Adding New Diagnostic Tests, Ancillary Services to Your Practice?

Sean Hanlon is the senior director of professional communications for Physicians Office Resource (POR) and is a near 20-year veteran of the medical device, diagnostics and healthcare services industry. About the author.

Through my years in the medical devices industry, I have watched thousands of practices be pitched and purchase new diagnostic tests and ancillary services. Ostensibly, the primary drivers behind a purchase decision is to advance clinical practice and improve patient services and care. Objectively, however, once the clinical value is confirmed, the unavoidable truth is that the drivers of equal and often greater importance are business related: economics, ROI, enhancing revenues and patient satisfaction. In short, it may be the greatest test or service in the world but, if it is money loser, it's often hard to add it to your practice.

I have seen many physicians and practices make good buying decisions, ones that help their patients and grow their business. I also have seen all too many bad buying decisions, some of which are the consequence of poor due diligence on the part of the buyer; others the fault of a shifting reimbursement landscape. But when buying decisions go bad for any reason – reimbursement fails to meet expectations, the ROI that looked so good on paper might now look unattainable – the new device, no matter how clinically useful, often ends up in the corner collecting dust. Frustration devolves into buyer's remorse.

There are straightforward steps every doctor or practice can take before making an investment in capital equipment for a new test or service. Collecting best practices from physicians and administrative staff from around the country, as well as from the device and service manufacturers themselves (who like to have happy, satisfied, ROI-generating customers), we offer 10 ways you can optimize your buying experience, steer clear of a bad purchase, and avoid buyer's remorse.

  1. Know the Total Cost of Goods. The first recommendation in the list is the simplest and most obvious: Be sure you understand the total cost of what you are purchasing – not only the capital equipment cost but also the prices of any consumables required to run the test. In addition to the per-test consumables, are there calibration or proficiency testing supplies needed? Are there any disposal-related costs? Can you save by buying more up front or buying in bulk? What about a service plan or a-la-cart service fees? Are you paying for shipping and handling and can that be negotiated? Do you need to factor in points or interest from leasing or, if paying with your credit card, will you pay it off at the end of the month or incur service charges?

    You want to have an ROI and time-to-ROI mindset, so think of the total cost from consumables, ancillary supplies and other purchase elements in terms of a per-patient cost. Subtracted from your expected reimbursement, what is the true per-patient (or per-test) gross profit? And how long will it take you to reach gross profitability versus your capital expenditure?

  2. Know the Opportunity Cost. The total cost of goods gets you to that gross profit per patient. Your goal in assessing the economic cost-benefit of the purchase should be to get to a net profit per patient. Performing an opportunity cost calculation and adding it to the equation is the only way to get to a true net profit figure and to truly project time-to-ROI before you make the purchase.

    The two most relevant considerations are staff time and room time. How long does the test take? Who performs the test and who analyzes the results? Could their time (or your time) be used more productively from an economic standpoint?

    Does the device/service require space that could be used for other purposes? And is the revenue and profit generated enough to off-set other current or potential uses of that space?

  3. Ask for a 90 day trial. Ninety days is enough time for you to get the equipment installed, processes in place, staff trained and the first reimbursement deposits and EOBs. Now, most manufacturers won't sell you their product contingent upon your receipt of reimbursement, and their distributors do not have the latitude to offer you that deal, either. But there are ways to negotiate a trial period that are win-wins for you and the supplier.

    First, you can offer to pay a small percentage of the price up-front to cover their shipping and installation costs and lower their risk, in exchange for a trial period.

    Alternatively, you can start-out in a rental program with low monthly payments to avoid a major initial capital expenditure. Then, if the economics are working out for you, convert to a purchase before the end of the tax year to take advantage of Section 179 deductions.

    Finally, consider volunteering to be a referral site for the manufacturer in exchange for the 90-day trial. You can even agree to be interviewed for a case study the manufacturer can use in their marketing. I have seen this approach work well countless times. The regional sales manager is often eager for customers who will take calls from other physicians and administrators in the area to whom they are trying make a sale. This can be a win-win, as there is real value here for the manufacturers and their distributor partners. And that leads me to the next "must" ...

  4. Call other providers. Unlike hotels, restaurants, plumbers and washing machines, there is, disappointingly, no Yelp, Angie's List or Consumer Reports for the tools and services you purchase for your practice and patients. You will be well served by calling another physician or practice that purchased the same product or service. Explore how the product performs, discuss the clinical utility and its impact on patient management. Ask how the staff has reacted to the new test, find out if there are any hidden costs and, of course, discuss their reimbursement experience. To that end, ask for the referral to be in both your specialty and in your regional area – you want a similar patient base and payer mix.

    The vast majority of physician buyers never ask to speak with another user. Be one that does and you will learn a ton. As importantly, be sure to talk to two or three references.

  5. Check – and weight – reimbursement rates. I realize how ridiculously obvious this sounds, but I have seen too many physicians who take the rates presented to them at face value and who do not investigate reimbursement beyond what is printed in the sales brochure, or on a couple of EOBs from other practices. Private payer rates change with some frequency and can vary by provider contract and patient plan. Also, the reimbursement rate you are presented with is very often the Medicare national average or median – not the rate for your locality, nor one that factors in private payers, Medicaid or other payers.

    To get valid rates, three simple steps are:

    1. Look at the current year CMS rates for your locality at or in your billing software.
    2. If Medicaid is 10% or more of your practice, be sure you know the Medicaid rate.
    3. Look at the private payer rates for any payer comprising 10% of your patient population. Call the payer if you have to.

Then, use your knowledge of your patient insurance and payer mix to establish a weighted average for expected reimbursement. For example, let's say your practice is 50% Blue Cross, 20% Medicare, 15% United, 10% Aetna and 5% Medicaid, each of which reimburses for the test at a different rate:

Payer % of Patient Insurance Gross Reimbursement Weighted Reimbursement
Blue Cross

50% $100.00 $50.00
Medicare 20% $70.00 $14.00
United 15% $90.00 $13.50
Aetna 10% $125.00 $12.50
Medicaid 5% $0.00 $0.00
  100%   $90.00*

* Weighted Average Reimbursement per Patient


6.  Check policies.

As you are checking the rates, read through the payers' clinical policies or bulletins. Medicare local coverage decisions (LCDs) are available at and on the websites of your local Part B carriers. Private payer policies are not always posted publically online, but you should have access to them through the provider portal – and certainly by calling the payer's provider support line. There will not always be an LCD or a private payer policy but, if there is, nine times out of ten it is restrictive so be sure to read it closely.

7   Look at the ICD Codes.

This is an often overlooked step. Validating the CPT code(s) and a decent reimbursement rate is one thing. But if you can't use the test on the patients you want to, you'll end up very frustrated.

You will most often find a list of diagnosis codes in the payer policies. Keep in mind, if there is no LCD governing your use of the product or service with Medicare patients, then you will not find ICD-9 guidance from CMS and you are generally free to code (accurately) as you see fit. Likewise, if there is no private payer policy, then you should not be restricted in your use of diagnosis codes in your claims with those payers.

If you do not find any written guidance and want to be absolutely clear about whether you can order the test for certain patient types, conditions or symptoms, call your payers.

8.   Check private payer contracts.

The last thing you want to do is spend money, time and staff resources on a new product or service, only to find out when the EOBs come back that Blue Cross pays but United and Aetna have mandated that Quest or LabCorp be the sole provider of the service in your area.

You can avoid this kind of remorse by looking at your actual contracts. However, given the lack of specificity in many payer-provider contracts you also will want to call your payers.

9.  Start smart. 

You should have in your mind that the reimbursement landscape will shift. It is essentially a foregone conclusion, especially for newer diagnostic modalities and services. Once the claims volume increases to the point where Blue Cross, United or a particular Part B contractor sees a spike, then policy adjustments, limitations and rate reductions are sure to follow. And once one payer makes a change, it seems like they all do.

While not a scientific estimate, I'll offer that a product or service with strong reimbursement rates typically will have a three- to five-year run before rates change. You may be adding the test at the end of that timeframe. Assume you have a limited window to get to your ROI.

This is a long way of saying: start smart and start fast. If this is a new test or service you haven't offered previously, you undoubtedly have a slate of patients in your panel that are candidates for the test. Set up a dedicated testing day or testing afternoon and run through 5, 10, 15 patients at once – and do this for the first month or two. Through this, you will gain a rapid understanding of the clinical value of the test or service and will impact the care of certain patients immediately.

The business benefits of this approach are threefold. First, you will submit a good volume of claims, resulting in rapid revenue that helps to quickly reduce the time-to-ROI. Second, while you made great efforts to ensure there will not be billing, payer and reimbursement issues before you purchased, if there is an issue, you will ferret it out quickly. And third, importantly, you will engineer repetition for your staff across three critical pathways – identifying patients, conducting the test and billing. Doing so early on will optimize your utility of the test or service for the long haul, further enhancing your ROI.

10.   Hawk those EOBs.

Have your biller set a flag to pull the EOBs related to the new test or service. Plug the results in to your ROI spreadsheet (or the one the sales rep gave you). Identify whether you are reaching all the patients (or patient types) you intended to.

Take a moment at day 90 and day 180 to assess how you are tracking versus your expected time-to-ROI. And set aside time at regular intervals thereafter for an assessment, as well.

This part takes discipline. But on the economic side of the equation, the only way to know if you made a good purchase decision or a bad one is to inspect the data.