This section characterizes the impact of managed care and health market change on the practices of PHLs, and describes how PHLs are responding to uncertainties in the clinical laboratory marketplace. While our findings are based on information from all the sources described in the methods section, the poll of PHL directors has been particularly useful in quantifying answers to our fundamental questions. Findings from our literature review, case studies, and interviews with laboratory experts provide more qualitative, descriptive findings that complement the poll results.
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Impact of Managed Care on PHLs
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The presence and growth of managed care has posed significant financial and organizational challenges to the clinical laboratory market as a whole. Because managed care organizations (MCOs) emphasize cost reduction, often have limited (or exclusive) arrangements with suppliers and service providers, and may tend to treat, not test, public health officials have been concerned that the growth of managed care would have negative impacts on the functions and practices of PHLs. Specifically, PHL stakeholders proposed two main hypotheses on managed care's possible adverse effects on the functions of PHLs:
- PHLs traditionally serving as the primary providers of diagnostic testing services to the Medicaid population will lose testing volume, and possibly entire testing areas, as these populations are covered by MCOs that have contracts with private clinical laboratories.
- PHLs traditionally playing a large role in disease reporting fear a lack of responsiveness to disease reporting requirements on the part of many MCOs. This lack of responsiveness, coupled with a possible approach of treating patients immediately rather than testing to identify the cause of an illness, may result in diminished disease surveillance and monitoring capacity.
Results of our poll show that PHL directors believe managed care is having an adverse effect on PHLs practices and functions. Twenty-one of the PHL directors (43%) stated that managed care had an adverse impact on their laboratories' functions (see Figure 15 below).
Figure 15: Managed Care Impact on PHLs
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Impact of Other Health Market Change on PHLs
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In addition to the direct pressures that PHLs report from the presence of managed care, there are a number of other health market forces that may be contributing to the uncertainty of the laboratory services marketplace for PHLs.
The major concerns focus on potential privatization of public health functions, trends in the private clinical laboratory market (e.g., emergence of large reference laboratories, hospital laboratory consolidation), and diminishing fiscal viability of some PHL testing services. Specifically, PHL stakeholders proposed three main hypotheses on the possible impact of change in the non-managed care health market on the functions of PHLs:
- PHLs will lose testing volume as some privatization of laboratory functions occur, with subsequent outsourcing of testing services to private clinical laboratories.
- PHLs traditionally playing a large role in disease reporting fear a lack of responsiveness to disease reporting requirements on the part of large, independent reference laboratories, especially in cases where specimens are processed at regional branch laboratories outside of the originating geographic state of the specimen.
- PHLs may have increased testing volume for select services such as tuberculosis testing without a commensurate increase in laboratory revenue.
Figure 16: Impact of Other Health Market Changes
Our poll results found that PHL directors believe that non-managed care health market changes are having adverse effects on PHL practices and functions. Of the 49 PHL directors responding, 27 reported some impact on laboratory function due to non-managed care health market changes, with PHL directors from 20 states (41%) reporting adverse impacts on laboratory functions due to these changes (see Figure 16 above).
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PHL Responses to Health Market Change
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This section describes how state PHLs are responding to health market changes, including the growth of managed care. The types of responses range from specific subcontracts for select services negotiated between some state PHLs and private laboratories and/or MCOs, to various types of public-private collaborations (e.g., formation of public-private Clinical Lab Advisory Council in Washington State). In other instances, the PHL responses have involved proactive strategic planning of the laboratory's operations to better meet the needs of the MCOs and of the larger group of laboratory service purchasers. In addition, some state PHLs have discontinued certain types of laboratory services that directly compete with the larger, independent reference laboratories.
The collaborations between PHLs, MCOs, providers, and commercial laboratories vary tremendously in scope and duration. In our informal poll, 15 PHL directors (31%) reported either a contractual or other type of collaborative relationship with MCOs, providers, or private laboratories (see Figure 17) in their state, but information on the level of interaction suggested very limited and specific arrangements.
Of these contracted or other types of collaborative arrangements, most were between PHLs and private laboratories, with only five relationships reported between PHLs and MCOs. Interestingly, the probability that a state reported being involved in collaborations with managed care organizations or commercial laboratories was unrelated to the level of managed care penetration in the state. Of the 34 PHLs reporting no current involvement in contractual or collaborative relationships, seven reported an interest in future contracting with MCOs. However, it should be noted that failure to indicate a future interest in contracting with MCOs does not necessarily indicate that such an interest does not exist on the part of the laboratory.
Figure 17: Public/Private Collaboration
Our poll of PHL directors found six PHLs reporting involvement in collaborative arrangements with MCOs or commercial laboratories B three specified that the collaboration was with the MCOs, and three specified that the collaboration was with commercial laboratories. The nature of these collaborative arrangements included joint participation in disease surveillance programs, drug resistance surveys, and dialogue on clinical laboratory issues that affect both public and private laboratories.
Several of the collaborative efforts can be characterized as preliminary in nature. For example, in Vermont, the state PHL, 15 hospital-based laboratories, and a private commercial laboratory are beginning to meet formally to discuss laboratory issues of common interest. The North Carolina PHL is entering into a dialogue with private laboratories about the effect of hospital consolidation on all parties. New Mexico's PHL is also in the process of working with MCOs, the state health agency, and hospitals to conduct statewide surveys of anti-microbial resistance.
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