.

Dr. Pearlman resigned from that company and days afterwards died.

Dr. Pearlman's statements ignited some debate in the work comp industry and now revelations about drug lab practices are coming to light.

Alex Swedlow, research director for the California Workers' Compensation Institute (CWCI), said during the group's annual meeting in San Francisco last month that drug testing has emerged as the newest cost driver - indeed this appears to be an understatement.

Howard Appel, president of Millennium Laboratories in San Diego, told WorkCompCentral that labs have figured out how to get paid for bills that are almost 1,500% what a test costs.

According to Appel, the routine practice in the laboratory industry is to do qualitative screens for broad drug classes and do follow-up qualitative screens for particular drug classes -- or panels -- that test positive to determine which drug is present. After that, upon the request of the physician, the labs do a quantitative test to measure the concentration of the metabolites to determine how much or how little of the drug the patient is using.

The reimbursement rate is higher for quantitative tests than it is for qualitative tests, but Appel said some labs and vendors are using billing codes for quantitative tests when performing qualitative tests.

Another practice is for labs to "bundle" the different panels together. A lab might offer a doctor a panel that would test for all classes of drugs commonly prescribed to treat pain. Appel said this is acceptable, as long as the doctor has the option of testing only the panels for the drugs he is prescribing. But Appel said some labs and billing companies make only 21-panel or 35-panel tests available, even though the doctor may only want just a few of the panels actually tested.

After bundling the panel tests together, a biller can submit an invoice that charges for each panel test as though it was performed individually. This allows the lab or billing company to significantly mark up the invoice. A 35-panel test that costs $200 could become a $1,750 item on an invoice.

In addition, labs and drug testing companies fuel the fire by providing doctors with marketing and promotional materials showing them how they can bill not just for a $20 point of care, but also for multiple office visits, patient consultations and preparing reports.

It's easy to say that payers should deny payment and take these issues to court, but then that creates extraordinary burden on the adjudicatory systems that were designed to resolve disputes between injured workers and payers, not vendors and payers.

California's "lien problem" is directly tied to this sort of whack-a-mole phenomenon. Other jurisdictions with case backlogs can also be tied to these issues.

Paul Randall, a former consultant at Tri-City Regional Medical Center in Hawaiian Gardens who the Wall Street Journal in February tied to a $60 million increase in spinal surgery billings at the facility, is now the president of Matrix Medical and a managing member of Platinum Medical Group, both drug-screening companies in Hawaiian Gardens. He told WorkCompCentral that labs and billing companies in California are paying physicians for referrals.

He said that what is happening with toxicology is no different than the ways vendors and doctors have partnered on diagnostic imaging, office dispensing or using compound drugs, and that it's "so crooked that it’s difficult to do things the right way.”

Hmph...