Lab Testing Volume, Spend to Rise

Clinical lab testing and the associated costs are tracking a path that will see them become an even more significant and expensive part of healthcare.

The rise in the volume, variety and complexity of tests holds promise for improving healthcare for patients, but also poses challenges for providers and health plans.

An examination of 2022 data provides insight into the forces shaping lab testing and what to expect this year and beyond.

Kerr

Here are some of the most interesting findings in Avalon's 2023 Lab Trend Report:

Lab testing, spending to grow

Roughly, 14 billion clinical lab tests are performed annually in the U.S., making them the most utilized medical benefit.

The demand for lab services is reflected in an increase in test expenditure. In 2021, Medicare spent $9.3 billion on tests, a record 17% increase from the previous year. The growth was from a rise in demand for COVID-19 tests, high-priced genetic tests, and chemistry tests. While the volume of routine tests during the pandemic was lower than in pre-pandemic years, the expectation is that demand for routine testing will continue to increase as healthcare returns to normal.

Several factors are driving the growth in testing spend. The price of a test can vary widely depending on where it is performed. In general, tests at hospital outpatient departments are billed for more than those at an independent lab.

In fact, employer-based insurance typically pays three times more for tests from hospitals than for those billed by physician offices and independent labs. The acquisition of physician practices by hospital systems is shifting testing to these more expensive settings. On an even larger scale, healthcare consolidation, like the acquisition of Oak Street Health by CVS Health, makes it harder for health plans to negotiate competitive rates for testing.

Another contributor is the replacement of simple standard tests by more sophisticated and expensive procedures. For example, urine flow cytometry is replacing inexpensive urine dipstick testing as the preferred method for excluding urinary tract infections.

Routine testing is no longer routine

Routine tests evaluate health metrics and can be repeated over time to monitor and compare the changing health condition of an individual. These tests are generally less complex and expensive than their genetic counterparts and are performed more regularly. They account for 90% of all lab testing and 70% of the total lab spend.

While the volume of routine testing in 2022 fell to near-2019 levels, it is expected to rise. In 2022, the overall spend on lab tests was $226 per member per year (PMPY), a 15% decrease from $264 PMPY in 2021. This decreased spend is mostly due to less demand for COVID-related testing.

There are a number of challenges associated with routine testing, including:

• Waste: Overuse of lab tests is common; as many as one out five tests performed may be unnecessary. A 2020 study found that repeat testing of normal test results occurred in up to 85% of patients.
• Fraud: Though misconduct on the parts of labs and some providers has always existed, it boomed during the pandemic.
• Panel stuffing: The practice of some labs to add tests with no clinical value to panels and bill for them costs billions of dollars per year.

The rise in genetic testing

Nowhere is the clinical potential for testing – and the need to better manage it – greater than in the field of genetic medicine.

The volume of genetic tests is enormous and growing rapidly, fueled by a drastic drop in the cost of genome sequencing. There are over 175,000 tests available with more than 10 new ones added daily. Not surprisingly, associated spending has risen as well. Though genetic tests make up only 10% of all lab tests, they account for 30% of spending. The average spend per private health plan member per year was $779 in 2022, a YoY increase of 15% in utilization and 11% in spend.

With routine testing, there are challenges associated with genetic testing:

• Fraud, waste and abuse: Greater access to genetic testing makes it vulnerable to misuse, whether accidental or deliberate.
• Lack of necessity or clinical utility: Genetic tests are being performed without proper justification, which adds little value to a patient’s care but affects the costs of providing the benefit. There is a lack of consensus on how to operationalize clinical utility, leading to inconsistent determinations of value and coverage across labs, providers, and payers.

New tests

One of the greatest challenges for providers and health care plans is determining the validity and utility of newly marketed tests, which are being created at an unprecedented rate.

Two of the newest screening tests under development are multi-cancer early detection (MCED) and polygenic risk scores (PRS). MCED tests are a type of liquid biopsy that use a sample of blood to identify specific biologic signals released by cancer cells. They have the potential of being able to detect various types of cancer earlier, which could lead to better outcomes. The makers of MCED tests say they are meant to supplement cancer screening tests now in use and help find other cancers for which there are no screening tests.

PRS tests can help determine patients’ risk for determining diseases caused by multiple genomic variants, paired with environmental and lifestyle factors. Examples of these polygenic diseases include diabetes and osteoporosis, as well as some types of cancer.

These and other tests under development hold great promise for improving patient care. However, more research is needed to determine their clinical validity and utility.

The appropriate use of testing will make healthcare more efficient while improving population health. Managing testing is the best way to ensure it fulfills its potential. 

Bill Kerr, M.D., is CEO and co-founder of Avalon Healthcare Solutions, the world’s first and only lab insights company.