The Business of Testing

Hospital Laboratories Take a Stand Against Controversial UnitedHealthcare Outpatient Reimbursement Policy

The cold war between hospital laboratories and the nation’s third largest health insurer, UnitedHealthcare (UHC), over reimbursement of diagnostic tests is getting hotter by the day. At the center of the conflict is a controversial new UHC policy that would require laboratories to meet the standards of its homegrown provider care quality and efficiency program to qualify for reimbursement. Hospitals are pushing back against the policy and have now asked the federal government to intervene in the dispute.

The Reimbursement Challenge

Payors of all stripe have a rich tradition of griping about the high costs of laboratory tests. A turning point came in 2014 when Congress enacted the Protecting Access to Medicare Act (PAMA) to mandate imposition of a market-based pricing regime for Part B Medicare laboratory test reimbursement. Although the laboratory industry embraced the concept of market-based pricing, it recoiled at the distorted methods that CMS used to implement the scheme. By excluding hospital laboratories from the calculation of market price, the CMS PAMA system artificially and unfairly slashed reimbursement rates across the board.

PAMA proved to be a double whammy for laboratories to the extent it inspired private payors to implement their own aggressive reimbursement systems. In many cases, payors tied laboratory test reimbursements not only to what had become the oxymoron of “PAMA market rates” but also opaque clinical quality standards under their exclusive control.

The UHC Reimbursement Policy

The main reason that excluding hospital-owned outpatient laboratories from PAMA pricing scheme is not simply because of how big their share of the market is but the fact that their affiliation with a hospital gives them the leverage to command higher reimbursement rates from payors. Of course, this situation is not lost on private payors.

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UHC initiated its new hospital laboratory test reimbursement policy to address this disparity in pricing. In some cases, UHC was paying hospital laboratories up to 500 percent more than freestanding laboratories for the same tests, noted a UHC spokesperson. Thus, for example, a comprehensive metabolic panel costing about $10 when performed at freestanding facility cost $156 when done by a hospital outpatient facility. Blood glucose tests done by freestanding laboratories at $5 a pop cost an average of $80.

The new UHC policy is purportedly tied to care quality. It requires hospital laboratories to register as what are called Designated Diagnostic Providers (DDPs) by Feb. 28 to avoid losing their right to reimbursement when the policy officially take effect on July 1, 2021. Securing DDP status is not exactly a formality either. To qualify as a DDP, laboratories must complete a programmatic registration process and meet certain thresholds for quality and efficiency. UHC contends that the new requirements are necessary to ensure that laboratories are not overcharging. However, what is particularly irksome to laboratories is that the UHC’s refuses to make its quality and efficiency criteria available for public review.

The Hospitals Fight Back

Leading the opposition to the UHC policy is the American Hospital Association (AHA). In addition to its lack of transparency, the AHA has expressed concerns about the lack of assurance that enough laboratories will qualify as DDPs for the payor to have ample numbers of laboratory providers in its networks to meet federal network adequacy requirements. AHA also notes that UHC plans to continue laboratories as in-network providers even if they do not qualify for DDP status. In addition to being deceptive to consumers seeking to evaluate the scope of network coverage, AHA argues that this practice may become a “new avenue” for surprise bills to the extent that patients who get tested from a laboratory listed as being in-network will not discover until after their tests are done that they will be responsible for 100 percent of the bill because the facility did not have DDP status.

In response, UHC says it intends to reach out to members to explain and ensure they understand the change and use a special icon to designate non-DDP laboratories in its provider directories. In addition, UHC will allow one-time exceptions and reprocess the claims of members that receive tests from non-DDP laboratories for the first time. The insurer also notes that the DDP policy applies only to outpatient tests and not tests performed as part of inpatient treatment.

The Conflict Escalates

On Feb. 4, the AHA raised the stakes by writing letters asking two key federal agencies to investigate UHC and bar it from implementing the new DDP policy. The AHA letter to the Centers for Medicare and Medicaid Services (CMS) calls on the agency not to allow UHC apply the policy to the plans in its jurisdiction, including Medicare Advantage, Medicaid managed care, Children’s Health Insurance Program and health insurance marketplace plans. The CMS letter makes the case from the perspective of protecting patients and hospitals by pointing to its potential impact on care quality and limitation of patient treatment choices.

The AHA letter to the U.S. Federal Trade Commission (FTC) calls for action against UHC private plans in the name of consumer protection claims. It characterizes the UHC policy as “bait and switch” coverage constituting a deceptive trade practice and a form of anticompetitive conduct.


The current battle between the AHA and UHC over outpatient hospital laboratory test reimbursement, which is actually part of a wider conflict that also encompasses reimbursement of specialty drugs for outpatients, is notable not simply for its substance but also its dynamic. While haggling over reimbursement is as old as the healthcare market itself, the contract negotiation table has been its historic venue. What is troubling about this new episode is that it seems to represent a bid by a payor to rewrite the contract unilaterally after it has been signed and put into effect.

This is the third time a major payor has resorted to this tactic to slash reimbursement for hospital outpatient diagnostic services. In 2017, Blues giant Anthem announced that it would no longer pay for MRIs and CT scans performed on an outpatient basis in hospitals. In 2020, Cigna imposed the same policy. In each case the payors positioned the policy as a defense against overcharges and cited how much more hospital outpatient facilities charge than freestanding facilities for imaging services. Hospitals have fought back and even gone to court. But this time they are upping the ante by taking their case directly to the regulators.