Site neutrality and future-proofing the laboratory

Bryan Vaughn, senior vice president of health systems at Labcorp, shares his perspective on site neutrality and how to future-proof the lab.  

For health system leaders, early 2025 has been a whirlwind of potential policy changes – from Medicaid funding to NIH grants – that could impact providers in a material, long-term manner.  Underlying and apart from policy uncertainty, 2025 could well be an inflection point for healthcare costs.   

Healthcare spending trends   

Overall, it’s a good thing health system operating margins have, on average, rebounded from the post-pandemic red ink. This reflects increased utilization after pandemic-delayed care and a stabilization of labor and supply inflation. In fact, at the J.P. Morgan Healthcare Conference in January, nearly every health system spoke about expansion of its outpatient network, and many are experiencing strong revenue growth across that same network.   

However, concurrently the average premium for a family coverage health plan increased 7% in 2024 and medical costs are expected to trend up 7%-8% in 2025 . This is being driven by costs for drugs like GLP-1s , new technologies and other inflationary costs.    

Following the tragic killing of UnitedHealthcare CEO Brian Thompson, a backlash ensued around health plan practices like prior authorization. Insurers are already dialing back their cost-curbing practices that may not appear to be member-centric.   

Meanwhile, the Pulse of the Lab Leader indicates health systems and providers are trying to invest not only in their clinical staff, but also in upgraded facilities, new technology and artificial intelligence. Against this backdrop, there will be some winners and some losers, but I’m certain of one thing—healthcare costs are heading north.   

Reducing healthcare costs or even the cost trend in a $5-trillion system is incredibly difficult. One of the more palatable remedies in the larger system begins with the question, “Why pay more for a drug, test, X-ray or procedure in Location A vs. Location B?”  

My prediction is that the return of material healthcare cost inflation will shine a fresh new light on site-neutral payment ideas writ large.  

Understanding site-neutral payments  

While you may need a data science degree to make sense of it now, the negotiated prices for tests and procedures at Location A and Location B are in the public domain. This is due to price transparency laws, such as the Lower Costs, More Transparency Act , recent executive actions and other rules that have gone into effect the past few years.    

To be sure, there are rational reasons for these price variations:  

• Commercial payors cross-subsidizing government rates  
• Higher margin service lines cross-subsidizing services like obstetrics and behavioral health  
• Lack of historical transparency  

However, they can appear highly irrational.  

The site-neutral debate has historically focused on Medicare payment differentials for services between hospital outpatient departments and freestanding offices. This, of course, is a significant “swipe of the pen” legislative risk.    

I would also say that in an era of mass price transparency , there is a greater site neutrality risk to hospital and health systems: highly comparable healthcare services could be steered to high-value providers. I would argue that ambulatory imaging and laboratory testing are among the most highly comparable services in healthcare.   

Two ways to future-proof your organization  

At a macro level, health system leaders have two pathways to protect their organization against the risk of either losing highly comparable services or having these services be a source of patient dissatisfaction:  

1. Move to full risk and the premium dollar amount, de-emphasizing service-level pricing   
2. Reprice and/or create new partnerships in ambulatory lab and imaging   

Both strategies not only mitigate long-term financial risk but also provide tailwinds by opening up access, affordability and higher satisfaction to the patients they serve.   

Labcorp helps through expanded affordability and access  

The data suggests almost universally higher pricing in hospital laboratories compared to independent and physician-owned labs. 

For some of the most ordered lab tests , independent labs charge less than half of what hospital labs do. For a panel of wellness and screening tests during most physician office visits, these price differences quickly add costs to patients and employers without a clear value to health or outcomes.

An analysis by Turquoise Health, the industry's leading price transparency platform, demonstrated these price differences for a sample of frequently used tests:  

So, a discussion I often have centers around this question: What’s the value proposition of a strategic laboratory partnership with Labcorp?  

My first answer is that it expands affordability and access for patients. Labcorp:

• Has over 50 years of experience delivering healthcare solutions
• Frequently lowers the cost of laboratory testing relative to hospitals, resulting in higher patient satisfaction as demonstrated above
• Offers over 2,200 patient service centers located within a few miles of 95% of the population and designs access points locally with our health system partners
• Is in-network with 90% of covered lives and is on contract with every major Group Purchasing Organization
• Understands financial hardship programs that support availability of quality and affordable healthcare to all patients
• Assists hospitals and health systems in optimizing their on-site labs, focusing resources on the most-needed tests
• Upholds a commitment to standardization and deploys the latest testing technologies to help remove capital cost from hospitals  

I’m proud of how Labcorp’s strategic partnerships with health systems like Ascension, Jefferson Health, Providence, Legacy Health, Novant and many others promote access and affordability to high-quality diagnostic tests. With these partnerships, we can help future-proof your organization.  

If you’d like to chat with us or have Labcorp conduct a risk assessment based on available price transparency data, please let us know.

Bryan Vaughn is senior vice president of health systems at Labcorp. Prior to Labcorp, Bryan held roles with Raymond James Healthcare Investment Banking and Cigna Health Advocacy groups. He holds a BA in economics from Vanderbilt University and an MBA in health sector management from Duke University.