A call for a value based approach to laboratory medicine funding

Abstract

All areas of healthcare, including pathology, are being challenged by the reality that the days of ever increasing budgets are over and the key debate is about how to provide value for money. As originally described by Porter and Tiesberg, value-based healthcare is defined as maximising outcomes over cost by moving away from fee for service models to ones that reward providers on the basis of outcomes (1). While production efficiencies will continue to evolve, the opportunities for future stepwise improvements in production costs are likely to have diminished. The focus now is on delivering improved testing outcomes in a relatively cost neutral or at least cost effective way. This brings pathology into line with other health services that focus on value for money for payers, and maximising health outcomes for consumers. This would signal a break from the existing pathology funding model, which does not directly recognise or reward the contribution of pathology towards improved health outcomes, or seek to decommission tests that offer little clinical value. Pathology has a direct impact on clinical and economic outcomes that extend from testing and it is important to garner support for a new approach to funding that incentivises improvements of the overall quality and contribution of the pathology service.
Copyright © 2015. Published by Elsevier Inc.

Full text

Opinion Piece
A call for a value based approach to laboratory medicine funding☆
A. St John
a
,G.Edwards
b
,S.Fisher
c
,T.Badrick
d,
⁎, J. Callahan
e
, J. Crothers
f
a
ARC Consulting, Perth, Australia
b
St John of God Pathology, Perth, Australia
c
The Centre for International Economics, Sydney, Australia
d
Royal College of Pathologists of AustralasiaQuality Assurance Program, Sydney, Australia
e
Monash Health, Melbourne, Australia
f
Abbott Diagnostics Division, Sydney, Australia
abstractarticle info
Article history:
Received 23 May 2015
Received in revised form 13 July 2015
Accepted 20 July 2015
Available online 22 July 2015
Keywords:
Value of pathology
Economics
Funding model
Over testing
All areas of healthcare, including pathology, are being challenged by the reality that the days of ever increasing
budgets are over and the key debate is about how to provide value for money. As originally described by Porter
and Tiesberg, value-based healthcare is defined as maximising outcomes over cost by moving away from fee for
service models to ones that reward providers on the basis of outcomes (1). While production efficiencies will
continue toevolve, the opportunities for future stepwise improvements in production costs are likely to have di-
minished. The focus now is on delivering improved testing outcomes in a relatively cost neutral or at least cost
effective way. This brings pathology into line with other health services that focus on value for money for payers,
and maximising health outcomes for consumers. This would signal a break from the existing pathology funding
model, whichdoes not directly recognise or reward the contribution of pathology towards improved health out-
comes, or seekto decommission tests that offer little clinical value. Pathology has a direct impact on clinical and
economic outcomes that extend from testing and it is important to garner support for a new approach to funding
that incentivises improvements of the overall quality and contribution of the pathology service.
© 2015 The Canadian Society of Clinical Chemists. Published by Elsevier Inc. All rights reserved.
1. Introduction
All areas of healthcare, including laboratory medicine, or pathology
as it is more commonly called in Australia, are being challenged by the
reality that the days of ever increasing budgets are over and the key
debate is about how to provide value for money. As originally described
by Porter and Teisberg, value-based healthcare is defined as maximising
outcomes over cost by moving awayfrom fee for service models to ones
that reward providers on the basis of outcomes [1].
In Australia the dominant model of pathology funding is fee for
service, which has focussed payers on costs, and by extension focused
pathology practices on cost minimisation. The past decade or more has
seen an era of ‘commoditisation’of laboratory tests, with large scale
automation and market concentration to achieve economies of scale
and scope.
The efficiencies that laboratories have been able to achieve
have largely been passed onto payers with a long term decline in
reimbursement as indicated by medical rebates for pathology falling
by 7.6% from 2000 to 2013 compared to the consumer price index
which has increased by 43% over the same period [2].
While production efficiencies will continue to evolve, the opportuni-
ties for future stepwise improvements in production costs are likely to
have diminished. The focus now is on delivering improved testing
outcomes in a relatively cost neutral or at least cost effective way. This
brings pathology into line with other health services that focus on value
for money for payers, and maximising health outcomes for consumers.
This would signal a break from the existing pathology funding model,
which does not directly recognise or reward the contribution of patholo-
gy towards improved health outcomes, or seek to decommission tests
that offer little clinical value. Pathology has a direct impact on clinical
and economic outcomes that extend from testing and it is important to
garner support for a new approach to funding that incentivises improve-
ments of the overall quality and contribution of the pathology service.
This means promoting appropriate and efficient test selection,
avoiding pathology testing that adds no value, and building better
relationships and information sharing with referrers to achieve these
goals.
Promoting the “value”of pathology is a key focus of the Health
Economics Working Group of the Australasian Association of Clinical
Biochemists (AACB), which is assembling existing, and encouraging
Clinical Biochemistry 48 (2015) 823–826
☆This work of theHealth Economics Working group was supported by the Australasian
Association of Clinical Biochemists. The views expressed here are those of the Working
Group and not necessarily those of the Association.
⁎Corresponding author at: RCPAQAP, Suite 201/8 Herbert Street St Leonards, NSW
2065, Australia.
http://dx.doi.org/10.1016/j.clinbiochem.2015.07.024
0009-9120/© 2015 The Canadian Society of Clinical Chemists. Published by Elsevier Inc. All rights reserved.
Contents lists available at ScienceDirect
Clinical Biochemistry
journal homepage: www.elsevier.com/locate/clinbiochem

the future development of, health economic evidence for pathology
testing, and how to use that evidence to develop models that demon-
strate the value of pathology.
This initial paper presents the underlying issues and an outline of
initial proposals for future work.
2. Underlying issues
2.1. Strategic vision for pathology
It is critical that the pathology sector and government (payers) come
together to offer a long term strategic vision about how pathology should
develop in Australia, in addition to the underlying goal of minimising
costs to the health system. Some areas where a longer term and more
strategic focus on value would generate better testing and health out-
comes include genetic services and point-of-care testing (POCT).
Genetics is an area that is rapidly changing in terms of automated
technology and with considerable potential to impact patient outcomes.
Scale economies are more difficult to achieve but partnered with a tai-
lored approach to therapy selection and treatment, it offers enormous
potential to avoid ineffective interventions and achieve better patient
outcomes. The volume of testing is increasing more strongly than any
other test type, and consumers have demonstrated a willingness to
privately pay for genetic tests, both within Australia and overseas, to
enable access to tailored treatment.
POCT is another area where scale economies are less evident but pa-
tient convenience, result timeliness, and ultimately patient outcomes
can all benefit. For example the provision of central pathology services
to rural and remote Australia is a challenge but using POCT to provide crit-
ical analytes such as troponin provides a feasible alternative that has been
shown to be clinically effective [3]. POCT is also being adopted abroad
with countries such as the UK looking to incorporate POCT as part of a
greater use of telehealth applications to deliver more care in the home [4].
2.2. Information about testing outcomes and service quality
As of today there is no national database of pathology results or
outcomes from testing results in Australia. While some providers have
large databases these are commercially sensitive and are not typically
shared. Consequently there is a lack of clarity about key performance
indicators that allow for the profession, government and administrators
to assess both the value of pathology and identify the impact of
pathology on critical areas of healthcare in Australia. This is made
more problematic by the Medicare so-called coning rules used to
determine pathology billing, which prevent the recording of all the
tests actually performed in each patient episode.
One opportunity to address this is an initiative by the association
representing diagnostics companies, IVD Australia, to determine num-
bers of individual tests for the key high volume tests sold to providers.
This should facilitate future analysis of more valued tests, although un-
less coning is removed, it will do little to identify tests that are poorly
utilised and likely to be superseded.
2.3. Recognition of professional service or value adding
Pathology services are about much more than laboratory testing,
although the contribution of pathology to clinical activity is poorly
understood, and fails to be recognised or incentivised under theexisting
funding model.
Key examples of clinical activity are:
•Direct consultation (often telephone)
•Report interpretation
•Clinical education (written, lectures)
•Recall and reminder systems
•Clinical audit
Current funding mechanisms provide reimbursement only for tests
reportedfrom a laboratory. Thereis no direct reimbursement for clinical
activities performed by clinical pathologists.National Pathology Accred-
itation Advisory Council (NPAAC) standards only require adequate
“supervision”by pathologists. The Royal College of Pathologists of
Australasia (RCPA) guidelines refer to the clinical activity but there are
no requirements that should see a large laboratory with only a single
pathologist fail accreditation.
There is evidence that patient-specific report interpretation impacts
on physician behaviour, test utilisation and clinical outcomes (direct
and indirect measures) [5] but since these are not directly remunerated
there is no incentive for laboratory proprietors to invest in pathologist
or other interpretative resources and provide these value-adding
services. There is some level of expectation in the market (GPs) that
pathologists are available for consultation, putting competitive pressure
on proprietors to offer the service —but with the current level of
consolidation, these competitive forces are weakened.
Thus a key question is how can “professional practice”or what might
be all the other services other than generation of the analytical result
such as consultation and decision support (so called value-adds), be
incorporated into reimbursement? This likely requires pathology or lab-
oratory testing to be considered as a medical consultation in a similar
manner to other medical services, possibly along the lines in recent
papers from the US which have discussed how clinicians can be
rewarded in pay for performance schemes [6,7].
2.4. Knowledge of clinical, and in turn, economic outcomes
The difficulty of identifying the outcomes that result from the use of
pathology tests is well known. Tests are often part of a complex
intervention and using the conventional tools of assessment such as
randomised controlled trials has proven difficult. Most importantly
assessment of diagnostic accuracy is not sufficient to prove that a test
will influence patient outcomes, something that is underappreciated
by the profession and industry, and highlighted in the recent paper by
Siontis et al. [8]. However that is changing and the Medical Services
Advisory Committee (MSAC) now demands such information before a
test can be placed on the Medical Benefits Schedule and worldwide,
regulators are moving to demand more information about the clinical
impact of tests.
2.5. The role of tests in patient care pathways
There is increasing discussion in the literature and in policy docu-
ments of the importance of defining patient care pathways and the
role of tests within that pathway. This is seen as an important way to
improve the utilisation of testing and therefore its value. Thus several
authors discuss theimportance of considering the whole test–treatment
pathway when evaluating patient outcomes from the introduction of
new tests, rather than just studies of diagnostic accuracy which are
poor predictors of how tests will perform when used in everyday prac-
tice [9,10]. Price and St John advocate the concept of the value proposi-
tion, as used in business, to detail the benefits, costs and value of a
laboratory test to its customers, be they patients, healthcare providers
or the community at large. Again the emphasis is on the whole breadth
of what is a complex intervention from unmet clinical need to genera-
tion of clinical, operational and economic outcomes [11].
Many different guidelines exist in relation to specific condit ions such
as those published by the National Institute for Health and Care Excel-
lence (NICE) and these include interactive clinical pathways with infor-
mation about the use and timing of specifictests[12]. Similarly the Map
of Medicineis an organization involved in the developmentand mainte-
nance of evidence-based, practice-informed care maps [13].Asnew
evidence becomes available including the introduction of new or
modified existing tests, the maps are revised so that they can be kept
up to date. In addition the care maps are accredited by a number of
824 Opinion Piece

organizations including professional bodies and clinical networks. The
use of such care pathways based on the best available evidence, will
provide the optimum use of the test and maximise patient outcomes.
2.6. Extent of over- or under-testing
Much has been written about demand management in pathology
with the focus on over-testing rather than a more balanced appraisal
of both under and over utilisation. Thus the continuing debate about
the number of requests for vitamin D testing is probably justified in a
climate of economic restraint [14]. While many of the published studies
of “appropriateness”equate inappropriate testing with over-testing it
should be noted that most of the studies are performed in academic
teaching hospital settings, which invariably operate on a fixed budget
model and hence pathology laboratories have a strong incentive to
reduce costs by reducing volume. In Australia at least, most disease
diagnosis occurs in the community or primary care setting and not in
the tertiary care setting, so the true diagnostic value of tests should be
conducted in the former. Furthermore studies in hospital settings very
poorly reflect the very different clinical and demographic issues that
drive pathology testing in primary care environment where the bulk
of Medicare funded testing in Australia is performed.
Several recent papers provide a more balanced view, namely that
under-utilisation is as big a problem as is over-testing [15–17].Inview
of these findings it is clear that more data from the primary care sector
is urgently required in order to better understand the notions of appro-
priateness for reimbursementof testing. Such information is vital to the
development of future value based reimbursement models.
2.7. Schedule based on costs not value of tests
The Medical Benefits Schedule for Pathology Tests has evolved over
time and is widely acknowledged to have little relation to the true costs
of performing the test or the cost of delivering service to the patient and
the referrer. While the MSAC process makes a judgement on the clinical
and cost effectiveness of a new test, it does not determine the fee for re-
imbursement. The latter is based largely on comparing the type of ana-
lytical technology used for the new test to that used for existing tests. In
the case of newer genetic tests, reimbursement has been based on the
cost of measurement (labour + materials) plus 15%. A review of pathol-
ogy funding arrangements in six different countries including Australia
conducted by PricewaterhouseCoopers in 2010, is entirely focussed on
costs with no mention of the word value [18]. More recent discussions
in Australia have had a focus on the rising “costs”of pathology with
no concomitant attempt to measure the quality of the health services
that are provided.
Rational and appropriate utilisation of pathology services, including
both tests and non-test pathologist-driven activities, should be based on
measures of clinical and economic value. But these measures are rarely
in reviews of pathology services which tend to concentrate on the
“factory”components of pathology services with no attempts to define
appropriate patterns of testing or to understand the clinical value
delivered by the tests and the associated clinical activities. Similarly
little attention is devoted to explain or quantify the various functions
and services of smaller, niche, and not-for-profit labs.
2.8. International perspectives
The challenges of defining and promoting the value of pathology are
not confined to Australia nor just to the area of pathology but to diag-
nostic services in general. For example the radiology literature in the
United States includes articles that discuss the effects of declining reim-
bursement upon the ability of companies to introduce new and innova-
tive imaging technology [19–22]. Also in the States, industry groups
such as Advamed have been drawing attention to the flawed reimburse-
ment system and those inthe profession have alsocalled for changes to
reimbursement such that it better reflects the value rather than the cost
of tests [23]. This reinforces the importance of generating the evidence
that might support a value based reimbursement system.
3. Recommendations on future activities to determine the value of
pathology
3.1. Assessing and utilising existing evidence of economic outcomes
While the existing economic evidence base is small it appears to be
increasing as the importance grows of measuring economic outcomes
from testing [24]. This most recent review by Fang et al. only examined
cost utility studies but other types of economic studies exist which may
provide valuable information. Thus efforts need to be made which sys-
tematically review all the types of economic studies, grade their quality
and assess their potential importance. The possibility should be consid-
ered for establishing a registry of such studies.
With greater availability to and awareness of existing evidence,
efforts can then be directed to the determination of the best ways to
use and apply it including the following: adding to the evidence
base through design of new economic studies; guidance for future
testing practice such as promotion of testing where it clearly adds
value and discontinuing tests for which there is no value; and promo-
tion both to healthcare providers and users of the health economic
value of testing.
All of the above should be linked to education efforts about the im-
portanceof health economic studies and how the results of such studies
can be translated into practice. The latter is particularly important be-
cause the pathology profession, providers and industry are relatively
unfamiliar with the area of health economics.
3.2. Investing financial and human resources to assess new ways or models
to determine the value of pathology
The need for a reimbursement system that identifies value rather
than cost is seen as an essential outcome if appropriate resources are
going to be invested in the future in pathology testing. This remains a
difficult task but one possible approach is to determine the effects on
outcomes of the various clinical or value-adding activities that may ac-
company a test result and were discussed previously such as consulta-
tion, commenting, decision support and auditing. Well-designed
studies need to be established to measure the effects of these activities
on the utilisation of pathology and patient outcomes. The results from
such studies may then be used to establish reimbursement fees which
reflect the relative value of these activities.
4. Conclusions
Like many other countries Australia has gone through an era of cost
based funding of pathology where the overwhelming trend has been
commoditisation of testing to achieve economies of scale and scope.
Now there is a need for funding models which recognise the value
that pathology brings to healthcare practice and reward practices
which encourage testing that improves patient outcomes. The issues
germane to current problems in Australia include lack of strategic vi-
sion, poor information about pathology usage, little recognition of pro-
fessional service or value-adding, few studies of the economic impact
of testing and antiquated pricing schedules. Some of these issues are
also relevant worldwide as are the possible activities to address these
problems. These include the need for more economic studies, the out-
comes of which can be utilised in better fundingmodels and the design
of studies which can measure the possible impact of value-adding ser-
vices such as consultation, commenting, decision support and auditing.
825Opinion Piece

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826 Opinion Piece