Get the word out: A service, not a commodity

Oct. 18, 2013
In the “Washington Report” feature published in this issue (page 52), attorney Julie Scott Allen enumerates the converging economic challenges that clinical labs face in this difficult time: 
  • annual cuts imposed by Congress on Medicare Part B laboratory reimbursement rates to pay for other healthcare-related costs; 
  • a fiscal year 2014 White House budget proposal recommending cuts that could cut an average lab test by 29% by 2023; 
  • a 2013 report by the Office of Inspector General (OIG) stating that substantial Medicare savings can result from cutting lab rates; 
  • a proposal by the Centers for Medicare and Medicaid Services (CMS) to completely reassess payment rates under the Clinical Laboratory Fee Schedule; 
  • a refusal by CMS and Medicare contractors to pay for new molecular and diagnostic tests; and 
  • questioning by the Food and Drug Administration (FDA) and CMS about the safety and efficacy of lab developed tests. 

Allen rightly points out that this death by one thousand cuts could mean extinction for many labs that operate with narrow profit margins. It is a worrying picture that she paints.

But she also asserts that a fundamental misunderstanding underlies the various efforts to reduce reimbursement rates: the assumption that clinical laboratory testing is a commodity. If the clinical laboratory community can get the message out that testing is not a commodity, but a service, perhaps some of these misinformed efforts can be reversed. What is the difference between a commodity and a service? 

Economics majors, I know I am over-simplifying, but essentially a commodity is a product—something that is bought and sold, whose price in a free-enterprise system is determined by supply and demand. To make or increase a profit, a provider of a commodity can practice economies or develop processes (for example, in manufacturing) that bring down the cost of producing it.

A service is not a product; it is not a tangible entity. It is a benefit provided to customers that is consumed each time it is used, and that must be generated again when it needs to be used again. There are fixed costs involved in providing services; except for paying employees less, service providers have only limited ways of bringing those costs down.

That new air filter that was installed in your car last week is a commodity. The act of installing it, performed by the mechanic, was a service. That new hematology analyzer your lab bought this year is a product; you are the customer. The CBCs you ran on it this week are a service; the patients or healthcare providers you serve are your customers. 

Laboratory testing is a service. If it is done competently and ethically, it has costs associated with it that cannot and should not be reduced. As Allen points out, the cost of providing laboratory testing “involves far more than machinery,” and no responsible lab director would compromise quality by cutting corners. Yet, cutting corners is what the various bodies that are trying to lower reimbursement rates are basically asking you to do—because they don’t understand that lab testing is a service, not a commodity. 

So, it is the task of the lab community to help them to understand. How? Well, the old advice to “write your congressman” (or woman) is valid; let those who represent you know your concerns. Address the executive branch too: CMS and OIG are parts of the Department of Health and Human Services. 

Beyond that—let the public know. Do what you can, individually and institutionally, to increase the general knowledge of the challenges clinical laboratory scientists face. Letters to the editor of your local newspaper, or comments in online news forums, are straightforward ways to raise public awareness.